Toshiba Scandal Analysis: an Example of Finding the Best Solution in a Very Complex Situation

During my MBA studies at the University of Utah I had a wonderful business Ethics class. Its objective was the following: “To be able to apply a unique and particular framework for moral reasoning to complex business issues… ” My professor further noted “Please note that the purpose of this course is not to teach ethics, but rather to offer a foundation in ethical thoughts followed by a variety of perspectives on difficult ethical dilemmas that we all face in our daily management practices. We will examine methods by which we analyze these problems and decide upon the best course of action. Ethical problems in management are complex. They go far beyond the simple ‘yes, I will’ or ‘no, I won’t’ choices between immediate financial benefits and obvious social costs where all that is needed is a very elementary level of ethical consciousness to compare the two and make the decision. Instead, there are extended consequences, multiple alternatives, mixed outcomes, uncertain occurrences and personal implications that complicate the analysis of the financial, legal and social consequences in ethical problems.” I certainly believe, that by the end of this class I have mastered the framework. This framework is the foundation of certain business decisions that I consider to be challenging to solve without an adequate analysis. My final case assignment (together with my group) was “Toshiba Scandal”. This case is an example of 8 questions that I would typically ask myself before making my final decision.

Toshiba Case Summary 

Toshiba overstated net profits from fiscal 2009 to 2014 which amounted to about $1.22 billion (Smith, 2015). Ultimately, the ethical issue lies in the leadership’s decision to assign strict profit targets with the expectation that under-performance was unacceptable.

The inappropriate accounting techniques employed at Toshiba varied somewhat between the different business units. Investigators found evidence of booking future profits early, pushing back losses, pushing back charges and other similar techniques that resulted in overstated profits. Although the techniques varied, the investigative panel identified a single set of direct and indirect causes to explain how the inappropriate practices took hold across the conglomerate.

Investigators describe how Toshiba’s corporate leadership handed down strict profit targets, known as Challenges, to business unit presidents, often with the implication that failure would not be accepted. In some cases, quarterly Challenges were handed down near the end of the quarter when there was no time left to materially affect unit performance. It soon became clear within individual business units that the only way to achieve these Challenges was to do so through the use of irregular accounting techniques.

The investigative panel concluded that Toshiba’s corporate culture, which demanded obedience to superiors, was an important factor enabling the emergence of fraudulent accounting practices (Nickolas, 2015). The culture operated on the level of business unit presidents and on every level of authority down the chain to the accountants who ultimately employed the accounting techniques (Carpenter, 2015).

What groups will benefit? 

The former CEO, Atsutoshi Nishida (2005-2009), (now an adviser) and Norio Sasaki (2009-2013), (now vice chairman) benefited by fulfilling their goals and objectives for a longer amount of time than would have been allowed by accurate bookkeeping. Correctly stating the financial health of the company at the beginning of the profitability downturn in 2008 would have prevented their unfair economic gain.

Due to the scandal caused by improper bookkeeping at Toshiba, competitors will benefit from the company’s impending restructure. By cutting product lines at Toshiba, there will be less competition in certain markets. In addition to product line cuts, Toshiba will sell certain business divisions. Sony will benefit from the sale of Toshiba’s image sensor business (CNBC, 2015) and Skyworth will benefit from the sale of Toshiba factories in Hong Kong (Dent, 2015).

If new management’s structural and cultural changes are successful, Toshiba employees will benefit in regards to better cooperation between departments and superiority. The scandal revealed tension with people questioning their superiors who pressured them to perform unethically. That it is not acceptable. The restructure will create a more trusting work environment across the firm at all employee levels.

Toshiba shareholders will benefit in the future from the “bold restructuring” (Huang & Alpeyev , 2015) with new management analyzing current performance and downsizing to focus on more on revenue generating product lines.

It has been observed that Toshiba’s work culture has not been an environment of support and ethical leadership. Rather, it has been a culture of stress, unfair pressure from superiors, and corruption. Employees have been working under senior’s leaderships’ unethical pressure and threats to force those workers to alter company accounts. “The report said the priority for the presidents was to secure profits for each quarter, and thus they set high targets, demanding their subordinates improve the company’s results. The business culture at Toshiba did not allow lower-level managers ‘to go against the bosses'” (Nagata, 2015). The new administration at Toshiba will be expected to improve the culture and let employees work on their own. The benefits from this work environment change will benefit all stakeholders. With time the Toshiba employees will benefit from emotional security, increased trust, and better cooperation between departments and leadership.

