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The Toshiba Accounting Scandal: How Corporate Governance Failed  
Product Ref: 16/579C Company: Toshiba

Product Type: Case Industry: Electrical Components and Equipment

Related Product(s): Teaching Note
Authors: Mitsuru Misawa   
This case presents a comprehensive overview of the Toshiba accounting scandal. It examines how the accounting irregularities in evidence at Toshiba spread from a relatively minor case of accounting misrepresentation to corporate-wide deception ingrained in the cultural fabric of the organization. The research highlights how issues of corporate culture can undermine even the most robust corporate governance strategies, and examines some of the challenges Toshiba faces in its attempts to recover from the biggest accounting scandal in contemporary Japanese history.

In 2015, Toshiba, a conglomerate best known throughout the world for its electronics products, announced to the world that it has overstated profits by 151.8 billion yen (US$1.2 billion) over a seven-year period. The conduct of Toshibaˇ¦s management and employees left a deep stain on Japan that threw corporate culture and corporate governance practices into turmoil. Although there were systems in place in Toshiba that had been specifically designed to prevent fraud, these procedures failed to function as they should have. In addition, the external auditing body that had been contracted to keep Toshiba on the straight and narrow had fundamentally failed in its duties. Corporate governance procedures were also highly dependent on Toshibaˇ¦s top management and the development of a culture that fostered and supported honest reporting, as opposed to the rogue culture that had emerged.

Following the announcement of the reporting errors, Toshiba was set on a path to execute organizational changes that created a new corporate culture from the top down, by first instilling transparency and disclosure as core values. The Toshiba case highlights how a corporate governance system can work when it is supported by a corporate culture of honesty and transparency.

Through introducing managers of world corporations to the theories and concepts related to fair accounting and cultural values, this case study poses useful questions that highlight the actions executives need to take to ensure corporate governance systems are working effectively in order to avoid scandals like Toshibaˇ¦s from emerging in their respective organizations.

There are significant differences between the management philosophy and techniques of Japanese companies and those employed in the US. These include both decision-making styles and the techniques of corporate governance. This case analyzes the corporate cultures, customs and systems that are unique to Japanese corporations, as a means of presenting a comprehensive overview of how Japanese corporations function. By studying this Japanese case, executives will develop insights into the critical thinking skills they can employ to make strategic business decisions in their organization.
Functional Area : Strategy & General Management

Learning Objective: The events at Toshiba highlight the importance of effective corporate-governance procedures, not just in Japanese companies, but in organizations throughout the world. Specifically, an organization should ensure it adheres to the following business theories and practices:
(1) Theory 1: Adhere to the principle of fair accounting
(2) Theory 2: Develop a corporate spirit of disclosure and transparency
(3) Theory 3: Implement solid corporate governance mechanisms
(4) Theory 4: Understand the difference between corporate culture and values
Length: 21 pages Country: Japan

Pub. Year: 2016 Level of Difficulty: 3
This product type is available in the following language(s):      English
Related Information: N/A
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