Toshiba Scandal Analysis and Ethics
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This assignment delves into the Toshiba accounting scandal of 2015. It requires an analysis of the events, including the overstatement of profits and the subsequent cover-up. Students must examine the ethical implications of these actions, considering relevant theories and frameworks. Additionally, the assignment explores the legal consequences faced by Toshiba and its executives, as well as the broader impact on corporate governance and organizational culture.
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Title of Work :
A CRITICAL DISCUSSION AND EVALUATION OF BUSINESS
ETHICS IN TOSHIBA CORPORATION
INDEX
Contents Page No.
1
A CRITICAL DISCUSSION AND EVALUATION OF BUSINESS
ETHICS IN TOSHIBA CORPORATION
INDEX
Contents Page No.
1
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Essay (4 Paragraphs) 3-5
Paragraph 1 : Introduction & History
Paragraph 2 : Culture
Paragraph 3 : Theories
Paragraph 4 : Breaking News
References 5-8
For the present study, I have chosen Toshiba Corporation. It is a conglomerate company,
founded in 1875. It provide best quality products and services such as, consumer electronics,
communication equipment, electrical appliances, household appliances, elevators, office gadgets
nuclear power systems, industrial and social infrastructure systems etc (Toshiba Corporation, 2014).
However, from the Olympus scandal, it has been identified that almost $1.7bn losses are suffered
by entity. Toshiba has dishonored country with corporate misgovernance by exaggerating its
operating revenue by $1.22bn; 151.8bn yen since several years (Penman, 2015). In the 140 years of
the history of company, it was the most disgraceful incident. It lead to severe impact on the
reputation of organization. The Securities and Exchange Surveillance Commission (SESC) of Japan
set up the enquiry after obtaining a information from an unidentified whistle-blower (Chhabara,
2
Paragraph 1 : Introduction & History
Paragraph 2 : Culture
Paragraph 3 : Theories
Paragraph 4 : Breaking News
References 5-8
For the present study, I have chosen Toshiba Corporation. It is a conglomerate company,
founded in 1875. It provide best quality products and services such as, consumer electronics,
communication equipment, electrical appliances, household appliances, elevators, office gadgets
nuclear power systems, industrial and social infrastructure systems etc (Toshiba Corporation, 2014).
However, from the Olympus scandal, it has been identified that almost $1.7bn losses are suffered
by entity. Toshiba has dishonored country with corporate misgovernance by exaggerating its
operating revenue by $1.22bn; 151.8bn yen since several years (Penman, 2015). In the 140 years of
the history of company, it was the most disgraceful incident. It lead to severe impact on the
reputation of organization. The Securities and Exchange Surveillance Commission (SESC) of Japan
set up the enquiry after obtaining a information from an unidentified whistle-blower (Chhabara,
2
2015. Prior to the detection of this fraud, Toshiba was considered among the reputed organization
and as corporate governance leader in Japan. The enquiry by (SESC) impelled the Hisao Tanaka,
the organizations president, vice chairman and adviser and more than half of board members quit
their post. Therefore, the news of scandal spread like, fire in the forest leading to the reduction in
the share value of Toshiba by 30% (Inagaki, 2015). The establishment appointed the board chairman
as interim chief executive with a 90% cut in his salary (BBC Business News, 2015).
