Toshiba Accounting Scandal: Business Ethics and the Media

Introduction: Toshiba's Legacy and the Scandal

Along with Sony, the Toshiba Corporation is one of the most legendary and well-known Japanese technology companies in the world. According to the "History of Innovation" section of its official corporate website, Toshiba boasts a long and proud 135-year technological history. In the past thirty years, the company introduced the first laptop computer for average consumers, the first wireless laptop, and the world's thinnest widescreen laptop ("History of Innovation," 2017). It has also achieved groundbreaking innovations in DVDs, televisions, and other consumer products. Yet while Toshiba has been trusted for many years to produce high-quality goods, it has also cultivated a highly insular culture of loyalty that has fostered a breeding ground for corruption ("History of Innovation," 2017). Toshiba was recently beset by a serious accounting scandal that tarnished the reputation of the corporate giant. In the wake of the scandal, the company's internal culture, Japan's external corporate culture, and the ethical conduct of both employees and its CEO were cited as causes.

Toshiba's accounting scandal is noteworthy for several critical reasons. "In other countries where you have corporate governance missteps and failure, many of them are motivated by personal greed, self-interest of some kind," noted Nicholas Benes of the Japanese Board Director Training Institute ("Toshiba Crisis," 2017, par. 5). In this particular instance, Toshiba's accounting irregularities "primarily stem from company employees understating costs on long-term projects" and improperly valuing inventory, which ultimately resulted in an overstatement of the company's profits (Du, 2017, par. 1). According to some analysts, the apparent absence of personal self-interest on the part of the responsible employees is what gives the scandal its most noteworthy features when compared to other corporate scandals.

Media Coverage and Article Comparison

While accounting scandals have emerged around the world, most news media framed Toshiba's scandal as an inherently Japanese phenomenon. Rather than manipulating the books to advance personal self-interest, according to the French news agency Agence France-Presse, the employees were more focused on preserving the reputation of the company above all else. "This allegiance is closely linked to post-war Japan's meteoric rise from shattered nation to the world's number two economy. Employees did not ask questions and devoted themselves to the company's success in return for lifetime employment" ("Toshiba Crisis," 2017, par. 8–9). Agence France-Presse's article on the crisis noted that many Japanese employees are recruited directly from university and have spent their entire lives working toward positions within the corporate hierarchy.

Although Japan's corporate work ethic and many of its management systems — Just-In-Time inventory practices and Total Quality Management both have their origins in Japan — have been widely praised in the United States, Europe has been more critical of Japanese workaholic attitudes. The fact that the article was published by a French news agency may be significant. Although the scandal is relatively recent and the financial manipulation dates back to the global economic crisis of 2008, the article also places considerable emphasis on the Asia-specific financial crisis of the 1990s as a contributing origin point. Those crises had a particularly devastating effect on Japan, ultimately resulting in it falling behind China in terms of economic growth rate ("Toshiba Crisis," 2017). This was not only economically harmful but was personally humiliating for many Japanese companies whose corporate culture had previously been celebrated as unassailable.

Japanese Corporate Culture and Regulatory Failures

The emphasis on securing a position within Japan's corporate hierarchy creates a "yes-man" mentality and encourages employees to please their superiors rather than act according to objective ethical standards. Japanese corporate culture places a premium on saving face over honesty and factual reporting. The Agence France-Presse article also noted that the Japanese government has not always been particularly vigilant in policing corporations, owing to the close relationships between many government officials and members of powerful corporations. "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" ("Toshiba Crisis," 2017, par. 20). In short, government officials who look the other way may be incentivized by the prospect of lucrative private-sector employment after retiring from public service. This dynamic further entrenches a corporate culture of corruption, since it creates the assumption that regulators — even if alerted to fraud — will not act on their knowledge.

Conclusion

The degree to which managers, individuals, regulators, or corporate culture may be blamed for the scandal continues to be debated. But what is clear is that all must experience a shift in perspective to prevent such scandals from occurring again. While a lack of regulation may have fostered the notion that financial irregularities would be overlooked, the willingness of employees to act unethically — combined with managerial encouragement and even the incentivizing of such behavior — are equally to blame.