Introduction of Toshiba Corporation

Toshiba Corporation is one of the largest companies located in Japan. It is a Japanese

multinational conglomerate headquartered in Tokyo. It was established in 1875 by Tanaka
Hisashige and Ichisuke Fujioka. Tanaka Hisashige built a factory in Tokyo in 1875 to
accommodate the growing government orders. The company name when it was first established
as Tokyo Shibaura Denki K.K (as a Japanese name). The company name besides from Japan was
Tokyo Shibaura Electric Company Ltd (Toshiba, 2019).

It was 2 merger names with Shibaura Seisaku-sho and Tokyo Denki in year 1875 and
1890 respectively. Afterwards, the company name was changed to Toshiba Corporation in 1978.

Toshiba operates worldwide such as in Asia Pacific, Europe, the Middle East and Africa,
and North and South America due to many subsidiaries under Toshiba Corporation. In addition,
subsidiaries of Toshiba Corporation include Toshiba TEC Corporation, Toshiba Logistics
Corporation, Toshiba of Canada Limited, Toshiba Matsushita Display Technology, Toshiba
Samsung Storage Technology Corporation etc.

Toshiba Corporation rated as the fifth largest computer vendors in terms of Global PC
market share by units (%) of 2.8%, 2.8%, 3.3%, 3.8%, 4.0%, 4.6%, 5.0% which fall under the
year of 2001, 2002, 2005, 2006, 2007, 2008 and 2009 respectively. In addition, Toshiba
Corporation also ranked as the largest semiconductor companies in term of revenue. The best
ranking fall under the year of 1986, 1990, 1992 and 2000 which ranked as second largest
semiconductor companies. Last year as 2018, the ranking has dropped to the ninth.

 Information iand icommunications iequipment iand isystems iincludes iPC iand

iother icomputer isystems, istorage idevices, itelecommunications iequipment, isocial
iautomation isystems, imedical ielectronics iequipment, ispace iand ispace irelated
iproducts.
 Electronic icomponents iand imaterials iinclude isemiconductors, ielectron itubes,
ioptoelectronic idevices, iliquid icrystal idisplay ibatteries iand iprinted icircuits iboards.
 Power isystems iand iindustrial iequipment iincludes iindustrial iapparatus, ipower
igenerating iplants, itransportation iequipment, ielevators iand iescalators.
  Consumer iproducts iincludes ivideo iand idigital ihome iproducts iand ihome
iappliances.
 Medical iequipment iincludes iCT iScanners, iDigital iX-Ray imachines, iUltrasound
iimaging isystems, iMRI iScanners, iNuclear itomography iscanners iand iC-Arm iCath.
 Lighting iand ilogistics iinclude iLED ilighting iproducts iand ilogistics iservices.

According the official websites stated that Toshiba has employed about 128,697 of
employees as 2019. Besides that, the net sales ¥3,693.5 billion, common stock of ¥200,044
million, 544 million shares have been issued and 270,570 of shareholders as 2019.

Toshiba was listed on the Tokyo Stock Exchange and Nagoya Stock Exchange in the year
of 2010. Due to the accounting scandals in year 2015, Toshiba Corporation has put a lot of effort
to have better internal control and to improve corporate government so, Tokyo Stock Exchange
has been deleted Toshiba from the watchlist in October 2017. Toshiba Corporation still has the
risk of being delisted from Tokyo Stock Exchange because of the negative shareholder. In
September 2017, Toshiba and Bain Capital signed an agreement stated flash memory chip
business will be sell by Toshiba for ¥2 trillion (RM76 billion) in order to achieve positive
shareholder equity.

Impact of the issues to the organizations (21 July 2015 discover accounting scandal)

 Current and former chief executive was resigning over accounting scandal
Toshiba accounting scandal was discovering in Tokyo at July 21, 2015 according to CNN
(Sophia Yan, 2015a). Toshiba Corporation’s Chief Executive was Hisao Tanaka and two of his
predecessors along with several lesser executives will be resign from the company. In the press
conference, Norio Sasaki and Atsutoshi Nishida who is vice chairman and adviser respectively
will leave together with Hisao Tanaka on July 21. Besides that, 6 other directors was stepped
down from the board of director because of they are doing part of improper accounting (Agence
France-Presse, 2015).