It is argued that lack of communication among executives and members is prime reason for
the incident happened in Toshiba. The most usually practices Social Contract in country is stimulate
individuals to remain life time loyal to the organization where they are employed (Hashimoto,
1996). it is the main reason due to which, whistleblowing does not match the social system of
Japan. Considering, the case of the "Olympus" scandal, the whistleblower, Michael Woodford, the
chief executive of Toshiba was a British national. The board of directors of company, subsequently
sacked him for funding the $2bn of crafty payments (Greenfeld, 2012). It has been identified from
the news article showcased on BBC that culture of Toshiba is one dominated by the senior
personnel. Therefore, the junior employees are not in position to question and oppose their
superiors. Accordingly, when superior personnels bestowed any challenges, departmental heads,
line managers and personnels beneath them constantly, performed wrong accounting practices to
accomplish the commands of superiors. This represents that the culture within the entity had turned
into an dishonourable combination of role and power cultures (Handy, 1976; 1993 & Harrison,
1972). The superior personnels had totally forgotten the "Care Ethics" by paying less attention on
the low-level employees (Gilligan, 1982). Therefore, it can be stated that due to lack of freedom
provided to lower level employees and ineffective communication, the mistake on the part of top
most authority could not be identified. Hence, it can be learnt from the case of Toshiba that, It is
important for organizations to encourage a speak-up culture so that employees can represent their
views, ideas, issues and discuss on other business matters (Balthazard et al., 2006). According to the
views of Lawrence Repeta, a law professor at Meiji University, Toshiba also suffered from legal
issue in addition to the cultural confusion as company had to deal with improper use of accounting
practices(Kitanaka & Reynolds, 2015). The scam of company can be compared to that of Enron,
USA which reveals that the big entities providing support to voluntary organization or charities are
not necessarily ethical. This can be proven from the incident that, prior to disclosure of this
scandal, Toshiba had donated ¥7mn to the victims of Nepal earthquake (Toshiba Corporation,
2015). It showcase that, the management played with the figures to make more wealth by luring the
3
and as corporate governance leader in Japan. The enquiry by (SESC) impelled the Hisao Tanaka,
the organizations president, vice chairman and adviser and more than half of board members quit
their post. Therefore, the news of scandal spread like, fire in the forest leading to the reduction in
the share value of Toshiba by 30% (Inagaki, 2015). The establishment appointed the board chairman
as interim chief executive with a 90% cut in his salary (BBC Business News, 2015).
It is argued that lack of communication among executives and members is prime reason for
the incident happened in Toshiba. The most usually practices Social Contract in country is stimulate
individuals to remain life time loyal to the organization where they are employed (Hashimoto,
1996). it is the main reason due to which, whistleblowing does not match the social system of
Japan. Considering, the case of the "Olympus" scandal, the whistleblower, Michael Woodford, the
chief executive of Toshiba was a British national. The board of directors of company, subsequently
sacked him for funding the $2bn of crafty payments (Greenfeld, 2012). It has been identified from
the news article showcased on BBC that culture of Toshiba is one dominated by the senior
personnel. Therefore, the junior employees are not in position to question and oppose their
superiors. Accordingly, when superior personnels bestowed any challenges, departmental heads,
line managers and personnels beneath them constantly, performed wrong accounting practices to
accomplish the commands of superiors. This represents that the culture within the entity had turned
into an dishonourable combination of role and power cultures (Handy, 1976; 1993 & Harrison,
1972). The superior personnels had totally forgotten the "Care Ethics" by paying less attention on
the low-level employees (Gilligan, 1982). Therefore, it can be stated that due to lack of freedom
provided to lower level employees and ineffective communication, the mistake on the part of top
most authority could not be identified. Hence, it can be learnt from the case of Toshiba that, It is
important for organizations to encourage a speak-up culture so that employees can represent their
views, ideas, issues and discuss on other business matters (Balthazard et al., 2006). According to the
views of Lawrence Repeta, a law professor at Meiji University, Toshiba also suffered from legal
issue in addition to the cultural confusion as company had to deal with improper use of accounting
practices(Kitanaka & Reynolds, 2015). The scam of company can be compared to that of Enron,
USA which reveals that the big entities providing support to voluntary organization or charities are
not necessarily ethical. This can be proven from the incident that, prior to disclosure of this
scandal, Toshiba had donated ¥7mn to the victims of Nepal earthquake (Toshiba Corporation,
2015). It showcase that, the management played with the figures to make more wealth by luring the
3
prospective shareholders. Nevertheless, later it was stated that charity was at the price of the stock
value of company, reputation of brand and customers trust in Toshiba. This further reminds the
saying of Orson Welles's (Character Name: Charles Foster Kane) dialogue from his 1941 hit
'Citizen Kane',
“Well, it is no trick to make a lot of money, if all you want is to make a lot of money.”
