Toshiba’s Accounting Scandal (Research Paper Sample)

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Toshiba’s Accounting Scandal
Toshiba Corporation is a Japan-based multinational company, headquartered in Tokyo. The company offers various products and services, including ICT equipment, consumer electronics, home appliances, lighting, logistics, industrial and social infrastructure systems. Founded in 1939, Toshiba has since attained sustainability and grown to the ranks of globally-recognized technological entities. On July 15, 2015, the then Toshiba CEO Hisao Tanaka announced his resignation following a 1.2 billion USD operating profits scandal (Caplan, Dutta, and Marcinko 43). Earlier, Japan’s Securities and Exchange Surveillance Commission investigated accounting irregularities concerning Toshiba’s profit as well as long-term projects. The independent investigative panel pointed out that improper accounting had been occurring for over seven years. On July 20, 2015, the issue turned into a scandal, and among the implicated were two former CEOs as well as Tanaka (Suzuki and Yamada 1). Based on the investigative report, the CEOs did not directly take part in the scandal. However, they are accused of imposing immense pressure on their subordinates, which led to a negative impact on the corporate culture. Ultimately, the aftermath of the scandal was disastrous.
The investigators into Toshiba’s activities found extensive financial irregularities in multiple business units, including the semiconductor unit and the PC unit. According to Caplan, Dutta, and Marcinko, the contentious records began under the leadership of Atsutoshi Nishida in 2008 (47). The events are related to the global financial crisis that impacted the profitability of several companies in the worldwide enterprise arena. Reportedly, Norio Sasaki, the company’s next CEO, was unable to bait the occurrences, which continued until Tanaka’s tenure. Future profits were booked early, an aspect that pushed back on loses, bank charges, and other financial mishaps (Suzuki and Yamada 1). This financial technique resulted in overstated profits. Besides, the culture enforced by the management to subordinate employees further escalated the situation. Following the scandal, Tanaka resigned, followed by eight other officials with a direct link to the unverifiable account activities. Another negativity following the irregularities was a sharp decline in the company’s trajectory, which was approximated to one-third in six months.
Ethical Aspect of the Scandal
Toshiba's scandal exemplifies massive failure in the corporate culture. Despite having outstanding ethical behavior and corporate governance, the company had ineffectively monitored its culture. This presents an example of how issues of organizational culture can undermine even the most robust corporate governance. Toshiba’s corporate culture made it impossible to go against the actions of the supervisors. In Japan, for instance, it is unethical to question superiors, let alone act against their wishes. Newton points out various morality systems aimed at alleviating heinous acts (50). The author majorly focuses on the principle of beneficence, which guides humanity to do what is right and good. Primarily, the beneficence principle prioritizes the need to do "good," which in turn sensitizes ethical perspectives and possible solutions towards acceptance ethical dilemmas. Caruso backs the findings by relating beneficence to the principle of utility, which emphasizes on the attempt to generate the most significant ratio of good over evil (33). Ultimately, Tanaka and his predecessors failed to observe the policy and deviated from following company regulations. As a result, the company faced extemporary skirmishes.
The deontology class of ethical theories argues that people ought to adhere to their obligations as well as duties. This means that individuals are obliged to follow existing regulations governing specific corporates. Upholding one's commitment and responsibilities is considered ethically right within a society, institution, or corporate (Caruso 34). However, Toshiba failed to promote moral theory before the scandal. For instance, Tanaka was unable to exemplify corporate governance inside the company. This facet is reported to have directly caused the embarrassment. Essentially, persons who adhere to deontology exhibit consistently in decision making with the basis of set duties. Tanaka's actions deviated from the theory's argument as he is reported to have obliged company regulations by forcing employees towards his desired objectives. Nevertheless, the deontology theory has its flaws, which in this case could expound Toshiba's actions. For instance, a manager may decide to devise personal duties since there is no rationale in determining specific responsibilities. To this end, it is clear that before the scandal, Toshiba had failed in its functions leading to deviation from the entity’s obligations.