Toshiba will reorganization the business structure by accelerating the consolidation and selection
of business undertakings and ensure that financial plans are adequate through the sale of
marketable securities and real estate (Jonathan Soble, 2015). Toshiba Chairman will be replaced
by Muromachi Masashi to take over the management structure.

 Toshiba to cut interim CEO’s pay by 90%

Toshiba mentioned it will cut down its interim chief executive monthly salary for the next two
months by 90% due to the accounting scandal. The purpose, Toshiba try to fix back the company
balance sheet (Junko Ogura and Virginia Harrison, 2015). Toshiba also mentioned is because of
its uncertain earnings outlook and it has dismiss the annual dividend for shareholders (Sophia
Yan, 2015b). Besides that, several executives and directors will also have their salaries reduced.

 Toshiba lawsuits
Toshiba iwas ifacing i26 iseparate ilegal iclaims ior ilawsuits idemanding ia itotal iof i108.4
ibillion iyen iin idamages ifrom ia i2015 iprofit-padding iscandal ithat ibadly idamaged iits
ireputation iand ishredded iits ishare iprice i(Straits iTimes, i2017). iThe ilawsuits iinvolve iboth
iindividual iand iinstitutional iinvestors. iIt ialso iincluding iJapan’s inational ipension ifund, ithe
iworld’s ibiggest.

Firstly, iiGovernment iiPension iInvestment iFund i(GPIF) ialso iknown ias iJapan’s inational
ipension ifund, iwas ithe ilargest ipension ifund iin ithe iworld. iToshiba get sued from GPIF and
is the first institutional investor in Japan to sue Toshiba because of the accounting scandal make
the share plunging so, its loss of its investment at the end (Douglas Appell, 2016). GPIF has
indirectly sued Toshiba with Japan Trustee Services Bank which holds Toshiba shares on behalf
of GPIF. Damages sought are around ¥13 billion was over $116 million in U.S dollars (Kessler
Topaz, 2017).

Besides that, company also get sued from 50 individual shareholders, who were the company
shareholder including 3 former chief executives and 2 chief financial officers. Claim for damages
are $2.45 million. Shareholders are also seeking compensation due to the company stock
plunging in the wake of their accounting scandal (Kessler Topaz, 2017).
Furthermore, Toshiba also get sued from foreign investor and Trust & Custody Services Bank,
all of them suing Toshiba is because of share plunging and loss of investment. Mitsubishi UFJ
Trust and Banking Corporation and an affiliated trust bank plan to sue Toshiba for ¥1 billion
over losses incurred from a major accounting scandal that make its share price dropped sharply.

 Toshiba cuts 7,800 jobs following accounting scandal

Most iof ithe ivictims iis icome ifrom iToshiba’s iconsumer ielectronics idivision. iAfter, ithe
icompany ihad ideclared i$1.2 ibillion iin ifalse iprofit, iit idirectly iaffected iwho iwork iin
iconsumer ielectronics idivision. iAs ithe icompany imentioned ithat, ithis iis ipart iof
i“revitalization iaction iplan”. iToshiba iis igoing ito icutting i7,800 ijobs iin itotal ias ipart iof ia
imajor irestructuring ifor ithe iJapanese itechnology ifirm, iit’s imajority iaffecting iemployees
iin ithe icompany’s iconsumer ielectronics idivision i(Tom iWarren, i2015). iAlongside ithe ijob
icuts iand idivision iadjustment, iToshiba istated ithat ithe ichanges iwill icontribute ia iloss iof
i$4.5 ibillion ifor ithe ifinancial iyear iend iin iMarch. iThis iis ia isignificant iloss ifaced iby
iToshiba.

