Ethical Analysis: A Report on Corporate Scandals & Governance

This report analyzes the Olympus and Toshiba corporate scandals, focusing on their facts, similarities, affected stakeholders, and ethical, legal, accounting, and corporate governance issues. The Olympus scandal involved concealing $1.7 billion in losses, while Toshiba overstated profits by $151.8 billion. Key stakeholders included Michael Woodford (Olympus CEO), top executives, and auditing firms. Both scandals shared similarities in deceit, financial irregularities, and top management involvement. A comparison with Enron highlights shared fraudulent accounting practices and auditor complicity. The report suggests improvements in laws, regulations, and codes of conduct to prevent future corporate scandals. Desklib provides access to this and other solved assignments for students.

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PROFESSIONAL VALUES ETHICS AND ATTITUDES
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PROFESSIONAL VALUES ETHICS AND ATTITUDES
Detailed facts of Olympus and Toshiba corporation scandals
Olympus Corporation:
Olympus Corporation famously known for its Cameras all over the world became a topic
of discussion in 2011when it was exposed to the universe that the Company top executives had
concealed losses of approximately 1.7 billion dollars. Ironically, the person who revealed this
secrecy was the newly appointed CEO of non-Japanese origin known as Michael Woodford.
Surprisingly this tendency of hiding the Company losses began in the year 1999. The Company
tactics of hiding losses have been occurring for more than 10years; this was possible because the
organization was capable of making superlative profits. However, a particular incident of the
Enron paves the way for the use of new accounting techniques which was to be adopted by all
Companies in the year 2017. This new method of accounting completely brought changes and
improvement in the standard of accounting procedures being followed by then, and it became a
major setback to the management’s ventures of covering up losses (Coney and Coney 2016
p.26). Soon, individuals that are at the forefront of such deplorable deeds came with an invention
that they could use costs and fees associated with the organization acquiring the Gyrus, a firm
from the British medical equipment and other three small firms from the Japanese as a place of
hiding money. The management of Olympus Corporation paid a total of US2.2 for purchasing
Gyrus, a Firm whose yearly earnings was 1 /10 of the consideration paid by Olympus in dollars.
The amount paid by Olympus for the advisory of the acquisition was a total of US687 million.

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Immediately after the transaction, the Company acquired another three firms and spent a total of
US773 for the purchase. The strength of the employees of the three firms acquired by Olympus
was less than 50 each. The company Auditor during that time raised their concerns over the
Firm’s financial dealing to the public that there is critical information the company never
provided for their auditing work. This was the time when the company appointed Michael
Woodford as the Company president. Michael came up with many altercations and deliberations
with the Media over potential falsification of the company books of accounts. This made
Michael appoint new auditors to check the books of accounts once again to trace any elements of
suspicion or discrepancy (Utz 2018 p.25) Michael had to resign as the president of the Company
after questioning the falsification of the books of account.
Toshiba
On December 2015, Tanaka who was the CEO of Toshiba announced his Resignation
due to accounting scandal in which the organization overstated profits of approximately
151.8billion. This scandal also made eight other officials of the Company resign, including the
other two previous Chief executive officers (CEO) who were still operating at the firm in
different roles. The investigative board released a report describing the details of the scandals
which primarily relate to corporate culture and lack of internal control driven to exaggerate
profits. Improper accounting has been taking place in the company for seven years. Upon
investigation, it was found that the company CEOs of Toshiba put pressure on the employee to
meet the targets set on sales (Hoang 2018 p.24). The influence on the subordinates often came
right before the end of fiscal or a quarter year, which pressed employees to bring forward sales.
The top management of the company set impossible targets with the intention of meeting the
sales target. They also relied on the corporate culture of the Japanese of loyalty and obedience

