THE CHEAT SHEET. Toshiba’s Olympus moment

You said it! This Tuesday, the president and CEO of electronics-to-nuclear giant Toshiba resigned after an independent investigation found him responsible for an accounting scandal worth over ¥152 billion (nearly ₹8,000 crore). The outside investigation has found that Toshiba cooked its books, overstating operating profits over several years in accounting irregularities — all with the approval of the top brass.

Indeed. So, out goes Hisao Tanaka, president and CEO along with his predecessors, Norio Sasaki, who is vice-chairman now, and Atsutoshi Nishida, who is an adviser to Toshiba. The report says Tanaka and Sasaki were aware of the profit overstatement. Interestingly, Sasaki was part of a panel that advises Prime Minister Shinzo Abe on economic policy. Chairman Masashi Muromachi will replace Tanaka for now. In total, eight officials of the company put in their papers.

Apparently, they’ve used the blown up numbers to build a culture of pressure that forced business heads to cook figures to meet targets that were set pretty high by the management. Tanaka says he did not tell anyone to falsify accounts but he would take responsibility for all that the investigating team has found.

To be fair, there is nothing personal, as things stand now, unlike in scams such as Satyam. The investigators assume that — well, that’s just an early theory — the top echelons set overly ambitious targets for new operations because they were worried about the impact of the 2011 Fukushima disaster on Toshiba’s nuclear division.

Well, the company has been one of the poster boys of Japan’s industrial prowess. In fact, its shares lost almost a quarter in value since the book-cooking charges came up in April. That said, Toshiba is still the country’s 10th biggest company by market value and assets. Koichi Ueda, a lawyer who headed the investigating panel, wondered that for a company that “represents Japan to be doing something like this institutionally was shocking. That’s why many compare this scandal with that of Olympus.

Olympus had hidden losses to the tune of $1.7 billion, which was revealed in 2011. The scam shook the country and international markets alike. Olympus’ former chairman Tsuyoshi Kikukawa and two other executives were sentenced to three-year imprisonment, though suspended for five years. The scandal has cast Japan’s corporate governance in a bad light.

Ironically, the Toshiba accounting crisis comes just six weeks after the country introduced a corporate governance code, which policymakers claimed would pave the way to a more open dialogue between companies and shareholders.

Japanese authorities will need to reassure the markets that they are putting the house in order. To be frank, Japanese companies have had jerky rides with shareholders. And that’s reflected in a corporate governance report prepared by the Association of Chartered Certified Accountants and KPMG Singapore in November 2014, which ranked Japan 21st of 25 countries surveyed, behind the Philippines, Indonesia, Cambodia and China.

Since the improper accounting, which dates back to 2008, was intentional, Toshiba will have to pay big penalties and clean its books, which again will need truckloads of money. Toshiba seems to have got into damage control mode already. It has sold a stake in Finnish lift-maker, Kone Oyj, for $947 million. Experts say this is meant to bolster the balance-sheet.

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