Other than the direct interests of the investors in the organization, there are some other
groups and individuals that must be also reasoned. They are further said stakeholders who are
directly or indirectly affected by the decisions taken by company. As per the explanation of
Freeman's Stakeholder Approach the significance of Stakeholders, such as customers, employees,
management, suppliers, capitalist, administrative body, local communities, political groups, trade
unions, etc are some groups and individuals included among the stakeholders list(Freeman, 1984;
2004). In addition to this aspect, rivals are also considered among stakeholders as their market
position can impact the company and other members related to it. In the case of Toshiba, it can be
stated that it is the responsibility of the institution to enhance profits and provide return to
shareholders and stakeholders in lieu of their support(Friedman, 1970). Further, from the Argenti's
three class of stakeholders will provide more understanding about this cozenage and its impact on
organizational members(Argenti, 1976). The classification of stakeholders is based on their position
and power to determine the operations of entity (Miles, 2011; 2012). In this respect, the internal
stakeholders such as management and employees had a huge communications disparity within
Toshiba. Due to this, employees were not able to able to question the wrong accounting practices
used by them. Nevertheless, it can be stated that whistleblowers are important and beenficial for the
company as they safeguard the business from heading towards the intense situation (Biegelman &
Bartow, 2012). After the investigation by authorities, (SESC) both employees and management
were either forced to leave the company or work at reduced wages(Mochizuki, 2015). other than
this, those stakeholders that got smitten by scamp were immediately external to the organization
like customers, financial institutes, suppliers etc (Alkhafaji, 1989). The scamp resulted into drastic
fall in sales of Toshiba products as customers started raising questions on the product quality,
destructed reputation of brand, after sale services etc. It further resulted into reduced supply needs,
that impacted the supply organization as well due to which they were forced to trim the jobs. The
financial institutions had their finance blocked which further forced them to cut the jobs and
remove the unproductive employees. Other than this scandal has also elevated the concerns over the
4
value of company, reputation of brand and customers trust in Toshiba. This further reminds the
saying of Orson Welles's (Character Name: Charles Foster Kane) dialogue from his 1941 hit
'Citizen Kane',
“Well, it is no trick to make a lot of money, if all you want is to make a lot of money.”
Other than the direct interests of the investors in the organization, there are some other
groups and individuals that must be also reasoned. They are further said stakeholders who are
directly or indirectly affected by the decisions taken by company. As per the explanation of
Freeman's Stakeholder Approach the significance of Stakeholders, such as customers, employees,
management, suppliers, capitalist, administrative body, local communities, political groups, trade
unions, etc are some groups and individuals included among the stakeholders list(Freeman, 1984;
2004). In addition to this aspect, rivals are also considered among stakeholders as their market
position can impact the company and other members related to it. In the case of Toshiba, it can be
stated that it is the responsibility of the institution to enhance profits and provide return to
shareholders and stakeholders in lieu of their support(Friedman, 1970). Further, from the Argenti's
three class of stakeholders will provide more understanding about this cozenage and its impact on
organizational members(Argenti, 1976). The classification of stakeholders is based on their position
and power to determine the operations of entity (Miles, 2011; 2012). In this respect, the internal
stakeholders such as management and employees had a huge communications disparity within
Toshiba. Due to this, employees were not able to able to question the wrong accounting practices
used by them. Nevertheless, it can be stated that whistleblowers are important and beenficial for the
company as they safeguard the business from heading towards the intense situation (Biegelman &
Bartow, 2012). After the investigation by authorities, (SESC) both employees and management
were either forced to leave the company or work at reduced wages(Mochizuki, 2015). other than
this, those stakeholders that got smitten by scamp were immediately external to the organization
like customers, financial institutes, suppliers etc (Alkhafaji, 1989). The scamp resulted into drastic
