Toshiba scandal exposes Japan Inc's governance flaws

If we look at all the corruption in government, why should we expect these corporate bureaucracies to operate any differently? Of course this is not only a problem in Japan.

I would be interested to know what Toshiba's external auditing firm, Ernst & Young Shin Nihon, have to say about this. Probably would have been tough for them to detect this if it was intentional and systematic, but still would be interested in their comments on this.

@AFP

"a corporate culture in Japan"? As if other countries had no accounting scandals. In fact, the other countries have worse.

Show some examples with numbers Tina.

https://en.wikipedia.org/wiki/Accounting_scandals

And which of those show the problem to be worse in which other country?

Exposes flaws? Give me a break, those so called "flaws" have been around for decades, take a look at all the other corporate misdeeds that have occurred and tell me otherwise.

Government and business here have been sodomizing the public for years, it's just now that "news" is catching up!

Toshiba’s accounting scandal has shone a light on a corporate culture in Japan still beset by collusion in its senior ranks, unquestioning employees and poor external controls, experts say.

I think this was a fair statement and the article itself was balanced and pretty well written. The intent of the article was not to compare Japan's corporate culture to other countries or to say that it is better or worse. Rather, it was just to make some observations about the corporate culture in Japan on a stand-alone basis.

This is not something anyone should be defensive about and it is certainly not a Japan being worse than the rest of the world or anything like that. And given that this was written about the Toshiba scandal and the lessons that are to be drawn from it, it is only natural to look for systemic issues that contributed to it. Which would include a Japan focus. Naturally.

I am an American and I had no issue with the entire world criticising, fairly so in many cases, the U.S.-led practices that gave rise to the credit crisis of 2008. There are always lessons to be learned from any crisis or scandal and none of us should be parochial or nationalistic in how we view these things.

The employees’ techniques hailed from accounts-fiddling 101: overstating profits, booking them too early, and pushing back losses and the recording of charges. Yet what makes their actions unusual in the annals of book-keeping shenanigans is that they received no explicit instructions. Instead, top management set impossible targets and relied on a Japanese corporate culture of obedience and loyalty that led people lower in the hierarchy to do whatever it took to meet them

The (still independent) Economist

http://www.economist.com/news/business/21659758-corporate-japan-reeling-after-big-accounting-scandal-toshiba-load-tosh

So is that it? The top clowns resign ... but no arrests? If the average jo was caught falsly claiming a pencil as expenses, he/she'd be up before the judge in no time at all.

When one opine, that is one's opinion.

This article by its title has "opined" and "grossly misrepresented" Japanese business by using a general term Japan, Inc. Also there are "flaws" in any business management. Toshiba does not represent all of Japan's businesses.

While there may be flaws that can be identified in the Japanese social structure and business structure as well, the problem obviously were people. From that we may find enough relationships to society and culture including the structure and systems that may exists in what ever percentage of large and smaller business entities in Japan.

Without better in depth information, it is very difficult to give our opinion on what is identified as Japan, Inc..

60% of large companies have had accounting scandals in their History. From Microsoft to Samsung

60% of large companies have had accounting scandals in their History. From Microsoft to Samsung

And what do Microsoft and Samsung have to do with oversight by Japanese regulators?

Toshiba’s accounting scandal has shone a light on a corporate culture in Japan still beset by collusion in its senior ranks, unquestioning employees and poor external controls, experts say.

What part of this statement is fair? There is no evidence that Toshiba's case represents Japan Inc.

This is the attitude of English news reporting that the Japanese people and Japan's government don't take them seriously anymore. Very shallow and not objective.

@overchan,

60% of large companies have had accounting scandals in their History. From Microsoft to Samsung

Just curious as to the source for this 60% figure. Its always useful to be able to refer to the sources in order to further educate myself.

@kazetsukai,

Saying that this article has "opined" is a fair statement. To say that it has "grossly misrepresented" Japanese business, however, is not a fair or accurate statement. I think what you may be trying to say that it could be an "unsubstantiated/unsupported generalisation."

It is true that the writer has take the Toshiba scandal and extrapolated an idea to cover Japanese business more broadly. The writer has relied upon input beyond just the Toshiba scandal itself; however, in some senses, the proposition is not thoroughly supported, although anecdotally it may have the feeling of being "true".

