Excerpt: “The vast firm, which had sales of 600 billion yen last fiscal year, hired outside directors and adopted a 16-member board a decade ago, among other changes, to “enhance management efficiency and improve transparency”.But the scathing report—commissioned by the company after financial regulators questioned Toshiba’s books earlier this year—found a litany of problems, including a pair of former diplomats on its audit committee who were not up to the task.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.“Only one of the three external directors on the audit committee is well-versed in financial matters, in a company that we now see had succumbed to the Japanese tendency to not question orders from above,” said Nicholas Benes, head of the non-profit Board Director Training Institute of Japan.Benes was a key player behind Japan’s long-awaited corporate governance code, which came into effect less than two months ago.
It was hailed as a way to boost trust with foreign investors and avoid scandals such as the 170 billion yen accounting fraud at camera giant Olympus several years ago, one of Japan’s worst ever.Toshiba, whose shares dived after the problems came to light, remains on a 400-member index that highlights firms with the best return on equity and other shareholder-friendly criteria.“It is outrageous that a major company that represents Japan repeatedly padded its profits on a corporate-wide basis,” the top-selling Yomiuri newspaper said in an editorial.About half of Toshiba’s board resigned on July 21 with president Hisao Tanaka and vice chairman Norio Sasaki—also a former president—the most senior to quit their posts.Headed by a former Tokyo prosecutor, the investigating panel described a corporate culture where underlings could not challenge powerful bosses intent on boosting profits at almost any cost.While the scandals at Enron and WorldCom in the United States are reminders that accounting fraud is not just a Japanese problem, the country’s corporate traditions enabled the years-long scheme at Toshiba, observers said.And “the problem is not unique to Toshiba—in many Japanese firms the attitude is not to oppose the bosses,” wrote Hitoshi Kujiraoka, a journalist at the Asahi newspaper. … “
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