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Toshiba Accounting Scandal Essay - 1933 Words

Toshiba Accounting Scandal Essay

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Toshiba’s Accounting Scandal: Business Ethics and the Media

Along with Sony, the Toshiba Corporation is one of the most legendary and famous Japanese technology companies in the world. According to the “History of Innovation” section of its official corporate website, Toshiba boasts a long, proud 135-year technological history. In the past thirty years, the company has given birth to the first laptop computer for the average consumer, the first wireless laptop, and the world’s thinnest widescreen laptop (“History of Innovation,” 2017). It has also boasted groundbreaking innovations in DVDs, televisions, and other consumer products. Yet while Toshiba has been trusted for many years to produce high-quality products, it has also boasted a highly insular culture of loyalty that has fostered a breeding ground of corruption (“History of Innovation,” 2017). Toshiba was recently beset by a serious accounting scandal that tarnished the reputation of the corporate giant. In the wake of the scandal, the company’s internal culture, the external culture of Japan, and the ethical conduct of both employees and its CEO were blamed as the cause.

Toshiba’s accounting scandal is noteworthy for a number of critical reasons. “In other countries where you have corporate governance missteps and failure, many of them are motivated by personal greed, self-interest of some kind,” noted Nicholas Benes, of the Japanese Board Director Training Institute (“Toshiba Crisis,” 2017, par.5). In this particular instance, Toshiba’s accounting irregularities “primarily stem from company employees understating costs on long-term projects” and improperly valuing inventory, which ultimately resulted in an overstatement of the company’s profits (Du, 2017, par.1). According to some analysts, the lack of personal self-interest on the part of the employees responsible is what gives the scandal such noteworthy features in comparison to other corporate scandals.

Article Comparison

While accounting scandals have manifested around the world, most of the news media framed Toshiba’s scandal as an inherently Japanese phenomenon. Rather than manipulating the books to advance personal self-interest, according to the French news agency Agence France-Presse, the employees were more focused upon preserving the reputation of the company above all else. “This allegiance is closely linked to post-war Japan's meteoric rise from shattered nation to the world's number two economy. Employees did not ask questions and devoted themselves to the company's success in return for lifetime employment” (“Toshiba Crisis,” 2017, par. 8-9). Agence France-Presse’s article on the crisis noted that many Japanese employees are hired directly from university in Japan and have been working to get jobs in the corporate hierarchy for their entire lives.

The emphasis on finding a good job in the corporate hierarchy in Japan creates a “yes man” mentality and encourages a desire to please an employee’s superiors, versus act according to objective ethical rules. Japanese corporate culture places an emphasis on saving face versus honesty and reporting facts. The article also noted that the Japanese government has not always been particularly vigilant in policing corporations, due to the close relationship of many government officials with members of powerful corporations in Japan.

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“Japanese firms are peppered with former bureaucrats given plum jobs in the industries that they once oversaw, despite many having few relevant skills or the incentive to question management” (Toshiba Crisis,” 2017, par. 20). In short, if government officials look the other way, they may be incentivized with the promise of finding a new, more lucrative job in the private sector after they retire from public service. This further fosters a corporate culture of corruption, since there is an assumption that regulators, even if alerted to fraud, will not act upon their knowledge.

Although Japan’s corporate work ethic and many of its management systems (Just-In-Time inventory practices and Total Quality Management both have their origins in Japan) have been much praised in the United States, Europe has been more critical of Japanese workaholic attitudes. The fact that the article was printed by a French news agency may be significant. Although the scandal is relatively recent and the financial manipulation dates back to the world economic crisis of 2008, the article also places great emphasis on the Asian-specific financial crisis of the 1990s as the origin of the crisis. These had a particularly devastating effect on Japan, ultimately resulting in it falling behind China in terms of its growth rate (“Toshiba Crisis,” 2017). Not only was this economically harmful but it was personally humiliating for many Japanese companies whose corporate culture had been praised as unassailable in previous eras.

A Wall Street Journal article on the scandal, in contrast, although it agreed that Japanese business culture was unique in the ways in which it pressured subordinates to comply with company dictates versus the law, was slightly more inclined to place blame on individual corporate leadership versus Japan’s longstanding history. The Wall Street Journal noted that after the 2008 global recession, the company’s CEO was under increasing pressure from shareholders to stay solvent. As a result, employees were incentivized to meet targets at the end of each quarter and fiscal year, “which may have pushed certain employees to postpone losses or push forward sales on accounting” (Du, 2015, par. 2).

In other words, the corporate structure itself may have fed the need to hide losses and make the company seem more profitable than it was. There was a system in place to encourage employees to act unethically that personally rewarded them, not simply the organization itself. “Bonus payments and executive share schemes are often based on short-term business metrics, which can be counter to….....

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