Toshiba accounting scandal

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Toshiba is a Japanese company that started in 1875. As of 2015, the company operated business units on a worldwide scale in various industries including personal electronics, semiconductors, home appliances, infrastructure, and medical equipment. In the fiscal year ending March 2015, the company reported sales more than $63 billion. The investigators did find evidence of inappropriate accounting practice and overstated profits in various Toshiba business units that included the visual products unit, the semiconductor unit, and the PC unit (Boyd, 2015). The accounting misconduct started under the leadership of CEO Atsutoshi Nishida in 2008 during a global financial crisis that deeply cut into the profitability of Toshiba. The act continued under the next CEO, Norio Sasaki and ended in scandal under Tanaka (Kazuo, 2015). In the investigation, the investigator did find evidence of booking future profits early, pushing back charges, pushing back losses, and other techniques that resulted in the overstated profits. The investigators revealed that the CEO did not directly instruct anyone to cook the books, but they placed immense pressure on the subordinates and waited for the corporate culture to turn the results they wanted.

According to the investigators, Toshiba corporate culture demanded obedience to the superiors, and it was a factor that enabled the emergence of the fraudulent accounting practices. The culture did operate on the level of the business unit’s president and every authority down the chain to accountants who employed the accounting techniques (Kazuo, 2015). The panel also identified weak corporate governance and poor functioning system of internal controls at every level of Toshiba conglomerate. The internal controls in the corporate auditing division, finance division, securities disclosure committee, and risk management division failed to perform properly in identifying and stopping the inappropriate behaviors. As investigators are reported, the corporate culture played a significant role in the accounting scandal.

Views regarding the problem

The accounting problem at Toshiba stems from the company employees understating costs on the long-term projects. As a result, it allowed the company to overstate the operating profits by $1.2 billion between 2008 and 2014 (Huang & Alpeyev 2015). What happened at Toshiba is that the fraud was systematic, and there were several top executives who were involved.  In the company, the profits were inflated under the pressure from the superiors to meet the ambitious targets. The scam happened with three successive executives, and two of them joined the board after stepping down. Even with what happening during that time, the auditors Ernst & Young ShinNihon did not notice anything wrong. As identified by the investigation panel, the corporate culture was the main problem identified with Toshiba accounting scandal (Kazuo, 2015). The fallout from this scandal included the resignation of the CEO and also the reorganization of the board in which most of the members did step down.

According to most experts, the scandal exemplifies massive failure in the corporate culture, governance, and candor. A strong corporate culture, transparency, and good governance are important to a company (Spitzer, 2015). They are important as they help avoid major accounting and business scandal, and they have a great impact on the company valuations, investment, and the investor trust. The senior executives are considered as the destroyer, or the protector of the corporate culture and honesty is important in building strong and effective cultures (Boyd, 2015).  The problem as evident in Toshiba scandal is that there was poor corporate culture and poor governance.

Based on the report provided, it indicated that Mr. Kubo, the head of the company’s five-person auditing committee and the former chief financial officer of the company was aware of the improper accounting carried out from 2008 (Inagaki, 2015). The panel also reported that the three external auditors included a former banker and former diplomats who did not have any accounting expertise. As a result, the internal controls of the auditing committee were non-functional.

The fundamental problem in this environmental is the culture. Based on the experts, the top management was systematically involved in the inflation of the numbers that did drive the company to a place where the profits were vital, and failure was unacceptable (Huang & Alpeyev 2015). At Toshiba, the tactics used that contributed to the accounting problem included a warning on the poorly performing division heads that their business may be closed in case the members fail to improve; thus, causing pressure on staff. According to Kazuo (2015), Toshiba has a corporate culture that does not allow employees to go against the will of superiors. With the corporate culture at Toshiba, the employees in the organization cannot act contrary to the superior’s intent. The executives in the company did place top priority on the financial results for the current accounting period; thus, putting severe pressure on the subordinates to improve figures for their business units. Without no other alternative, but to bend to the executive’s demand, those who were lower down in the company considered cooking the books.

The dubious accounting performed on a broad and systematic scale by staff responding to the top management wishes is an indication of a deeply rooted problem. The corporate culture was embedded in Toshiba scandal. The relationship-driven business culture played a role that bred and facilitated collision. The culture inculcated and demanded the staff loyalty and obedience to the company (Penman, 2015). Therefore, in such a work environment, work tends to become a way of life and the organization a second family. When the culture demands conformity and harmony at all costs, it tends not to be easy to point out an issue when you spot something shady happening. The Toshiba accounting fraud was driven and instigated by its top leadership, and a major issue that is only revising the governance regulation may not help amend such deep-rooted elements of the corporate structure.

Challenging or even questioning the actions of the executives tend to be difficult in any culture. However, it is virtually impossible in the Japanese corporate culture. In the report provided, the aversion of questioning authority was considered as a primary culprit to the problem (Inagaki, 2015). The corporate culture in Japan is hierarchical and has an emphasis on loyalty and doing everything possible so as to avoid causing shame to its group. In this case, when the executives at the company set unrealistic profit goals, the division presidents, employees, and line managers would perform inappropriate accounting practices so as to meet the targets so as to fulfill the wishes of their superiors. Rather than questioning the wisdom of the earnings goals, the employees at the company felt cornered to resorting to inappropriate measures.

Solving the problem

Looking at Toshiba accounting scandal, it tends to highlight how the organizational cultures can and do encourage the employees to act unethically. The sad aspect of this is that most unethical behavior in the organization happens because the environment tends to tolerate it. That is because there is no clear and focused management intention to educate employees and the middle managers to manage the ethical, dimension of their workplace.