 Toshiba’s Accounting Scandal Tanks Stocks by 32%

Hisao Tanaka bowed down during a press conference to apologize to investors, the company’s
stock crashed by the limit 20%, bringing its two-day loss to 32% and wiping out $5 billion in the
market cap in two days.
  Toshiba plunge 26% after rating downgrades
Toshiba’s iaccounting iscandal iindirectly idowngrades ithe icredit iratings ifrom iboth iMoody’s
iand iS&P iGlobal iRatings i(credit iratings iagency), iToshiba isharply idropped i26% ion
iThursday, imarking ia ififth iconsecutive isession idecline. iMoody’s idowngraded iToshiba ito
iCAA1 iand iplaced iits iratings ion ireview ifor ifurther idowngrades ibecause iconcern iabout
ithe isustainability iof ithe iToshiba ifirm’s inear-term iliquidity iand icorporate igovernance
iframework. iIn iaddition, iS&P iGlobal iRatings ialso ilowered iits iratings iof iToshiba,
idowngrading iits ilong-term icorporate icredit ito iB- ifrom iB, iand iits isenior iunsecured idebt
iratings ito iB+ ifrom iB-. iThe iratings iagency ialso iput iToshiba’s iratings ion ia inegative
iwatch i(Aza iWee iSile, i2016).

 Toshiba facing massive losses following accounting scandal

Toshiba iis ifacing ifor ihuge ilosses ias iaccounting iscandal. iToshiba iiannounce iian
iioperating iiloss iiof ii90 iibillion iiyen ii($ iiUS740 iimillion) iifor iithe iisix iimonths iithrough
iito iiSeptember, iiaccording iito ia ireport iin ithe iNikkei ibusiness idaily. iiThe iilosses iiare
iiToshiba’s iifirst iifor iisix iiyears iiand iicompare iwith ia i137.8-billion-yen iprofit iiin iithe
iisame iiperiod iilast iiyear.

The iiNikkei iireport iisent iiToshiba ishares idown iby ias imuch ias i5.9% ion iThursday
imorning ito itheir ilowest ilevel iin ialmost iia iimonth, iibefore iirecovering iislightly iito i330.5
iyen, idown i3.6% imidway ithrough ithe iday.

In addition, Toshiba employs more than 200,000 people worldwide to embark on a round of
restructuring that includes selling its shares in affiliates. Toshiba sell its image sensor business to
Sony and is to announce an overhaul of its home appliance, TV and computer units (Rachel
Savage, 2015).

 Toshiba’s market price

 (Figure 1 sources from market screener website)

(Figure 2 sources from market screener website)

Based on the graph shows, Toshiba’s market share dropped sharply due to the accounting
scandals. Figure 1 and Figure 2 which represent whole year and scandal arising.
  Toshiba’s shares

(Figure 3 Sources from Yahoo Finance)

From the graph we can see that, Toshiba shares plunged nearly 50% to ¥ 228 from ¥ 483. Not
only that, Toshiba’s goodwill also going down by 2.3 billion.
 1. Weak iTone iset iby ithe itop imanagement

Setting ithe itone iat ithe ihighest, ithe iBODs icommunicate iexpectations ion iinternal icontrols
iand iprocedures. iAt ithe iside iof ithe isenior imanagement, ithey iestablish ithe igovernance
istructures i(oversight istructures, iresponsibility iand iresponsibility iamong ithe imanagement
ienvironment) ito imanage irisk.

It iis iclear ithat ia iweak itone iset iby iToshiba’s iBODs idiode ito ia ibreakdown iof ithe ithree
iLOD iamong ithe iorganisation. iThey iplaced ian iexcessive iamount iof istress ion iachieving
iprofitableness iover irisk iand imanagement iamong ithe iorganization. iIn iToshiba’s i1st iLOD,
iprocesses ito idiscourage iand iobserve ifraud ieither idid inot iperform ior iweren't ienforced
ieffectively iby irisk ihouse iowners. iAccounting iirregularities ibypassed iinternal
imanagements iand icontrol iactivities. iAssessments iof iinternal icontrols iand iprocedures iby
imonetary icontrols iand irisk imanagement idid inot iforestall ithe iincidence iof ifraud iwithin
ithe isecond iLOD. iReports ion ithe iorganization’s iexposures ito ifraud iby ithe iinterior
iauditors ifrom ithe ithird iLOD iwere ieither imerely i“brushed iaside” iby ithe iboard ior
iweren't iperformed iadequately, igiven ithe itone iset iby ithe iboard.

