Hisao Tanaka, president and CEO of Toshiba, is to step down after it emerged the company had been drastically overstating its profits for the last six years.
Toshiba Corp has been plunged into crisis by the revelation, by an independent inquiry, that the company has been overstating its profits by a total of 151.8 billion yen (£783 million) over the last six years. The inquiry also found that Tanaka and two of Toshiba’s former presidents had been aware of the overstatements. The former presidents, Vice Chairman Norio Sasaki and adviser Atsutoshi Nishida, will also be stepping down after the scandal. Chairman Masashi Muromachi will act as interim president of Toshiba.
The scandal comes after Toshiba hired an independent third party to investigate reports of accounting irregularities in the company. Japan’s security watchdog had receieved anonymous tips about Toshiba’s finances in early April this year.
The 151.8 billion yen overstatements the inquiry found are roughly triple Toshiba’s initial estimates. The sum accounts for almost 30% of the company’s pre-tax profits over the last six years. This is Japan’s worst corporate scandal since 2011, when it emerged that Olympus Corp had concealed 117.7 billion yen in losses.
Speaking at a news conference today, Japan’s finance minister Taro Aso warned the scandal could seriously undermine confidence in Japanese corporate governance. He called the revelation “very regrettable”. There are particular concerns that the scandal has broken just as Japan’s Prime Minister Shinzo Abe is attempting to restore faith in the country’s economy and boost investment. He has just unveiled a new set of guidelines for corporate governance, attempting to restore investor confidence after the 2011 scandal.
Toshiba shares on Japan’s Nikkei stock exchange are down approximately 23% from April, when initial reports of the company’s financial irregularities emerged. Shares have risen 6% after the publication of the independent report, however, seeing a small surge because it revealed no new problems.
The report found that, facing growing economic pressure, Toshiba’s management had set increasingly unreachable targets. Profit overstatements came about, the report claimed, because this combined with the “corporate culture” of Toshiba, where staff “could not go against the wishes of superiors.”