Toshiba CEO and President Hisao Tanaka resigned Tuesday over the company’s 12bn accounting scandal. The accounting scandal has hit one of the well known companies in Japan, which was blamed by the intense quest of profits by management. The investigation body reported that President Tanaka, who joined the company in the early 70s, had known about the company’s inflation accounting since financial year 2008.
Vice Chairman Norio Sasaki, Tanaka’s predecessor, and adviser Atsutoshi Nishida are also resigning after the investigation body found that the two have participated in the profit overstatement. Sasaki was Toshiba president between June 2009 and June 2013. This is the period where most of the accounting anomalies were made.
In a statement issued by Toshiba, Chairman Masashi Muromachi will replace CEO & President Tanaka, and will take effect Wednesday. The company added that it is considering designating outside directors to replace more than half of its board members.
The report about Toshiba’s accounting scandal was released on Monday, stating that the operating profit of the company was overstated by 151.8 billion yen (£783M) for over several years, approximately three times the initial estimate of Toshiba.
The results of the investigations are likely to lead to the restatement of earnings, a board revamp and possibly heavy fines by Toshiba. (The Toshiba accounting scandal is considered the worst corporate scandal in Japan since 2011, where $1.7bn in losses was covered by Olympus Corp.)
Toshiba’s accounting scandal happened at a time when Japan is trying to win back the confidence of global investors through better corporate governance that led
Taro Aso, Japan’s Finance Minister to say it was a very unfortunate incident. Aso said that Japan could lose the market’s trust if it falls short in implementing appropriate corporate governance.
New guidelines to improve the corporate governance of Japan were implemented recently by Prime Minister Shinzo Abe when the investigation happened.
Standard & Poor (S&P), rating agency, is keeping close credit watch on Toshiba. At present, the long-term corporate credit and senior unsecured debt of Toshiba has a “BBB” rating with S&P, while its short-term corporate credit and commercial paper was rated “A-2”.
Toshiba’s shares increase by 6% on Tuesday, but was down around 23% after it revealed accounting inconsistencies on April.
Chief portfolio manager Takatoshi Itoshima at Commons Asset Management, said “Institutional investors and other long-term funds have already unloaded Toshiba shares, so currently the stock price is being driven by short-term investors.” He said that this kind of trade will continue provided Toshiba will not be removed.