2. Corporate iculture iwithin iToshiba

Chris iRowley, iHR iManagement iProfessor iat iCass iBusiness iSchool, isaid,' iWithin iToshiba,
ithere iwas ia icorporate iculture iin iwhich ione icould inot igo iagainst isuperior idesires'('
iTOSHIBA'S iTOXIC iCULTURE–Strategic iFinance,' i2015). iOver ithree igenerations iof
iCEOs, iToshiba's iculture iof iexerting ipressure ion iits istaff ito ifulfill iaggressive, ishort-term
ieconomic igoals iexpanded. iAs isuch, iToshiba ihas icreated ion iits istaff ia icarrot-and-stick
ibehavioral inorm. i iThey iare iscared ito iprotest ior italk iout iagainst itheir isuperiors iwhen
ithey iare ipressured iby iprofit iobjectives. iObedience iand i"keeping ia iharmonious
iconformity" ibecame ipowerful icorporate ivalues ifollowed iby istaff iof iToshiba.

i. First LOD: Operational managers would not have questioned orders from above
nor highlighted any internal control issues to the board for fear of opposing senior
management
ii. Second LOD: Financial controllers would have obeyed their superior’s intention
to allow understated losses or overstated profits to flow though the accounting
system even if they had discovered such accounting irregularities.

3. Unattainable ifinancial itargets

Duri

Setting iunrealistic igoals iwould ilead ito ioperational imangers iin ithe ifirst LOD setting
unreasonable risk tolerances which might have fallen outside the level set by the Board hence
leading to various fraudulent activities committed by employees. (See exhibit i2 ifrom ithe
iappendix ifor ian iexplanation iof ifraudulent iactivities iusing ithe iFraud iTriangle imodel.)
Compliance functions in the second LOD should have highlighted inappropriate irisk
iappetites iand itolerances iapplied iby the business. Internal auditors in ithe ithird iLOD
should have verified that such financial itargets iwere iunattainable iand iassessed ithe
iinherent irisks iarising ifrom isuch itargets iand ithe ipossibility iof ifraud ito ioccur. The
absence of controls and procedures which gave rise to manipulation of accounts suggested
 that these monitoring activities were either not performed or risk assessments were being
ignored.

4. Auditor’s ifailure ito ichallenge iToshiba’s imanagement

An iindependent icommittee iof iexternal ilawyers iand iaccountants, iformed ion i8 iMay i2015
ito iinvestigate ion ithe iaccounting iscandal, ihighlighted ithat imanagement ihid iinformation
ifrom iE&Y iauditors, imaking iit idifficult ifor ithem ito idetect iaccounting
iirregularities(Nathan iLayne iand iEmi iEmoto, i2015). i iFor iinstance, iin i2012, iToshiba
iaccounting istaff iconcealed iinformation iregarding iwindow istuffing itransactions ibeing iused
ito iinflate iprofits iin iits iPC ibusiness isegment.

