Toshiba scandal sheds harsh light on Japan's corporate governance
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Version 0 of 1. The Toshiba accounting scandal comes just six weeks after the introduction of a corporate governance code in Japan that was meant to pave the way to a more open dialogue between companies and shareholders. Toshiba overstated its operating profits by 151.8bn yen (£780m) over several years in accounting irregularities involving its top management, independent investigators said on Monday. On Tuesday, the president, vice-chairman and adviser quit. “The scandal is definitely is a big hit for the Abe regime and Abenomics, since reformed corporate governance is a key element of Japan’s growth strategy,” said Andrew DeWit, professor in the school of policy studies at Tokyo’s Rikkyo University. Related: Toshiba boss quits over £780m accounting scandal Japanese companies have had a history of difficult relationships with their shareholders. An ACCA and KPMG Singapore corporate governance report released in November 2014 ranked Japan 21st of 25 countries surveyed, behind the Philippines, Indonesia, Cambodia and China. The country has struggled to shake off memories of the 1980s and Japan Inc, when the government worked in close co-ordination with Japanese companies, and the firm was supreme. Virtually anything went, including manipulation of accounts, sexual harassment, and environmental pollution, in the name of advancing the fortunes of the company and the state. In a well-known novel, Yakuinshitsu gogo sanji, which roughly translates as The Board Room at 3pm, the novelist Saburo Shiroyama relates the tale of a company that threw inventory into the ocean to make it appear that it had been sold. While there is a certain amount of resignation about how companies continue to ride roughshod over shareholders and the public in general, Kaoru Kamisaka, from independent financial information consultant Japan Economic Pulse, said the Toshiba case stemmed partly from overpaying for its nuclear subsidiary Westinghouse in 2006, then seeing its nuclear dream shattered by the Fukushima meltdown of 2011. “Toshiba never got over this,” he said. The similarities between the Toshiba case and that of Olympus – whose boss quit in 2011 after it was revealed that $1.7bn (£1.1bn) of losses had been hidden – have not gone unnoticed, said Kamisaka. “You have this village-like society, where outsiders who are not related by blood are excluded,” he said. “It all works smoothly when the company is doing well, but once things start going wrong, the immediate defence reaction is to cover up.” Kamisaka said there were grounds for optimism. “Non-Japanese investors are taking a rational view of the Toshiba scandal, indicating that they see the resignation of top figures at the company possibly opening the way to firmer corporate governance,” he said. “This may force Toshiba to become even more global, and with any luck might see the appointment of non-Japanese appointed to high-ranking positions on the corporate board.” |