Toshiba fraud a deafening wake-up call for better corp governance in Japan

THE sense of deja vu as findings about Japan's latest corporate scandal came to light in recent weeks was all the more dismal for the fact that the company involved is one of the country's biggest conglomerates, a respected multinational that's a household name in many parts of the world and, to boot, a corporate governance pioneer of sorts back home.

Coming more than a dozen years after a rash of high-profile cases of corporate malfeasance in America led to sweeping regulatory reforms, the discovery that Toshiba had "systematically" overstated operating profits by US$1.2 billion over a stretch of several years is remarkable in many respects, beyond the sheer audacity of a no-holds-barred management mindset, sans scruples, driven to meet targets. And the Toshiba fraud - the biggest since the Olympus fiasco in 2011 - will almost certainly not be the last, observers say.

In one sense, the findings unearthed by a panel of external lawyers and accountants - whose initial probe into Toshiba's construction projects was later widened to cover the entire group - were not entirely surprising: browbeaten division heads pressured by top management to misstate numbers and inflate profits is symptomatic of a corporate culture marked by unquestioning loyalty and reluctance to question authority on the part of lifelong career executives. Toshiba's auditing - both internal and external - was also found wanting, with its audit committee including two former diplomats who weren't particularly financially savvy, with apparently no background in financial reporting. The episode has also put the focus on the audit industry in Japan, with questions about whether the low audit fees paid by Japanese companies affected the quality of the audits.