Toshiba CEO resigns over $1.2 billion accounting scandal

Toshiba CEO Hisao Tanaka resigned on Tuesday, according to CNN, after an internal investigation that revealed the company had been massively overinflating its profits.

Norio Sasaki, vice chairman of the board, and Atsutoshi Nishida, an adviser to the company, will also leave, CNN said.

Chairman Masashi Muromachi will take over as interim president, Bloomberg reported.

A report by independent investigators released on Monday said Toshiba had overstated its operating profit by 151.8 billion yen ($1.22 billion) over several years, roughly triple Toshiba’s initial estimate. Tanaka and his predecessor, Sasaki, were aware of the overstatement of profits, it said.

The investigators interrogated 200 Toshiba staffers, according to the Financial Times:

In an 82-page summary of its findings, a panel of external lawyers and accountants detailed what it said were “institutional” accounting malpractices and a corporate culture in which employees were afraid to speak out against bosses’ push for increasingly unachievable profits.

“There existed a corporate culture at Toshiba where it was impossible to go against the boss’ will,” the report said. It highlighted “a systematic involvement including by top management” and “a deliberate attempt to inflate the appearance of net profit.”

The credit-rating agency Standard & Poor’s has placed Toshiba on credit watch with possible “negative implications,” according to the Financial Times.

In a statement on Monday, Toshiba said, “The company takes the situation it has caused very seriously, and we deeply apologize to our shareholders, investors, and all other stakeholders.”

The scandal dates back to the reign of former Toshiba president Atsutoshi Nishida, who set his company “the challenge” in the post-2009 period. The challenge consisted of aggressive, unrealistic, short-term profit targets that the company had to meet. But the company’s problems increased after the March 11, 2011, earthquake.

CEO Tanaka and former CEO Sasaki knew profits were being inflated, the reports said.

The government is now worried that the issue may affect the stocks of other companies: Japanese finance minister Taro Aso said accounting irregularities at Toshiba Corp. were “very regrettable,” coming at a time when Japan was trying to regain global investors’ confidence with better corporate governance.

“If (Japan) fails to implement appropriate corporate governance, it could lose the market’s trust,” Aso told a news conference on Tuesday. “It’s very regrettable.”

Aso declined to comment when asked whether Toshiba would face any kind of financial penalty. Sources have said regulators were beginning their own review of Toshiba’s bookkeeping, based on Monday’s report.

The investigation came just as Prime Minister Shinzo Abe has implemented new guidelines to improve the country’s corporate governance. This is Japan’s biggest business scandal since camera and medical equipment maker Olympus Corp.’s 13-year cover-up of $1.7 billion (784 million pounds) in losses blew up in late 2011.

Shares in Toshiba rose 4% by midday on Tuesday on relief the report had few nasty surprises. But they were still down around 24% since Toshiba first disclosed cases of accounting irregularities in early April.

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