The writer has put forward a proposition / idea with limited supporting information. Of course, given the limitations on the length of this article, this is, by definition, going to be the reality. This is not a research piece for some business journal.

That said, the article has done what I think was intended: to put forward a proposition which was certain to create discussions and opinions. And, thus, interest. And, that, is what sometimes a good journalist does.

What part of this statement is fair? There is no evidence that Toshiba's case represents Japan Inc.

If Toshiba is not a representative of Japan Inc then pray tell what company is? One has to be either blind or ignorant to not realize this, so which is it you are, the former or the latter?

There are all sorts of measures Japan could take to reduce this sort of corporate inadequacy. One would be education via university courses about what constitutes good business practice at board level. Ethics in business would be part of this. Another is the government using legislation that licenses businesses to require that board members have experience and qualifications relevant to the position. An ex-diplomat could be useful in business negotiations with a country that a company trades with, but there is no need to have him as a board member; he can be used in a consultation negotiation capacities on a contract basis as needed. Finally the government in the form of departments responsible for monitoring corporate Japan should frame and enforce anti-corruption legislation. But from what I have been told about Japan the impetus for this has to come from popular demand, and the Japanese public appears to be rather apathetic in this regard. Shareholders could become more aware and active in demanding better management. They hold a lot of power if they choose to exercise it. Maybe start with educating them!

Shareholders could become more aware and active in demanding better management. They hold a lot of power if they choose to exercise it. Maybe start with educating them!

Note...shareholders in Japan hold little if any power over corporate management.

@Tina Watanabe

I have to agree with you to some extent. There have been more accounting scandals uncovered and reported in the west, but I think this is just because whistleblowers, regulators and shareholders are all more aggressive in bringing them to light.

When you look at Olympus, AIJ and now Toshiba, these scandals were wide spread throughout the companies and involve many successive senior managers over years and years... and none of them, not a single one ever blew the whistle or raised any concerns. This is very different from a scheme ochestrated by a single rotten CEO or CFO over one or two financial years like many of the western scandals were.

Toshiba is the very definition of accounting fraud, an intentional misstatement of financial reports, a appalling violation of every accounting principle.

Senior executives had the single objective forcing 'underlings' to act in detriment to every ethical meaning of governance, econometric modelling can prise out underlining vulnerability to miscalculation of costs.

It is the sheer scale, I have spent three years as a senior quantitative analyst, grammatically comical in respect that the length of time is three football seasons. I'm sorry Tina no excuses, heads must roll in the sand our families pensions are at stake.

Tony W.- But USA has far more "this sort of corporate inadequacy", so you should give your advise to USA.

Tony W.- But USA has far more "this sort of corporate inadequacy", so you should give your advise to USA.

Tina, you really don't get it, do you?

Of course the U.S. will have more cases of corruption than Japan- the population is 3x of Japan and the economy is 7-8x the size of Japan.

While there have certainly been too many cases of corruption in the US, no one is defending the crooks, and in fact they have received rather harsh treatment. Bernie Madoff for example received a 150 year prison sentence and rightfully so. Please tell me how many Olympus executives got jailed time? To my knowledge: 0 how many Toshiba execs will see the inside of a jail cell? 0

Japanese culture makes it next to impossible to become a whistleblower. A rank and file employee cannot simply switch jobs after reporting a company's misdeeds. An average employee isn't free to leave work as they wish, so how can possibly be expected to report corporate fraud?

Yet somehow, you try to defend the indefensible:

In Japan's corporate culture, employees, customers, business relations, etc are also important, so what you are saying is American point of view; Looking at companies only through stocks. As customers, many Japanese people are interested in this.

These crooks deserve jail time every bit as much as Bernie Madoff, the folks at Enron, and Worldcom. Enough off the petty nationalist zeal already!

Toshiba’s accounting scandal has shone a light on a corporate culture in Japan still beset by collusion in its senior ranks, unquestioning employees and poor external controls, experts say.

Absolutely 100% correct. And it won't change for the foreseeable future, which is the depressing part. The "leaders" of Japan Inc. only know one tune, and they are certainly not going to accept radical change, since it took them all decades to work their way up to their current positions, and aren't going to jeopardize their elite status.