However, iE&Y iauditors iwere icriticized ifor inot iquestioning iand iassessing iToshiba’s
iaccounting imethodology iadequately. iOn itwenty ieight iJan i2014, iToshiba’s ipresident,
iHisao iTanaka iwarned ithe ipinnacle iof ipower isystems idivision ithat ithere iwould ibe i“big
itrouble” iif i$396m ilosses ifrom iits iU.S. inuclear iinventor iproject iwere irecognised iin iits
ithird iquarter imoney iresults. iReceiving ithe imessage, icorporate iexecutive iMakoto iKubo
inegotiated iwith iE&Y iauditors ito irearrange ifor ia i“special iexception” iaccounting
itreatment ito ibring ithe iloss iright idown ito i$225 imillion. iThroughout ithe inegotiation,
iKubo iexplained ithat i$107m iought ito ibe iclassified ias iAN i"uncorrected imisstatement".
iThe iauditors isigned ioff ion ithe i$225m iloss ialthough ithat ithey ihad ia iunique iopinion
i.This accounting discrepancy was not disclosed to investors and the panel report highlighted that
the “auditor was too quick to yield to the company when there was any difference in view.” i
Regardless iof iwhether ior inot iE&Y iauditors ias ito ibe idarned, ifailure iduring ithis iextra
iLOD iwill icontribute ito ithe iscandal. iE&Y iShin iNihon iis ipresently iunderneath
iinvestigation iby ithe iJapan iInstitute iof iCertified iPublic iAccountants ion iits iToshiba iaudit

Ethical iIssues:

Individualism
Individuolism iis ia ibraod iethicol itheary ithat istotes ithat ithe isale ioblioation iof ia ibusiness
iis ito imoximize istackhalder iwealth iwithin ithe iconstroints iof ithe ilaw. iFirst, iToshiba idid
inot imoximize istackholder iweolth. iToshiba ireparted irevenue inumbers ithat iwere imuch
ihigher ithan iactuol inumbers. iWhile ithat imay ihove iprofited istackholders iin ithe ishort-run,
iToshiba idid inot iprofit istackholders iin ithe ilang irun ibecouse ithey iwere iforced ito ireport
itheir ilasses, iwhich idrove istock iprices idown. iSecond, iToshiba idid inot iact iwithin ithe
iconstroints iof ithe ilaw. iNot ionly iis iit iillegal ifor ia icarporation ita ireport ifoke inumbers,
ibut iit iis ialso iillegal ifor iToshiba iis iincarrectly iuse ithe ipercentoge-of-completion
iaccaunting iprinciple. iFor ithese ireasons, ian iindividuolist iwould ideclare iToshiba’s ioctions
iunethical.

Utilitarianism

Utilitarianism iis ithe ibelief ithat ia ibusiness' iactions ishould iaim ito imaximize ithe ihappiness
iall iconscious ibeings ithat iare iaffected iby ithe ibusiness iaction. iUtilitarianism iallows
ibusinesses ito ipursue ithe iinterests iof itheir istakeholders ieven iif ievery iindividual iaction
idoes inot idirectly iprofit ithe ibusiness. iUtilitarians ijudge ithe iethicality iof ian iaction iby
iweighing ithe ioverall ihappiness iof iall istakeholders iinvolved.
Therefore, ithe ifirst istep iis ito imeasure ithe ihappiness iof iall ithe ipeople iaffected iby
iToshiba's iactions. iOverall, iToshiba's istakeholders iare iunhappy. iSpecifically, ithe iroughly
i7,000 iconsumer ielectronic iemployees iwho ilost itheir ijobs ibecause iof ithis iscandal, ialong
iwith itheir ifamilies, iare ithe iunhappiest. iAdditionally, ithe icustomers iwho ibought ithose
iconsumer ielectronic iproducts iare ialso iunhappy ibecause ithey iwill ino ilonger ibe iable ito
ibuy iToshiba iproducts. iIn ithe ilong irun, iToshiba's istockholders iare iunhappy ibecause ithe
iscandal icaused istock iprice ito idrop i40 ipercent iover ieight imonths i(Reuters, i2015). iThe
iToshiba iexecutives ithat iresigned ibecause iof itheir iinvolvement iwith ithe iscandal iare
ianother iexample iof iunhappy istakeholders.

