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Toshiba’s Accounting Scandal and Corporate Governance in Japan

Toshiba Corporation is a 140-year-old Japanese company that conducts business worldwide in a variety of industries, including semiconductors, personal electronics, infrastructure, home appliances, and medical devices. The company reported more than 63 billion dollars of net sales for the fiscal year ending in March 2015, and it employs more than 200,000 people worldwide.1 The manufacturing giant has been widely regarded in Japan as one of the “most reputable” and “leading companies organizationally,” but in July of this year, it was caught up in one of Japan’s biggest corporate scandal since 2011, when Olympus was found to have covered up 1.7 billion dollars in losses over 13 years.23

Accounting irregularities at Toshiba were first suspected in February of this year, when the Securities and Exchange Surveillance Commission started investigation of the company.4 Toshiba set up its own investigative committee in April, then handed the authority over to an independent outside committee in May.5 In July, the committee submitted a 300-page report to Toshiba, which revealed that that the company overstated its profits over the course of five years by 152 billion yen, or 1.2 billion dollars.6 Revelation of the fraudulent accounting led to resignation of top executives, lawsuits against former executives, sale of assets, and fall in share price.7

The independent committee’s report found varying improper accounting practices in different business units of Toshiba but identified Toshiba’s corporate culture, which did not allow lower-level managers to “go against the bosses,” as the root cause behind the scandal.8 During the period in question, Toshiba’s leadership handed down “unrealistic” profit targets, known as “Challenges,” to each business units, which then used improper accounting techniques to match the targets.9 In addition, the report noted that there were internal systems in place to keep the senior management in check.10

After the dust settled, experts are offering differing opinions on Toshiba’s and Japan’s efforts to improve corporate governance. Some are pessimistic as to sincerity and effectiveness of the reform efforts, citing Toshiba’s choice to limit its suit to five former executives and effectively absolving many other top officers, including the current CEO Muromachi, who were in senior positions during the years Toshiba was cooking its books.11 Others offered optimistic views, stating that Toshiba’s scandal will propel Japan’s long-standing efforts to change its corporate governance to make it more appealing for foreign investments.12


  1. J. William Carpenter, Toshiba’s Accounting Scandal: How It Happened, Investopedia (Nov. 23, 2015, 11:43PM), http://www.investopedia.com/articles/investing/081315/toshibas-accounting-scandal-how-it-happened.asp. 

  2. Pavel Alpeyev & Takashi Amano, Toshiba Executives Resign over $1.2 Billion Accounting Scandal, Bloomberg Bus. (Nov. 23, 2015, 11:20PM), http://www.bloomberg.com/news/articles/2015-07-21/toshiba-executives-resign-over-1-2-billion-accounting-scandal. 

  3. Kirk Spitzer, Toshiba Accounting Scandal in Japan Could Speed Corporate Reforms, USA Today (Nov. 23, 2015, 11:21PM), http://www.usatoday.com/story/money/business/2015/07/24/toshiba-accounting-scandal-japan-could-speed-corporate-reforms/30612009. 

  4. Kazuaki Nagata, Pressure to Show a Profit Led to Toshiba’s Accounting Scandal, Japan Times (Nov. 23, 2015, 11:15PM), http://www.japantimes.co.jp/news/2015/09/18/business/corporate-business/pressure-to-show-a-profit-led-to-toshibas-accounting-scandal. 

  5. Id

  6. Polly Tonybee, Toshiba Braces for Massive Losses Following Accounting Scandal, Guardian (Nov. 23, 2015, 11:18PM), http://www.theguardian.com/business/2015/nov/05/toshiba-braces-for-massive-losses-following-accounting-scandal. 

  7. Id

  8. Kazuaki Nagata, supra note 4. 

  9. Polly Tonybee, supra note 6 

  10. Kazuaki Nagata, supra note 4. 

  11. Makiko Yamazaki, Toshiba Lawsuit Highlights Japan Governance Reform Still Lacking: Lawyers, Reuters (Nov. 24, 2015, 3:51PM), http://www.reuters.com/article/2015/11/12/us-toshiba-lawsuit-idUSKCN0T10AA20151112. 

  12. Kirk Spitzer, supra note 3. 

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