Officials of Toshiba failed to rule out a poorly functioning system of internal controls. Toshiba’s top executives were reported to have been unable to scrutinize internal controls in the finance, risk management as well as corporate auditing departments. As such, the organizational leadership handed down strict profit targets that deviated from corporate culture. Besides, presidents of the business unit were pressured to provide specified profit margins at all odds, thus the need to doctor figures. The junior managers were obliged to adhere to the new culture, which failed to recognize the initial long-term goals. This coupled with a zero Tolerance for failure rule but pressure on employees hence the poor performance. Based on conventional knowledge notions, the above expectations could only result from the use of irregular accounting techniques. Kantian theory, a derivative of deontological theories, argues that people must act from duty and act from goodwill since such behavior have the interest of majority at heart (Wood 35). Toshiba's top executives seem to forfeit these rules by working to enforce authority in the conglomerate while presenting unjustifiable profit margins.
The utilitarianism theory is based on the ability to predict the consequences of any action effectively. According to Wood, the approach determines right from wrong by focusing on the outcomes (69). In this regard, the most ethical steps are considered to be those that yield higher positive results for the most considerable number of people. In this case, Utilitarianism is a normative ethic defining the morality of actions. The theory obliges Tanaka and other top Toshiba executives to act in a way that benefits the entity's stakeholders, including investors, clients, the community, government, and non-governmental agencies. Ultimately, the conduct of Toshiba's senior executives left Toshiba's corporate culture and governance in turmoil (Suzuki and Yamada 1). Although there were systems in place to curtail such a scandal, the decisions and actions taken by the executives were corrupt. This caused employee dissatisfaction, a decline in the company's productivity, and negative public relations. Thus, the efforts of the management failed to uphold the utilitarianism theory, which supports justice and beneficence principles. In essence, the administration was greedy enough to make decisions based on personal aspirations rather than focusing on mass benefactors. Regardless, uncertainty may play a part in pragmatic choices; hence, a decision-maker must champion the achievement of the maximum good.
The Toshiba team resigned following investigations and submission of the infamous report. This aspect thus expounds on their virtues. According to Newton, virtues and ethics defines individuals’ character, and as such, virtuous people aspire to live and possess the virtues (22). Virtues are habitual and develop over time, but failure to exhibit ethically acceptable personal attributes is considered unethical and a form of misconduct. In this regard, the resignation of Toshiba's official asserts their disregard for socially acceptable morals, which was potentially triggered by shame from the investigation. Therefore, top management is responsible for reviews on performance levels and the presentation of reliable financial data.
Addressing the Issue
Following the scandal, Tanaka, Sasaki, and six other directors stepped down. Chairman Muromachi Masashi was appointed as the acting president whose role was to overhaul company structure. Also, a new management team was set to assume office by August 2015. Along with leadership changes, the company announced its decision to cut jobs and undergo division adjustments. The approach aimed at minimizing costs by restructuring the Japanese tech firm. The changes contributed to a loss amounting to 4 billion USD by the end of March 2016 (Dugar and Gujarathi 127). Additionally, the company reshuffled its culture to promote an inclusive concept that facilitates employee engagement. Based on Suzuki and Yamada (2016) analysis, Toshiba was fined about 17.4 billion USD for gross misconduct in order to resume operations. The company’s chief executive officer, Koichi Hanabusa, was also forced to resign while other employees linked to the scandal received a 30% pay cut (Caplan, Dutta, and Marcinko 50). The pay cut was aimed at offsetting the fine without necessarily imposing a heavy burden on the company or causing further interruptions to the supply chain (Dugar and Gujarathi 119). The medical equipment unit was also sold for over 6 billion USD to Toshiba’s direct competitors. The move was meant to calm shareholders following the turmoil.
Possible Solutions
The Toshiba accounting scandal was solved by salvag...