There iare iseveral iways ihow iToshiba iovercome ithe iaccounting iscandal iissues:

i. Institution iof iindependent iinvestigation icommittee

In iorder ito iuncover ithe iactual inature iand icauses iof ithe iproblem, iToshiba
iinstituted ian iIndependent iInvestigation iCommittee i(also iknown ias ithe iThird-Party
iPanel) iof iexternal iexperts ithat istarted itheir iinvestigation ion iMay i15, i2015. iThis
ipanel isubmitted iits ireport ito imanagement ion iJuly i20, i2015. iIt iwas idisclosed ito
ithe ipublic ion ithe ifollowing iday. iThe ipanel ihighlighted ithat ithe iprevious iaudit
icommittee, iwhich iwas icomposed iof ia imajority iof ioutside imembers iand iwas
iheaded iby ia iformer iToshiba iemployee i(who iwas iin icharge iof ifinancial iaffairs),
ifailed idue ito itop imanagement’s idesire ito iachieve ihigh iearning itargets. iIt
irecommended ithe icreation iof ia istrong iinternal iaudit idivision. i

The imanagement irenewal icommittee, iwhich iwas iset up to discuss and formulate
measures to prevent the recurrence of the accounting irregularities, seriously considered
establishing a inew iaudit icommittee icomposed ientirely iof ioutside imembers
iincluding ilawyers iand icertified ipublic iaccountants. iThis iwould ienhance ithe
iindependence iof ithe iaudit icommittee iand istrengthen imonitoring iof ithe icompany’s
ipractices. iThe inew iaudit icommittee iwill ibe idelegated iwith iadequate iauthority ito
 icheck ithe ioperations iof ithe icompany in order to prevent the recurrence of accounting
irregularities. It is also planned to establish new measures to enhance internal control
functions.

The iposition iof ithe ichairman iof ithe iexecutive iboard, ithe icore ibody iof iall
imanagement imonitoring imeasures, iwas irecommended ito ibe ia iuniversity iprofessor
iwho iwas ithen iworking ias ian iexternal imember iof ithe icorporate iboard. iThe
iIndependent Investigation Committee also found that all three management
committees—nomination, audit, and compensation—did virtually nothing more than
iapproving iexecutive iappointment iplans iand icorporate istrategies idrafted iby ithe
ichairman, iipresident iiand iiother iidirectors. iiToshiba iiitself iibelieved iithat iithe
iiproblems iistemmed iipartly iifrom iithe iifailure iiof iithese iicommittees iito iicarry
iiout itheir irespective isupervision iof imanagement.

iii. The ilawsuit iagainst iToshiba’s iformer itop imanagement

In iresponse to the vociferous complaints of shareholders, Toshiba established its

Executive Liability Investigation Committee (ELIC). It is staffed with three outside
legal experts to operate under authority of Article 847(1) of the Companies Act, 2005.
Based on this committee’s recommendations, Toshiba has filed a lawsuit against some
members of the top management involved in the fraud. The panel investigated
potential negligence by ninety-eight board directors and executive officers who were
in office from March 2009 to December 2014.

iv. The introduction of an annual vote of confidence on the president

In iiaddition iito iithe management reform plan described above, Toshiba has decided to
introduce an annual vote iiof iiconfidence iiprocedure iiunder iiwhich senior managers
express their opinion on the ability iiof iithe iipresident iito iirun iithe iicompany. iiAn
iianonymous confidence vote will be held in iiNovember iieach iiyear iito iigrant iia
 iimandate ifrom senior managers in about 120 positions including executive officers,
department chiefs and branch managers, but excluding directors.

Recommendations:

Analyzing the above report, we figured out some particular suggestions to prevent the repeat of
unsatisfactory business approaches over business units of Toshiba. These suggestions
incorporate the corporate culture reformation, eliminate of the target system of profit targeting on
and restoration of internal controls and solid corporate governance. Our recommendation also
includes creation and advancement of a powerful Whistleblower system in which employees do
not have to be afraid of using it.

Responding the investigation, Toshiba gave an announcement plotting the underlying moves it
would make in light of the report. The organization has vowed to look at the consequences of the
investigation altogether and to mirror the report proposals in its strategic approaches going
ahead. Toshiba further vowed to report the aftereffects of its assessment procedure in a timely
manner.

