Toshiba cooks the books

published 23 July 2015

15-7-23-Hisao-Tanaka-634 — Hisao Tanaka admitted the scandal will damage the brand

Japan has suffered its second major accounting scandal in four years. The conglomerate Toshiba, whose products range from laptops and memory chips to nuclear reactors, has admitted to overstating operating profits by a cumulative $1.2bn over seven years 25% of the total figure following investigations by an external panel.

Chief executive Hisao Tanaka, who has resigned along with two of his predecessors, said this could be "the biggest erosion of our brand image in our 140-year history". In 2011, technology group Olympus was found to have covered up $1.7bn in losses.

What the commentators said

For starters, Toshiba could exit loss-making businesses, such as televisions and personal computers. Selling off a minority stake in a nuclear power business also seems sensible. Consolidation should turn around the "moribund performance".

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The wider issue is Japan's corporate governance. An optimist might ascribe the revelations to "Japan's rising interest in shareholder value and corporate governance", noted Lex in the Financial Times. But that would be wrong. As with Olympus, "it took whistleblowers to bring the matter to light".

Change will take time, said Marion Dakers in The Daily Telegraph. Since June 2015, large Japanese firms have been obliged to appoint at least two independent directors to their board, or explain why they won't.

However, Toshiba already had four external directors, so this alone won't create a revolution. Still, shareholders have been getting more vocal, while activist investors have also been "pushing for corporate overhauls".The stock exchange is also creating a new index for firms with high corporate governance standards. Things are finally moving in the right direction.

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.