I never defended Toshiba, I said in the other thread that Toshiba should be severely punished. I am only saying it is wrong to conclude as if all Japan inc was corrupt.

I never defended Toshiba, I said in the other thread that Toshiba should be severely punished. I am only saying it is wrong to conclude as if all Japan inc was corrupt.

No, Tina, no nowhere did you say such a thing. What you did say, and what you continue you say, is that other countries have the same problem. And one is denying that.

But when you make deflections and state that, "Japan is different and that they were really looking out for their workers" and not for their own vested interests, you are defending them.

I am only saying it is wrong to conclude as if all Japan inc was corrupt.

Tina -- fair enough. But just in the past year or so we've had Takata and Toyota found to have covered-up known defects. Defects that put their customers' lives at risk. And now another accounting scandal at Toshiba. Even you have to admit that there appears to be a fundamental flaw in how Japanese companies handle bad news.

letsberealistic - the writer seems very anti-Japan who wrote "How to quit being a Japanese" His book can not be a proof that all Japan inc is corrupt. There are about 3,500 listed companies in Japan.

cardsfan5 - I did not defend the Japan corporation, I simply pointed out the difference in corporate culture in general between Japan's and US's. I said both have pros and cons.

“Just because you were the ambassador to Brazil, does not mean you are fit for the audit committee.”

Unless of course while you were amabassador you "negotiated" with Brazil on Toshiba's behalf, and netted the company some fat business contracts.

Hi Tina, If one was to draw on experience, media tycoon Conrad Black is the very definition of corporate criminality, fraud on a scale that defies gravity, a terminal case of arrogance and he rightfully paid the price. However Gerald Ronson, both were guilty of the same hypocrisy, had access to human rights defense and slivered away. Toshiba senior management must face the consequences of their actions or succumb to the Conard Blacks and Gerald Ronsons of this world....

Conrad Black charged with 8 counts of fraud.

http://www.cbc.ca/news/business/conrad-black-charged-with-8-counts-of-fraud-1.531613

Guinness trial 'breached human rights'

http://news.bbc.co.uk/2/hi/uk_news/931980.stm

I have invested a fortune personally is small medium sized business in Japan, all possessing pristine accounting practices. The behavior of these miscreant senior figures will always capture the headlines and dishonor the majority that play by the rules.......That i'm afraid is life, and it isn't meant to be fair ....

jerseyboy - Toyota was turned out not guilty, For Takata, they haven't found any problem yet. Many Japanese companies are being suited by greedy ambulance chasers. US court does not care about justice. J companies have no choice but to settle. My recommendation to the Japanese companies is to leave USA.

Dang, I just hate it when news organisations sensationalise the news with anti-Japanese sentiment. Like this:

http://asia.nikkei.com/Business/Companies/Failure-of-governance-gives-Abenomics-a-rude-awakening?page=1

Oh, wait, it is the Nikkei. Ahh, must have been written by a CIA spy....

Sheesh, people, all countries have their issues. This article was not anti-Japanese. It was just discussing something that happened to a Japanese company and postulating that the factors that gave rise to this scandal are not unique to this company. OMG, what a novel idea!!

Forget the rest of the world. If you are the Japanese regulators and you are reviewing what happened, what do you do? You review the facts, determine what they are, determine if they are specific to this company or if they might highlight broader issues that indicate systemic risk. It has NOTHING to do with whether the system in your country is better or worse than other countries. Frankly, who cares?! it is about getting at the root of the problem.

This is the attitude of English news reporting that the Japanese people and Japan's government don't take them seriously anymore. Very shallow and not objective

Actually its the opposite. This reporting means more and more western people dont take Japans people and government seriously anymore (in financial terms). And whether you and Japan Inc choose to get their heads out of their butts and acknowledge the problem or not, the only people ultimately suffering as a result will be Japan. What a shame your pride is so high.

Another reason why you do not allow (via TPP) big corporations to become more powerful than government.

@tinawatanabe

For Takata, they haven't found any problem yet.