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that restrict individuals lower in the rank to do anything possible to meet the targets of the
company. There are also manipulations of the accounts to achieve sales targets (Khondaker and
Marc 2016 p.72).
The investigative board also pointed to week internal control and corporate governance as
the cause of the scandal. The corporate auditing department, internal control in the accounting
and finance division and the risk management department did not operate properly to stop and
identify the inappropriate behaviors.
2 Stakeholders involved and Affected in the scandal:
Olympus Corporation
The first stakeholder was Michael Woodford, the appointed president of the company; he
was then sacked following this corporate scandal. Michael resigned as the CEO of the company
because the Japanese institutional investor refused to support his bid. Olympus Corporation
compromised their ethical and moral values, and this made its investors lose their faith and
confidence in the organization (Askary 2017 p.102). This incident made the company board
officials to convene a special meeting for the shareholders to act as a damage control mode.
The second stakeholder is the Japanese media: the media in Japan exposed Woodford as
someone who has mismanaged the organization. The media also claimed that Woodford was
unable to adapt to the Japan working culture (Morris 2018 p.57).
The third stakeholder is KPMG and Ernst and Young: This accounting firm also came
under investigation for undertaking lawless activities of the organization for years. Different
Lawyer criticized the reputation of KPMG and Ernst and Young.
Toshiba Corporation

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The top executives at Toshiba Corporation were found to be guilty of the accounting
scandal that occurred in the company. They were involved in improper accounting practices and
falsification of the books of accounts (Mehta and Bhavani 2017 p.10).
Some of the Top executives involved in the scandal include 1) Tanaka, 2) Norio Sasaki
who was the former president and Vice Chairman, and 3) former president and adviser Atsutoshi
Nishida. These Top executives strongly pressured different departments in the organization in
meeting and emails to meet budget targets as a cover-up of the losses that the company incurred.
Masaaki Oosumi was also a stakeholder in the scandal. He resigned as the executive of
the company after an independent board found that he participated in improper accounting
practices at the organization’s television and PC businesses.
Similarities between the two scandals
The two cases were similar in their objectives of deceits and financial irregularities. The
intentions and motives of the two scandals were identical in that they both cause losses to the
public exchequer. In the case of Toshiba and Olympus, the Top executives have been recognized
to be responsible for the improper accounting and fraudulent activities. They are similar in that
the misdeeds and fraud originated at the top management in the organization and the officials
accountable knew for sure that it was for their interest and not for public benefit. The media also
played an essential role in all the two cases of scandals. The media exposed the accounting
malpractices in all the two cases. It exposed to the public one disclosure to another in all the two
cases. Olympus case, in which the top executives uncover losses of approximately US1.7
dollars, was named as the biggest fraud of all time.
Similarly, the Toshiba case was also big such that the management arranged the meeting
for the shareholders with the intention of covering up for the damages lost in the Company.

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Another similarity between Olympus and Toshiba is that there is manipulation of the books of
account to hide the company losses. In both cases, the executives and officials in the
organization knew that the organization was breaking the regulations and law relating to
accounting standard. In the two cases, the people at the Top management tried to put their effort
into evading the law.
Ethical, Accounting, legal and Corporate Governance issue
Issues involved and the way they occurred in:
Olympus Corporation
The ethical issue of deception and fraud with the organization was that the organization
had tried to cover up losses amounting to US1.7 dollars with the Olympus’ acquisition activities.
Michael Woodford began following the ethical course in the organization by sending letters to
the compliance officers (Valentine and Fleischman 2008 p.45). His concerns were to inquire
about the inflated acquiring value of the company properties. The top management also tried to
sue the president of the company known as Woodford for leaking the confidential information of
the company to the public. The legal issue of sly and guile on the part of the Board of directors
was that the newly selected Chief executive officer was fired following his questioning as well as
ultimately revealing to the unlawful public activities of the company. The accounting issue, in
this case, was the misrepresentation of the book value of the Company investment. The
Corporate governance issues in Olympus were that BOD did not perform as an independent team
(Tsai 2015 p.122). The BOD was made up of 15 members, and twelve of them were the
employees of the Olympus leading to a conflict of interest in the organization. The auditors of
the Company also said that they had forwarded their concerns about the acquisitions processes,
but the organization assumed them.

