Toshiba Corp.'s chief executive has resigned, along with two of his predecessors and other top executives, as the prominent Japanese industrial conglomerate continues to grapple with the fallout from a high-profile accounting scandal that has shaken Japan Inc.
The resignations on Tuesday accompanied the release of a third-party investigation into the company's accounting practices carried out by a former head of the Tokyo High Public Prosecutors Office, which found Toshiba's senior management put relentless pressure on subordinates to meet unrealistic profit targets. Since the financial crisis, the investigation uncovered, Toshiba's managers overstated profits by more than $1.2-billion (U.S.), a massive sum considering the thin margins of the ailing Japanese electronics industry.
"For the company to rebuild, there needs to be a renewal of the management structure," Toshiba president Hisao Tanaka told a press briefing as he resigned and bowed in apology.
The first hint of trouble at Toshiba emerged in early April, when the company said it was investigating potential accounting irregularities, and became more clear in mid-May when the company said it would need to correct previously issued financial results. The final figure of overstated earnings was roughly three times what the company initially suggested, a result of what the report described as a "corporate culture in which one could not go against the wishes of superiors."
On Tuesday, Toshiba chairman Masashi Muromachi said he will take over as interim president, and the company will continue to look into more management changes that it will unveil in August. "The entire Company will make every effort to regain the trust of shareholders, investors, all other stakeholders and the public, and asks for your understanding and ongoing support," Toshiba said in a statement.
Toshiba – which makes everything from tablets and laptops to home appliances and nuclear reactors – has roots stretching back to a small Tokyo factory built in 1875.
The company grew rapidly by supplying the Japanese military during the Second World War and expanded around the globe during Japan's boom years in the postwar era. But, starting in the 1990s, unending economic stagnation in Japan severely crimped the company's ability to eke out profit from its still-substantial revenue – which was $63.1-billion in fiscal 2013.
Gerhard Fasol, founder of Tokyo-based consultancy Eurotechnology Japan KK, said Toshiba's situation is similar to that of many other large Japanese electronics companies, such as Sony Corp., Hitachi Ltd., Fujitsu Ltd. and Mitsubishi Electric Corp.; the company may have felt it had to "save face" rather than admit to failing in the wake of the financial crisis, he said.
"Toshiba, essentially, has not grown over the last 17 years, and [net] income is very, very small. There was a lot of pressure on Toshiba to improve results – and this pressure apparently resulted in this accounting issue," said Mr. Fasol, who contrasted Toshiba's failed efforts at cleaning up corporate governance with more positive results at Hitachi, which has appointed foreign board members.
The Toshiba scandal follows revelations in 2011 that Olympus Corp. engaged in a 13-year accounting fraud. It also comes as Japanese Prime Minister Shinzo Abe and the Japan Exchange Group, which runs the Tokyo Stock Exchange, continue to push and promote corporate governance reforms in Japan – where outside corporate directors are rare, boards are known for shunning radical strategic shifts and directors are often senior leaders of a company's various divisions. On June 1, a new corporate governance code took effect, aiming to boost sustainable growth in Japan, despite an era of stagnation and persistent deflation.
The long-time group CEO of the Japan Exchange Group, Atsushi Saito, said in June that he was "ashamed" of Toshiba's accounting practices, but remained confident that corporate governance in Japan was gradually improving.