1. A icorporate iphilosophy iwith iclear icorporate iethics imust ibe icreated

Most isignificant iand ieffective imeasure ithat ican ibe itaken iis ichanging ithe imindset iand
icorporate iculture iset iout by senior administration. Toshiba accounting scandal ifrom iweight
ifrom isenior imanagement. iWorkers iwere inot iable ichallenge their bosses' expectations.
Essential for Toshiba's senior management to icomprehend ithe inegative ieffects iof itaking ipart
in fraudulent accounting activities. A culture where workers can unreservedly draw iin iwith
itheir ibosses imust ibe icreated.

2. A irealistic ibusiness iplan iand ibudget ishould ibe iestablished ibased ion iToshiba's
icapability
It iprevents ithe iestablishment iof iunrealistic targets and reduces the pressure on employees.
iDiscourages ithe imanipulation iof the financial statement.
 3. A change in accounting policies imust ibe iimplemented
It iis iimperative ithat proper accounting procedures are followed iand ienforced iproperly.
iToshiba ifrequently ishowed ithe ifuture iprofits iin iearly. iSpecial iemphasis ishould be in
place ito ireform irevenue irecognition ipractices.

4. Establishment iof ia inew iinternal iaudit idepartment iis ineeded

Hire inew, italented iand imore iexperienced iinternal iauditors. iInternal iaudit idepartment
ishould ibe iindependent ifrom iToshiba’s iother idepartments. iMake isure iinternal iauditors
ireport igoes idirectly ito iAudit iCommittee ior iBoard iof iDirectors.

5. Implement ia iwhistle iblower isystem

Company ishould ioperate iin ia iway iwhere iwhistleblowers itrust iand iare icomfortable iusing
ithe isystem. iEducate ievery iToshiba iemployee iabout ithe iwhistleblower isystem.

To iregain itrust, iToshiba ineeds ito draft an integrity-based code of iethics. iSuch ia icode
iwould icertainly iinclude igovernance irules iprohibiting iillegal behavior, but go ia istep
ifurther iand ipromote imoral ibehavior. This can be done by iestablishing ia iset iof icorporate
ivalues ithat iopenly isupport ihonesty iand integrity, while focusing on that all staff, the
executives and particularly the administration at the itop, iare iresponsible ifor itheir iactivities
iand to one another.
4.0 Application of Ethical Theories and Governance Principles

4.1 Ethical theory

Based ion ithe iToshiba’s iaccounting iscandal, ithe imost iappropriate iethical itheory ito
i address ithe iissue iis ithe ivirtue iethics itheory. iVirtue iethics iis ione iof ithe imoral
itheories i that istress ithe irole iof ian iindividual’s icharacter iand ivirtues iin iassessing ithe
rightness of a person’s actions. An alternative understanding of individual ethics involves
virtue theory, which explores how desirable character traits guide how ethical situations are
addressed (Valentine, 2016). According to Oakley (1996), it ican ibe iseen iin ivirtue i
ethics ithat igoodness iis iprior ito irightness i(Sakellariouv, 2015). iTherefore, ia iperson
i must ihave ian iaccount iof iwhat a virtue truly means before that person can evaluates
whether that particular action is right or wrong.

Virtue iethics iconsist iof iinternal igoals iand iexternal igoal. iBased ion ithe icase, ithe
iinternal igoals iof iToshiba iCorporation ishould ifocus ion ipersonal icharacter isuch ias
iintegrity, iconstancy, iand imoral iand iintellectual iinterests ior ipursuits iof ithe
iorganization ias ia iwhole. On the other hand, external goals should include promoting
good and dignity among various groups, as well as well-being of stakeholders.
Unfortunately, Toshiba failed to fulfill both of these goals. By implementing virtue ethics
in Toshiba Corporation, it is supposed to provide managers and top management an
opportunity to question themselves what kind of people they have become after the
accounting scandal has been exposed to the public? They also failed to question
themselves how did the scandal impact other stakeholders? By applying virtue ethics in
the organization, it should give them an opportunity to consider the ethical business
environments and cultures that they should have built after the scandal to make it right to
the stakeholders.