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Toshiba Corporation
The ethical issues involved were disloyalty, dishonesty and unethical culture. This is
because the top officials engaged in corrupt deals such as hiding of losses to meet their sale
targets (Doyle, Miller and Mirza 2009 p.26). The culture promoted by the top management is
unethical because it encourages corruption and criminal activities in the organization. The
accounting issues that affect Toshiba include cookie jar and no disclosure. The company top
officials engaged in fraudulent accounting through their subordinates and junior employees. The
Cooperate governance issues involved in Toshiba are the issues of utilitarianism and practice of
shaky internal control. Another corporate governance issue in Toshiba was that the top officials
engaged in illegal activities in that they collaborate with the auditing firm to hide the financial
information the business (Bogle 2018 p.67). They also promoted and encouraged bribery in the
organization for more than ten years. Toshiba Corporation carried out an inappropriate
accounting standard which leads to the reduction of the company pretax income. The Legal issue
involved in Toshiba Company is that the top officials misinterpret the financial information of
the business (Elam, Barrera and Jackson, 2016 p.30)
Comparison with Enron
Olympus Corporation and Enron
There appears to be a linkage in the financial irregularities in what occurred in Olympus
and Enron. The top executives of both the companies had complete knowledge that the model of
a corrupt business deal which they were creating was unreliable and shaky. The top officials in
both Olympus and Enron were also being helped by their audit firms which covered up their
financial irregularities. The auditor of Enron known as Andersen by then was declared
dissolution. While the auditor in Olympus came under criticism for not revealing the firm’s

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hiding losses for a decade, the differences between Olympus and Enron are that the CEO
exposed the accounting fraud in Olympus by the name Woodford. The event of the Olympus was
an outcome of Enron exposure. The Enron scandal brought up tougher rules and regulation. It
also brought the tougher method of the accounting system to companies.
Toshiba and Enron
In both cases, the similarity was that these companies had accounting irregularities. Both
the two firms engaged in fraudulent accounting practices. The auditors at Enron admitted to
manipulating the accounts of the organization. In the case of Toshiba, the accounting problems
arise due to understating of cost by the employees of the company (Aizawa 2018 p.74). This
enabled the organization to cover up losses by overstating operating profit. Another similarity is
that the top executives are the fraud makers in both the two companies. The CEOs of Toshiba
put strong pressure on lower officials and subordinates to meet their sales target. The differences
in the two cases of the scandal are that they both took place at a different time of the year
(Lehmberg and Hicks 2018 p.63).
Recommendation for changes and improvements
Recommendation for:
Legislation: The legislative body of the two countries should develop procedures of
enacting tougher penalties and laws against malpractices as well as mismanagement of the
company books of accounts. The legislation should also specify possible penalties to companies
that did not meet the requirements on deadlines and laws. The legislative body should also
ensure that there is the implementation of higher standards of ethics and morals for financial
experts especially on audit committee (Strauss, Lepoutre and Wood 2017 p.65). The legislation

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should necessitate that the companies should have senior management responsible for signing a
code of ethical conduct. These officials should affirm their faith on agency duties and financial
reporting obligations while overseeing the assets of the corporation. An independent body should
also be put in place to handle the grievance of workers. The government should establish a
committee to oversee the functioning of the organizations to ensure that they operate the business
according to the set laws and regulations. The companies should also submit their report which
should be made public to attract the investors.
Accounting standards: The employees should be given a chance to voice their concerns
and grievances over any issue. Such a mechanism should incorporate the orientation and training
of the employees. A restriction that governs the appointment of tax partner and engagement
officer from the external auditors should be put in place in the organization. Financial reporting
of the organization should be modernized to establish the practice of management analysis and
discussion (Visser 2017 p. 130). The company should also train and educate members of the
audit committee on the ethical issues of their profession. The government should appoint an
independent external body to oversee the operation of the organizations.
Codes of conduct: this is more than IC process with administrative and financial
requirements; they tend to show agency’s value as well as philosophy. It also shows how the
organization planned to operate its business. The company should encourage whistleblowing,
lower discretionary power and develop stronger ethical guideline. The company should also
establish the committee of independent directors to undertake the appraisal of the company’s
performance (Wright and Nyberg 2017 p.125). The company should provide a detailed report on
current best practices and corporate governance practices. The upgrade and revised financial

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code of conduct should restrict the financial executives to accept their duties in writing to
encourage and promote ethical behavior in the organization.

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