”Japanese companies appear to be steadily implementing the corporate governance code introduced by the Tokyo Stock Exchange a year ago, at least in form. Of the 2,018 firms listed on the first and second sections of the TSE, 78 percent say they are now in compliance with at least 90 percent of the principles set […]
Tag: Toshiba
GPIF Sues Toshiba: Japan’s Securities Law that Makes it Easy to Sue
The the news of the day is that GPIF is suing Toshiba for ＄１０ million． It is only one asset manager that is suing, almost certainly under Article 21-2 Japan securities law (FIL) which makes it very easy for plaintiffs to sue and claim a “presumed damages amount”, and then shifts the burden of proof to the defendant company (unlike US law) to disprove its negligence. The stock has come down by about 26% or so. (Interestingly, Japanese securities law in this area is much harsher than US law, which never shifts the burden of proof in such cases.)
Research Paper by Rahman & Marc: ”Accounting Irregularities at Toshiba: An Inquiry into the Nature and Causes of the Problem and Its Impact on Corporate Governance in Japan”
”Abstract: This research describes the largest financial scandal in recent Japanese corporate history. It explains how the Toshiba scandal expanded from a relatively simple case of accounting fraud to a company-wide deceit that involved dozens of managers and three generations of top executives. There are five main causes: domineering top management, compliant middle-managers who embody the worst of the salaryman mentality, duplicitous auditors, percentage-of-completion method accounting abuse, and the secular decline in several of the company’s business lines. The research links the scandal to broader issues with corporate culture, governance, and accounting in Japan and suggests ways to improve the situation……………….”
Forbes: ”To Regain Trust, Toshiba Needs More Than Stronger Governance”
A pedestrian walks past a Toshiba Corp. logo.
”Scandal-muddied Toshiba Corporation recently announced it was terminating its long-time relationship with Ernst & Young ShinNihon, its rubber-stamping auditor, and will hire PricewatherhouseCoopers Arata to replace it.
Bloomberg: “Zero Tolerance? Toshiba Tries Opposite in Accounting Scandal”
– Thirty executives named in accounting scandal won't be fired
– Ousted board members stay on the payroll as advisers
“The rule at GE is one strike and you’re out,” said Nicholas Benes, representative director of the Board Director Training Institute of Japan. “What I’m seeing is something closer to 100 percent tolerance at Toshiba.”
Aplus Magazine: “TOSHIBA’S TRUE COLOURS” (w/quote from BDTI’s Representative Director)
Excerpt:Audit Committee under scrutiny
Toshiba was considered a reform pioneer, first appointing independent directors in 2001. But the company's five-person audit committee – of which two members were former Toshiba executives and two others lacked any business experience whatsover – was a classic study of Japan's corporate insider culture that can often create compliant committees under the thumb of management. …..While the accounting errors probably would have been hard for any audit committee to spot if managers wanted to keep them hidden, this committee composition could not possibly have helped, say Nicholas Benes, Representative Director of the Board Director Training Institute of Japan.
JURIST:”The Toshiba Corporate Governance Scandal: How Can Japanese Corporate Governance be Fixed?”- reference to board training
Excerpt: “….. It will be interesting to see what lessons are drawn from Toshiba's failure. Problems with Toshiba's seemingly well-considered hybrid approach to governance clearly illustrate the tension and difficult tradeoffs between insider and outsider perspectives.
Japan Today: “After Toshiba scandal, foreign investors want tougher governance in Japan”
Excerpt: “The Toshiba scandal further underlines the need for board training as well as a robust whistleblower protection system,” said Seth Fischer, chief investment officer at Hong Kong-based hedge fund Oasis Management and a corporate governance activist who successfully pushed for reforms at Nintendo Co Ltd.
The Wall Street Journal:”Japanese Companies Are Haunted by’Ghosts In The Boardroom”
(Excerpts ) — “Toshiba isn’t unusual in keeping “ghosts in the boardroom,” as Nicholas Benes, head of the Board Director Training Institute of Japan, describes former executives who stay on the payroll in an advisory role. He estimates that 80% or more of large Japanese companies have such posts. Many top executives in Japan, where CEO pay is lower than in the U.S., consider them an entitlement, to supplement their pensions.
Toshiba’ s Case is Similar to IHI’s in 2007
In 2007 Ishikawa Harima Industries (IHI) experienced large profit overstatements (and subsequent downward revisions) caused by overly-optimistic estimates used in percentage-of-completion accounting for large projects. At the bottom of the link below, you can see IHI’s explanation of the incident, and the actions it took for years afterwards in order to improve its internal controls and accounting:
http://www.ihi.co.jp/csr/english/2011/management/governance.html