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Toshiba’s CEO Resigns after Inflating Earnings by $1.2B

The Tokyo-based multinational conglomerate Toshiba has found itself in the middle of one of Japan’s largest accounting scandals. This scandal arose after accusations that the chief executives of Toshiba have driven the company to overstate its earnings over the last seven years by $1.2 billion. This billion dollar amount is equivalent to almost a third of Toshiba’s pretax profits that they reported during this seven year time span. In many people’s eyes, Toshiba’s chief executives were held in high regard as civic leaders, as the company was thought to have had combined profitability with modern governance.

“Toshiba has a 140-year history and was like a straight-A student when it came to corporate governance,” said Shin Ushijima, a lawyer who also serves as president of a watchdog group, the Corporate Governance Network. “Toshiba shares are in everyone’s pension plans. Executive responsibility is extremely heavy.”

Doubts surrounding Toshiba’s financial reporting began around April, when Toshiba announced that one of its divisions was displaying possible accounting inaccuracies. Initial discoveries found from an internal investigation revealed tens of millions of dollars’ worth in bookkeeping discrepancies—this amount quickly inflated.  On Monday, July 20th, 2015, Toshiba hired a committee of independent contractors who found an additional $1.2 billion of overstated earnings. Problems were found in virtually every corner of the business, including products ranging from refrigerators to nuclear power plants. As a result of this, many senior executives were blamed. On Tuesday, July 21, 2015, Toshiba’s chief executive, two of his predecessors, as well as several other executives resigned, resulting in the removal of half of Toshiba’s 16-member board.

The committee announced that it had revealed “systematic involvement, including by top management, with the goal of intentionally inflating the appearance of net profits.” Financial officials at Toshiba said that the company had “deliberately provided insufficient explanations to auditors, with the intention of carrying out a systematic cover-up.”

Hisao Tanaka, the current chief executive, remorsefully stated, “I apologize from my heart to all our stakeholders.” Masashi Muromachi, Toshiba’s chairman, will take over as chief executive and president until a new leader is appointed in September.

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