The accounting fraud surfaces, and three presidents resign (2015)

The vessel of the system, and the practice of hitting the target

What makes this affair grave is not the absence of a system but the fact that the wrongdoing persisted for years despite one being in place. Toshiba had moved to a committee-based governance structure ahead of other large Japanese firms, setting up the form of oversight by outside directors. And yet the profit targets known as “the Challenge” bore down on the front lines, and the deferral of losses and the padding of profits were piled up for close to seven years. The gap between the vessel of governance and a practice that put hitting the target above all else can be seen lying at the bottom of this case.

The question that remains is why a succession of professional managers, with no strong founding family behind them, could put no brake on excessive targets. While all three successive presidents acknowledged responsibility and stepped down, as President Hisao Tanaka put it, the side that set the targets and the side made to meet them took their excessiveness in conflicting ways. How to reconcile the pressure for short-term profit with the effectiveness of a mechanism that disciplines it from the outside — the question Toshiba thrust forward remains open still for the many companies that believed they had put the forms of governance in place.