A method for solving the problem at Toshiba is through a reform of the corporate culture. Toshiba needs to establish a culture that accepts what is legal as standard and also what is right to do. A change in the corporate governance can help to promote a culture in the Japanese companies that misconduct should be discouraged and addressed or stopped as soon as possible (Huang & Alpeyev 2015). The work culture at Toshiba is an environment that does not support ethical leadership. It is a culture of stress, corruption, and unfair pressure from superiors. Employees at Toshiba were working under the superior’s unethical pressure and threats to force them to alter company accounts. The corporate culture at Toshiba does not allow the lower-level managers to go against the bosses. Therefore, it is important that Toshiba should establish a new administration that will improve the culture and also allow employees to work on their own (Penman, 2015).

It is important that the management at Toshiba should understand that the organizational culture does not grow by itself, but shaped, woven, and spun by a group of strong minded managers who recognize the economic value of a good culture. The executives should focus on creating a healthy workplace culture and take severe measures on those who seek to advantage themselves at the expense of the organization. A culture change at Toshiba will ensure that employees are empowered to speak up and manage the ethical risks present in most business practices.

So as to see a change in the corporate structure, there is a need to promote diversity in the company that will help to enhance transparency and bring new perspectives; thus, contributing to corporate growth. Toshiba should consider employing more non-Japanese employees and diversity of the employees can be of great help in facilitating the culture change (Inagaki, 2015). Toshiba needs to create a work environment for the diverse people and also encourage them to express their opinions and build consensus instead of avoiding conflict of opinions. More diversity may work to help bring a different perspective and great transparency in the organization (Bolza, 2015). The Japan corporate culture tends to encourage people to take the same action as others making them believe that maintaining the status quo is the appropriate thing to do. Hence, changing it can be difficult. However, when people with different views are working in the organization, it can help allow the organization find and fix the problem that might be happening. When Toshiba embraces diversity, a diverse work environment and the ability of employee providing their opinions will help to strengthen the corporate governance policies in place (Bolza, 2015).

So as to gain trust, Toshiba will need to have an integrity-based code of ethics. With this code, it will include governance rules that prohibit illegal behavior and also promote moral behavior. The company can do this through setting corporate values that support integrity and honesty while also stressing that all management, staff, and executives at the top are accountable for their actions and to each other. Toshiba needs to implement the appropriate corporate governance so as to gain the market trust. The code of ethics tends to express the heart of the organization. It tends to tell the world what matters to the organization and what it is all about (Whittington & Pany 2014). With an integrity-based code of ethics, employees at Toshiba will understand the organization expectation, acceptable behaviors, and also know the viable options for asking a question and voicing their concern.

With a new management structure and cultural changes, many people will benefit. The employees at the company will see benefits from better cooperation between superiority and departments (Whittington & Pany 2014). When considering the scandal, the report indicated tension with employees questioning their superiors who did pressure them to perform unethical acts. Thus, a restructure in the corporate culture will help to create a more trusting work environment in the firm in all the employee levels (Inagaki, 2015). The company should also train its employees on the benefits of whistleblowing. Toshiba need to introduce rewards and protection for whistleblowers where employees can be free to report any misconduct that they observe in the company.

Toshiba should also build a ladder of escalation that will enable raising issues safely. With these multiple feedback sources, it will encourage the staff in the early stages to voice their concerns and check whether the issues are justified (Chhabara, 2015). So as to gain the engagement of employees with notions of workplace ethical accountability, it is important to remove any barriers that include employee reluctance to expose colleagues to the potential punishment or the reluctance of the management to offer fast feedback to employees while the investigations are underway. Through building a robust ethical infrastructure and training the management on how to respond to issues raised, it will help to build employee confidence. Such an initiative tends to build a corporate culture that protect against the financial and reputational damage like what Toshiba experiences (Spitzer, 2015). In doing this, Toshiba will build pride and ethical resilient among employees working in the organization, which values more than the short-term results.


When considering the scandal at Toshiba, the corporate culture played a significant role in the scandal. When the top management presented the profit targets, the division president, line managers, and the employees continued to carry out inappropriate accounting practices so as to meet the targets in line with wishes of the executives. The Toshiba scandal is an indication of the need for changes in the Japanese companies. Japan needs a massive cultural change. A change in the corporate governance landscape can help in promoting a culture in the Japan companies that misconduct is supposed to be discouraged and stopped as soon as possible. It is important that Japanese companies need to make some changes in the corporate structure so as to avoid experiencing the same problem as Toshiba. There is need for new corporate codes of conducts, introduce external board members, and also increase corporate transparency. If Toshiba want to clear its tarnished reputation, it needs to make some changes to its corporate governance and culture. Toshiba should establish an ethical and robust culture that requires setting the correct tone from the top. The most important thing is creating an environment of transparency and openness and having a culture that encourages diversity of ideas.


Bolza, M (2015). Lack of diversity caused Toshiba scandal, experts say. HRD Singapore

Boyd, J. (2015). Key questions in Toshiba scandal still unanswered. TCA Regional News

Chhabara, R (2015). Toshiba-Japan’s latest corporate catastrophe.

Huang, G., & Alpeyev, P. (2015). Toshiba Adds $3.3 Billion Credit Line After Accounting Probe.

Inagaki, K (2015). Toshiba’s once lauded culture became the cause of its problem.

Kazuo, M (2015). Toshiba accounting scandal highlights issues in corporate governance.

Penman, C (2015). Toshiba scandal underscores the importance of the speak-up culture. Ethics & Compliance Matters.

Spitzer, K (2015). Toshiba accounting scandal could speed corporate changes. USA Today

Whittington, R & Pany, K (2014). Principles of auditing and other assurance services, Boston, McGraw Hill

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