fall in sales of Toshiba products as customers started raising questions on the product quality,
destructed reputation of brand, after sale services etc. It further resulted into reduced supply needs,
that impacted the supply organization as well due to which they were forced to trim the jobs. The
financial institutions had their finance blocked which further forced them to cut the jobs and
remove the unproductive employees. Other than this scandal has also elevated the concerns over the
4
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quality of account auditors in Japan. Further, it was identified as per international standards that,
accountants in Japan are among the lowest paid. Toshiba paid Ernst & Young ShinNihon 0.015% of
turnover for the year ending March 2014 (Gillem, 2014). therefore, it is important for government
to consider the quality and intensity of underpaid and overburdened accountants. Further, the
external stakeholders like, government authorities, social reformer, community, professional bodies
were also affected by the scandal. In this respect, the small enterprises dependent of Toshiba within
local communities were forced to either close their business or trim jobs. However, government of
Japan got two way results. Since, Toshiba intentionally displayed an exaggerated revenue, that
means, they got additional tax, and this benefited the community also. While, in the long run,
government was forced to undergo a large setback to attempt to win the trust of international
investors. In this state of affairs, the Rational Choice Theory can be practically employed to help the
government to select one of either more tax or more global investors (Sen, 2008). In addition to this
aspect, managers in any entity should consider the theory of Egoism for the self-interests of these
groups while pursuing owns (Lennox, 2011).
Just in (1130hours), Al Jazeera Reported, "Toshiba finishes another 6800 jobs, as its shares
plunged by 9% this morning with company expects $4.5bn loss in this fiscal year to March."
(Dobie, 2015 Dec 21).
References :
Alkhafaji, A. F. (1989). A stakeholder approach to corporate governance: Managing in a dynamic
environment. New York [u.a.]: Quorum Books.
Argenti, J. (1976). Corporate collapse: The causes and symptoms. London : McGraw-Hill.
Balthazard, P. A., Cooke, R. A., & Potter, R. E. (2006). Dysfunctional culture, dysfunctional
organization. Journal of Managerial Psychology,21(8), 709-732.
BBC Business News. (2015). Toshiba chief executive resigns over scandal. Retrieved 15 December,
2015, from http://www.bbc.co.uk/news/business-33605638
Biegelman, M., & Bartow, J. (2012). Executive roadmap to fraud prevention and internal control
5
accountants in Japan are among the lowest paid. Toshiba paid Ernst & Young ShinNihon 0.015% of
turnover for the year ending March 2014 (Gillem, 2014). therefore, it is important for government
to consider the quality and intensity of underpaid and overburdened accountants. Further, the
external stakeholders like, government authorities, social reformer, community, professional bodies
were also affected by the scandal. In this respect, the small enterprises dependent of Toshiba within
local communities were forced to either close their business or trim jobs. However, government of
Japan got two way results. Since, Toshiba intentionally displayed an exaggerated revenue, that
means, they got additional tax, and this benefited the community also. While, in the long run,
government was forced to undergo a large setback to attempt to win the trust of international
investors. In this state of affairs, the Rational Choice Theory can be practically employed to help the
government to select one of either more tax or more global investors (Sen, 2008). In addition to this
aspect, managers in any entity should consider the theory of Egoism for the self-interests of these
groups while pursuing owns (Lennox, 2011).
Just in (1130hours), Al Jazeera Reported, "Toshiba finishes another 6800 jobs, as its shares
plunged by 9% this morning with company expects $4.5bn loss in this fiscal year to March."
(Dobie, 2015 Dec 21).
References :
Alkhafaji, A. F. (1989). A stakeholder approach to corporate governance: Managing in a dynamic
environment. New York [u.a.]: Quorum Books.
Argenti, J. (1976). Corporate collapse: The causes and symptoms. London : McGraw-Hill.
Balthazard, P. A., Cooke, R. A., & Potter, R. E. (2006). Dysfunctional culture, dysfunctional
organization. Journal of Managerial Psychology,21(8), 709-732.
BBC Business News. (2015). Toshiba chief executive resigns over scandal. Retrieved 15 December,
2015, from http://www.bbc.co.uk/news/business-33605638
Biegelman, M., & Bartow, J. (2012). Executive roadmap to fraud prevention and internal control
5
creating a culture of compliance (2nd ed.). Hoboken, N.J.: Wiley.
