Toshiba CEO resigns over $1.2bn accounting scandal

Toshiba CEO resigns over $1.2bn accounting scandal
Toshiba CEO Hisao Tanaka has resigned after an independent investigation showed he knew about overstated corporate profits for seven years. The accounting irregularities of $1.22 billion involved top management.

After resigning, Tanaka said he would be temporarily replaced by Chairman Masashi Muromachi. Toshiba is considering appointing outside directors to over half of its board seats, he added.

The other executives and board members who stepped down are vice-presidents Hidejiro Shimomitsu, Masahiko Fukakushi, Kiyoshi Kobayashi and Toshio Masaki, and Keizo Maeda the representative executive officer.

"I see this as the most damaging event for our brand in the company's 140-year history," Tanaka said after the news conference where he announced he was stepping down.

On Monday, it was reported that Toshiba will have to adjust its financial statement in which the operating profit of the corporation for 2009-2014 was overstated by nearly 152 billion yen (more than $1.2 billion). Over the seven years Toshiba employees, under pressure from top managers, overstated the company’s performance, which led to a distortion of the financial statements. The overstatement was roughly triple Toshiba’s initial estimate of about 55 billion yen.

The reasons for the overstating were the company’s deteriorated earnings due to the global financial crisis, the 2011 earthquake off the Pacific coast of Tohoku and the Fukushima meltdown.

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The corporation has lost $3.6 billion in market value since May, when it withdrew its earnings forecasts, cancelled the year-end dividend and stepped up the accounting probe, says Bloomberg. This is the largest Japanese accounting scandal since the end of 2011, when Olympus admitted to hiding $1.7 billion in losses.

Japanese media say that Toshiba would be forced to sell its assets in order to improve the situation. Nikkei reported in July that Toshiba may sell its stake in the US Westinghouse Electric. Toshiba intends to get rid of part of its shares in other companies too, getting $1.62 billion from the asset sales.

The investigation came just as Prime Minister Shinzo Abe introduced new measures to improve Japan’s corporate governance.

Japanese Finance Minister Taro Aso said Tuesday that the accounting problems at Toshiba were "very regrettable,” at the time the country was trying to regain foreign investor confidence, Reuters reported.