Tuesday, July 21, 2015

Corporate Culture brings down Toshiba CEO

Corporate Culture makes Toshiba CEO and President Hisao Tanaka to resign, due to overstated profits of $1.2 billion.

In times when there has been much debate over what role Corporate Governance plays in the functioning of a business, we have come across another major shock which underpins much of the work done over the years. Thinking on how ethics may have been dished out by Toshiba while achieving a corporate status of a profitable company, financial reporting finally brings forward a deep hole in the pockets of Toshiba.  

After appointing a panel to work out any of the current financial irregularities at the company, there has been a regretting event that the company thinks it is sorry to report to many of their shareholders and stakeholders. The company said, "It has been revealed that there has been inappropriate accounting going on for a long time, and we deeply apologize for causing this serious trouble for shareholders and other stakeholders,". 

"Within Toshiba, there was a corporate culture in which one could not go against the wishes of superiors"

Many believe that the current corporate culture at Toshiba is the biggest reason of this accounting scandal. Over the past many years and decades, the need to overstate profits has been seen as a major failure of risk management and damages to shareholder value due to creative accounting measures.

"Therefore, when top management presented 'challenges', division presidents, line managers and employees below them continually carried out inappropriate accounting practices to meet targets in line with the wishes of their superiors."

Hence, Toshiba now is part of the many financial reporting disasters that have made the financial crisis a reality with hyped profits and valuations. Much of the favorite brand for many over the years, it now stands at a unfortunate situation.

Mr Tanaka and his predecessor Mr Sasaki are seen as the eight high-level executives who after the issue have resigned from the company. After the scandal faced by Olympus in 2011 of $1.7 billion, Japan has been trying hard to win back the confidence of global investors. However, it still lacks a more robust approach that can stop senior managers from using unrealistic performance targets and inflating profits for higher valuations.

Toshiba stated in 1873 to develop telegraphic equipment for Japanese Government. It adopted the name of Toshiba Corporation in 1983, while choosing the abbreviation of "Toshiba" replacing Tokyo Shibaura Denki. The stock of Toshiba is currently down more than 20 percent after it reported major financial irregularities in April.