Takata isn't going to "find a problem" because they are doing their damnedest to save face....much like Toshiba. But this article asserts that in 1999 Takata switched from Tetrazole to ammonium nitrate, and an engineer warned of catastrophic failures:

http://blog.caranddriver.com/takata-engineer-who-warned-of-catastrophic-failures-willing-to-testify-against-company/

My recommendation to the Japanese companies is to leave USA.

At a time when the export-dependent Japanese economy is struggling your suggestion is to stop exporting to one of the largest markets in the world? Instead of, you know, ensuring proper engineering and Quality Assurance to avoid expensive product recalls and lawsuits in the first place? No, that would make too much sense.

I am only saying it is wrong to conclude as if all Japan inc was corrupt.

Middle to small sized corporations, I would agree are not corrupt. However, in your eyes just what is Japan Inc? How far or what corporations do you include in it?

If the government is included, well Japan Inc is corrupt, large "zaibatsu" , consider these...The Long-term credit bank, Olympus, Yamaichi Securities, Kanebo, Livedoor (Horie), and others as well.

Japan Inc needs a housecleaning, starting with the CEO/PM Abe.

At a time when the export-dependent Japanese economy is struggling your suggestion is to stop exporting to one of the largest markets in the world? Instead of, you know, ensuring proper engineering and Quality Assurance to avoid expensive product recalls and lawsuits in the first place? No, that would make too much sense.

You have to understand, Tina proselytizes the closing off of Japan to all other countries in the world, in order to maintain Japanese pride. She things it's better to be isolated from the world than to have to admit Japan has ever done anything wrong.

@Strangerland

You have to understand, Tina proselytizes the closing off of Japan to all other countries in the world, in order to >maintain Japanese pride. She things it's better to be isolated from the world than to have to admit Japan has ever >done anything wrong.

And that seems to be a sadly common perspective. Don't they realize that their island chain is largely devoid of natural resources, and is probably unable to sustain a First World living standard without imports, especially with the huge degree of urbanization today? Sometimes the cynical jerk in me wants the country to actually go ahead and take their ideology to its logical conclusion, which is probably some weird mix of North Korean-level poverty and propaganda minus the brutality and labor camps. And even then, the nation wouldn't fess up to going about things the wrong way.

Toshiba had outside independent directors and even foreign directors on their board right? So, these people were equally incompetent too? Does that not fly in the face that corporate governance can be improved by bringing in foreign and outside directors?

jerseyboy - Toyota was turned out not guilty, For Takata, they haven't found any problem yet. Many Japanese companies are being suited by greedy ambulance chasers. US court does not care about justice. J companies have no choice but to settle. My recommendation to the Japanese companies is to leave USA.

Tina, that is just nonsense. And you really would be more credible if you actually read some news sources outside of Japan. For example, here is the real truth about Toyota:

Toyota has reached a record $1.32 billion settlement to resolve a criminal investigation into safety issues that have been linked to at least five deaths.

The Japanese car maker admitted it misled United States consumers by concealing and making deceptive statements over two safety issues that caused cars to accelerate even as drivers tried to slow them down.

I guess they admitted to the charges and agreed to pay that fine because they were "not guilty" right? Anf your statements about Takata and the U. S. justice system are just as ludicrous. But you just keep on throwing rocks at everyone else, so you can feel better about Japan in the long run. Because we both know that that does nothing to make Japan better.

No single country is so individually significant that can be launched up the flag pole as a scourge of corporate corruption, misconduct, fraud. Culprits by nature are extremely proficient in the acts of concealment, embezzlement is ultimately a betrayal of trust, business in all forms is predicated on trust. I know how Tina feels up to a point, a society tarred with the same brush.

J Corps will sooner or later succumb to the mechanisms of a comprehensive and effective governance code. The quality of monitoring and controls, the very compliance to audit processes, oversight, every possible action that can rectifying poor levels of financial management where either incompetent or circumvented, Toshiba is the last chance saloon, some examples will need to be made, no mercy for the wicked, these senior executives have no honour.

The "honne-tatemae"of Japanese accounting! These are the real figures but you dont want to hear that so ill tell you these figures.

Credit to zones2surf ...please read and reflect opinion........both pages

<http://asia.nikkei.com/Business/Companies/Failure-of-governance-gives-Abenomics-a-rude-awakening?page=1 >