Based on the capabilities-based framework, Toshiba Corporation failed to instill virtue

ethics of integrity in the organization. Instead, it must be instilled from the top
management to the lower level employee. The accounting and finance department, the
 chief financial officer as well as the audit committee must go through ethics training that
emphasize on integrity virtue. The top management also did not model integrity virtue.
Furthermore, Toshiba also was unsuccessful to identify and hire individuals who
symbolize integrity. Additionally, there should be some policies or practices in Toshiba
that assist in the development of ethics programs that highlight integrity virtue.

4.2 Corporate Governance Principles

Corporate governance is the system of rules, practices and processes by which an

organization is directed and controlled. Based on the Toshiba Accounting Scandal, it
shows that the company has very bad governance practices which resulted in the
scandal. There are several corporate governance principles that Toshiba Corporation
should implemented in their organization in order to improve the situation.

i. Accountability

The code pledges for accountability of the Company’s Board of Directors to all
shareholders in line with the applicable law. The code also gives assistance to the Board
of Directors in decision making process as well as monitoring the activities of the executive
bodies. Accountability means answerability or liability. Shareholders are heavily interested
in who will be responsible to take the blame when things go down in an organization. In
this case, the aftermath from the scandal resulted to Toshiba’s two former Chief Executive
Officers named Atsutoshi Nishida and Norio Sasaki resigning. Apart from that, half of the
16 members of the board of directors were resigning as well.

ii. Fairness

Fairness means that the company must be responsible to protect the shareholders’ rights
and making sure of equal treatment between them. Toshiba should have acted on the best
interest of their shareholders. A high profit might look appealing on the outside but once the
scandal has been revealed, it reduces the shareholders’ confidence towards Toshiba.
Therefore, the directors should give these shareholders the chance to get effective indemnity
for violating their rights.

iii. Transparency
 Transparency means that the company must furnish timely, accurate disclosure of
information regarding the company’s financial situation, social and environmental
indicators, performance, ownership structure and governance of the company. The
stakeholders should also have free access to such information. Obviously this did not
happen in Toshiba Corporation as the company is lacking transparency and they have
gotten away with overstating the operating profits by at least $1.2 billion between 2008
and 2014. There are also some issues regarding improper valued inventory and understating
costs of long-term projects.

Conclusion

Pressure to show a profit has led Toshiba being involved with a massive accounting
scandal. The impact is so severe that the president and seven other directors were sacked
off immediately when it was revealed that Toshiba had doctored the books and inflated their
profits for the past seven years. Without a doubt, this is one of Japan’s biggest corporate
scandals in years.
This accounting scandal has affected various stakeholders as well as the economy as
well. From the resignation of the CEOs to a decrease in Toshiba’s shares and market
price, everything that revolved around the company was affected badly. This shows
how important it is for a company to have a robust corporate ethics value being
implemented in the organization. Further recommendations such as the
implementation of whistleblower, new internal audit department and a realistic
business and budget plan as well as a change in accounting policies should be taken
into considerations by Toshiba.

If we compare with the Enron case, Toshiba is far more fortunate. Even if the fraud
was discovered and it resulted in massive changes taking place, at least the company
is still standing strong until today. It is not the same case as Enron, when the company
lost everything due to another accounting scandal. On the bright side, it does feel like
Toshiba is getting another second chance to make things right. Toshiba really needs to
step up their game and really act in accordance with the Corporate Governance
Principles because if another scandal shows up, there might not be another chance for
the company to own up to their mistakes.

In September 2015, it was reported that an emergency shareholder meeting was held
to approve a new management team for Toshiba. However, this raises a lot of
controversial questions from the public. Will this be enough for the 140-year-old
company to make a fresh start? Will it provide some sort of assurance that this kind of
scandal will not occur ever again? What are the impressions of the public and will
they ever gain back their shareholders’ trust? In conclusion, Phaedrus once said:
“Whoever is detected in a shameful fraud is ever after not believed even if they speak
the truth”.
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