The securities watchdog of Japan today recommended that Toshiba Corp should be fined 7.38 billion yen (almost $60 million) for its well publicised accounting violations, as the country acts to repair corporate the shattered corporate image of the company.
The accounting scandal (which was just a few years after similar irregularities at Olympus Corp) severely hampered government efforts to bring global investors to Japan via better corporate governance and better management practices.
On Monday, fifty of Toshiba’s shareholders sued the company in Tokyo seeking 301.99 million yen in damages caused as a result of stock losses. Toshiba’s stock has lost about 40 percent of its value since April this year when its accounting practices (which inflated profits by 155 billion yen over seven years) were first queried. A third-party investigation said the company’s earnings goals were too aggressive and also blamed its corporate culture that discouraged employees from questioning their superiors.
“This is a grave incident, whose impact is large,” said Kiyotaka Sasaki, secretary general at the Securities and Exchange Surveillance Commission (SESC).
Sasaki said the watchdog has taken a new approach since Toshiba is a global company and because of its importance in Japanese business. The approach went beyond simple fact finding to discover what made the company conduct its illegal acts.
Toshiba was in fact one of the first companies in Japan to adopt a US style board and more outside directors. But Sasaki stated that the board failed to work as it was intended.
The SESC made its recommendation to the Financial Services Agency which typically acts according to those recommendations. The fine will in fact be greater than the previous record of 1.6 billion yen that was levied in 2008 on IHI Corp for accounting violations.
Toshiba has already set aside 8.4 billion yen to cover its penalties, so the impact of the fine on earnings should be minimal.
There is however a possibility that the SESC may file criminal charges against Toshiba’s former top brass. The company has already sued several former executives, including three former chief executives, for mismanagement.