Toshiba just lost its CEO to a huge accounting scandal

July 21, 2015, 8:20 AM UTC

Toshiba Corp (TOSYY) said Tuesday its chief executive and president Hisao Tanaka will step down after an independent investigation found he had been aware the company had been inflating its profits over a number of years.

In one of the biggest ever accounting scandals in Japanese corporate history, the investigators’ report said the consumer electronics and engineering giant had overstated operating profits by a total of 151.8 billion yen ($1.22 billion) since 2008, claiming numbers that were up to three times the actual level.

“Toshiba had a corporate culture in which management decisions could not be challenged,” according to a summary of the investigator’s report. “Employees were pressured into inappropriate accounting by postponing loss reports or moving certain costs into later years.”

The company is likely to have to restate its earnings for the last six financial years.

It’s the second big scandal of its kind in less than four years. In late 2011, executives at camera maker Olympus were accused of orchestrating a $1.7 billion accounting fraud scheme.

It’s unclear so far whether any of its employees will face criminal charges, or whether the company itself will have to face any official sanction. Reuters reported that regulators were beginning their own review of Toshiba’s book-keeping, based on Monday’s report.

Japan’s Finance Minister, Taro Aso, called the accounting irregularities “very regrettable” and a blow to the country’s efforts to regain the confidence of global investors.

“If (Japan) fails to implement appropriate corporate governance, it could lose the market’s trust,” Aso told a news conference. However, he wouldn’t say whether Toshiba would face any kind of financial penalty.

Tanaka will be replaced by Masashi Muromachi, the group’s chairman, according to a company statement. His predecessors, vice-chairman Norio Sasaki and adviser Atsutoshi Nishida, will also step down after being implicated in the report.

Toshiba will also appoint a slew of independent directors to its board to strengthen external oversight of its management. It said Tuesday it may reserve over half of its board seats for outside appointees.