Carrie, P. (2015, July 23). Toshiba Scandal Underscores the Importance of a Speak-Up Culture.
[Weblog]. Retrieved 15 December 2015, from http://blog.navexglobal.com/2015/07/23/toshiba-
scandal-underscores-importance-speak-culture
Chhabara, R. (2015, Aug 06). Toshiba - Japan’s latest corporate catastrophe. Retrieved 9 December,
2015, from http://www.ethicalcorp.com/stakeholder-engagement/asia-column-toshiba-japans-latest-
corporate-catastrophe
Dobie, P. (Presenter). (2015, December 21). Al Jazeera News at 1130 hours [Television: News].
Doha, Qatar: Al Jazeera.
Farrell, S. (2015, July 21). Toshiba boss quits over £780m accounting scandal. Retrieved December
12, 2015, from http://www.theguardian.com/world/2015/jul/21/toshiba-boss-quits-hisao-tanaka-
accounting-scandal
Freeman, R. (2004). The stakeholder approach revisited. Zeitschrift Für Wirtschafts- Und
Unternehmensethik, 5(3), 228.
Freeman, R. (1984). Strategic management: A stakeholder approach. Boston: Pitman.
Friedman, M. (1970). The Social Responsibility of Business Is to Increase Its Profits. Corporate
Ethics and Corporate Governance, 173-178.
Gillem T. (2014, Nov 05). GMT Research: Suspicious Behaviour. [Research] Hong Kong.
Gilligan, C. (1982). In a different voice: Psychological theory and women's development.
Cambridge, MA; London;: Harvard University Press.
Greenfeld, K. T. (2012). The silencing of michael woodford.Bloomberg Businessweek,(4267), 68.
6
Carrie, P. (2015, July 23). Toshiba Scandal Underscores the Importance of a Speak-Up Culture.
[Weblog]. Retrieved 15 December 2015, from http://blog.navexglobal.com/2015/07/23/toshiba-
scandal-underscores-importance-speak-culture
Chhabara, R. (2015, Aug 06). Toshiba - Japan’s latest corporate catastrophe. Retrieved 9 December,
2015, from http://www.ethicalcorp.com/stakeholder-engagement/asia-column-toshiba-japans-latest-
corporate-catastrophe
Dobie, P. (Presenter). (2015, December 21). Al Jazeera News at 1130 hours [Television: News].
Doha, Qatar: Al Jazeera.
Farrell, S. (2015, July 21). Toshiba boss quits over £780m accounting scandal. Retrieved December
12, 2015, from http://www.theguardian.com/world/2015/jul/21/toshiba-boss-quits-hisao-tanaka-
accounting-scandal
Freeman, R. (2004). The stakeholder approach revisited. Zeitschrift Für Wirtschafts- Und
Unternehmensethik, 5(3), 228.
Freeman, R. (1984). Strategic management: A stakeholder approach. Boston: Pitman.
Friedman, M. (1970). The Social Responsibility of Business Is to Increase Its Profits. Corporate
Ethics and Corporate Governance, 173-178.
Gillem T. (2014, Nov 05). GMT Research: Suspicious Behaviour. [Research] Hong Kong.
Gilligan, C. (1982). In a different voice: Psychological theory and women's development.
Cambridge, MA; London;: Harvard University Press.
Greenfeld, K. T. (2012). The silencing of michael woodford.Bloomberg Businessweek,(4267), 68.
6
Handy, C. B. (1993).Understanding organizations (4th ed.). London: Penguin.
Handy, C. B. (1976).Understanding organizations. Baltimore [etc.];Harmondsworth;: Penguin
Books.
Hashimoto, A. (1996). The gift of generations: Japanese and American perspectives on aging and
the social contract. Cambridge [England]: Cambridge University Press.
Harrison, R. (1972). Understanding your organisation's character (pp. 119-129). Boston: Harvard
Business Review.
Inagaki, K. (2015). Toshiba accounting scandal claims ninth executive. FT.Com,
Kitanaka, A., & Reynolds, I. (2015). Whistle-Blower Laws Fail to Curb Toshiba Executives'
Deception. Bloomberg.com. Bloomberg,
http://www.bloomberg.com/news/articles/2015-07-22/toshiba-scandal-shows-cultural-legal-hurdles-
for-whistleblowers
Lennox, J. (2011). Metaethics, egoism, and virtue studies in Ayn Rand's normative theory.
Pittsburgh, Pa.: University of Pittsburgh Press.
Miles, S. (2012). Stakeholder: Essentially contested or just confused? Journal of Business Ethics,
108(3), 285-298.
Mintzberg, H. (1983). Power in and around organizations. Englewood Cliffs, N.J: Prentice-Hall.
Mochizuki, T. (2015). Business news: Toshiba overhauls its board --- electronics company names
seven outsiders to the 11-member panel; outlook for earnings cut. Wall Street Journal
Miles, Samantha (2011). Stakeholder Definitions: Profusion and Confusion. EIASM 1st
interdisciplinary conference on stakeholder, resources and value creation, IESE Business School,
University of Navarra, Barcelona.
7
Handy, C. B. (1976).Understanding organizations. Baltimore [etc.];Harmondsworth;: Penguin
Books.
Hashimoto, A. (1996). The gift of generations: Japanese and American perspectives on aging and
the social contract. Cambridge [England]: Cambridge University Press.
Harrison, R. (1972). Understanding your organisation's character (pp. 119-129). Boston: Harvard
Business Review.
Inagaki, K. (2015). Toshiba accounting scandal claims ninth executive. FT.Com,
Kitanaka, A., & Reynolds, I. (2015). Whistle-Blower Laws Fail to Curb Toshiba Executives'
Deception. Bloomberg.com. Bloomberg,
http://www.bloomberg.com/news/articles/2015-07-22/toshiba-scandal-shows-cultural-legal-hurdles-
for-whistleblowers
Lennox, J. (2011). Metaethics, egoism, and virtue studies in Ayn Rand's normative theory.
Pittsburgh, Pa.: University of Pittsburgh Press.
Miles, S. (2012). Stakeholder: Essentially contested or just confused? Journal of Business Ethics,
108(3), 285-298.
Mintzberg, H. (1983). Power in and around organizations. Englewood Cliffs, N.J: Prentice-Hall.
Mochizuki, T. (2015). Business news: Toshiba overhauls its board --- electronics company names
seven outsiders to the 11-member panel; outlook for earnings cut. Wall Street Journal
Miles, Samantha (2011). Stakeholder Definitions: Profusion and Confusion. EIASM 1st
interdisciplinary conference on stakeholder, resources and value creation, IESE Business School,
University of Navarra, Barcelona.
7
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Sen, A. (2008). The New Palgrave Dictionary of Economics. In Rational Behaviour (2nd ed.).
Toshiba Corporation, (2015). Toshiba Group to Support Earthquake Relief Efforts in Nepal.[Press
Release] Available at: http://www.toshiba.co.jp/about/press/2015_05/pr1301.htm [Accessed 9 Dec.
2015].
Toshiba corporation. (c2014). Corporate Information. Retrieved 09 December, 2015, from
http://www.toshiba.com/industrial/global/corporate-info.jsp
Welles, O. (Director & Performer). (1941). Citizen Kane (1941) [Motion picture]. USA: Mercury
Productions.
8
Toshiba Corporation, (2015). Toshiba Group to Support Earthquake Relief Efforts in Nepal.[Press
Release] Available at: http://www.toshiba.co.jp/about/press/2015_05/pr1301.htm [Accessed 9 Dec.
2015].
Toshiba corporation. (c2014). Corporate Information. Retrieved 09 December, 2015, from
http://www.toshiba.com/industrial/global/corporate-info.jsp
Welles, O. (Director & Performer). (1941). Citizen Kane (1941) [Motion picture]. USA: Mercury
Productions.
8
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