What groups will be harmed 

The actions taken by Toshiba harmed many groups. First Toshiba was harmed by its own actions. Financially the firm suffered by having to pay enormous fines to the SEC for fraudulent accounting. The company likely lost revenue from consumers who became aware of the scandal and purchased from competitors. It is projected that Toshiba will post a 4.5-billion-dollar loss in 2015 (Yan & Wakatsuki, 2015). The dishonesty of the company also caused it to lose public goodwill, harming its reputation in the business and consumer communities. Individual employees at all levels were harmed when tens of thousands of workers were laid off or forced into early retirement. The families of these employees were harmed from a reduced family income. Furthermore, the economies in both Japan and the U.S. were harmed by the unemployed who were no longer able to participate in the economy. Shareholders were also harmed by overly inflated stock prices that were based on lies and the resulting 40% price drop following news of the scandal (Reuters, 2015). The stock inflation and sudden drop also harmed the stock market participants in both Japan and the US.

Whose rights will be exercised? 

Currently, investors selling their Toshiba shares are exercising their right to trust their funds to stocks producing the greatest return. Financial analysts and rating agencies are utilizing their right to price Toshiba stock in response to the scandal. Consumers informed of the scandal may be choosing to purchase products from competitors.

Toshiba shareholders’ right to reparations on their mishandled monies will be exercised through the lawsuits issued to former executives. During the legal proceedings, fraudulent Toshiba executives will exercise their right to explain their actions and receive fair and impartial judgement. Through the legal proceedings, stakeholders will be able to employ their right to receiving true and complete information.

President Morumachi will exercise his right to restructure the company to sustain operations and eventually recoup recently discovered losses. He and his leadership team will use their influence to restructure Toshiba, rebuild profitable divisions, and repair the company culture. The Japanese government may seize this opportunity to increase corporate regulation in order to protect the rights and welfare of its citizens.

Competitors may exercise their right to hiring within their industry by welcoming dismissed Toshiba staff. They may also take advantage of the opportunity to release new products and gain market share while Toshiba focuses on restructuring.

Whose rights will be ignored? 

The former executives who accrued billions in losses by misusing their power without considering the sustainability of Toshiba may be ignored of certain rights through public retaliation. They pressured employees to meet quantitative monetary targets without considering the qualitative factors and risk involved. They denied their employees’ right to ethical, fair leadership. They ignored their shareholders’ right to accurate information. Though an impartial legal procedure must be followed to ensure the process of appointment is fair and in accordance with rights of all the stakeholders, the former executives may be denied the right to fully explain their motivation and actions.

Express the moral problem so that everyone will believe that his or her moral concerns have been recognized and included. 

Was it wrong for Toshiba leadership to set high profit targets in which failure was unacceptable? These business divisions were given strict profit goals that may have led to the loss of employment in the case of failure. As a result, Toshiba employees had to choose between lying or certain termination.

What are the consequences of overstating profits? By lying about meeting targets, Toshiba division management could delay the consequence of unemployment. Toshiba leadership received the positive information they expected and could share with shareholders. However, when the losses were discovered many of the stakeholders were harmed. Employees who lied to keep their jobs inevitably lost them and closed their divisions. Investors lost money from trusting an overvalued firm. Toshiba now faces the threat of being de-listed from the Tokyo Stock Exchange.

Is it morally wrong for Toshiba to build a corporate culture of strict obedience to leadership and where failure is not tolerated? There is no true authority that dictates how corporations should run their organizations, but we can analyze consequences of the Toshiba Corp scandal. It is not wrong to be strict with employees or encourage success over failure. However, did Toshiba incentivize its employees to lie for increased job security? Though Toshiba leadership has a right to dictate its management style, there must be forethought into the consequences of such choices. In this case, it is likely Toshiba employees were forced to overstate profits in order prolong their employment and eliminate the risk of discipline or termination for under-performance.

What are the economic benefits?

Currently for Toshiba, there are very few economic benefits. The company has posted an operating loss for 2015 and is forecasted to continue this trend for at least three more quarters (Huang & Alpeyev , 2015).

Investors selling their Toshiba are losing money on their initial investment. Alternatively, Investors shorting Toshiba stock are earning substantial gains due to the 40% fall in the stock price.

The Toshiba restructuring will benefit all stakeholders. The communities in which the company operates will benefit from resumed business and economic activity. Consumers will benefit from increased options in the markets Toshiba participates. Retained and new employees will benefit from a more trusting work environment and employment based on their merit. Their families and businesses they frequent will benefit from steady income. As Toshiba makes the necessary improvements, investors will observe stock price increases.

What are the legal requirements? 

In many cases of corporate scandal, financial fraud and misrepresentation result in prison sentences for many executives, similar to the cases of Enron and Tyco (Hosmer, 2005). The actions taken by Toshiba executives may be considered unethical by the majority of society. However, it is uncertain if the former executives will face criminal charges for the role they played in overstated company profits. The company has also potentially violated the law in regards to civil securities fraud. Civil suits have already been pursued by many shareholders angered by their losses incurred by dishonest management. Additionally, Toshiba is also planning to pursue legal action against the top executives they believe responsible for the fraudulent accounting pursuant to Japanese corporate law.

What are the ethical duties?

The conduct of the former Toshiba executives violated many codes of ethical duties.

Self-Interest – The incredible losses experienced by the firm support that former Toshiba executives were not running the company in a sustainable manner. Because of the priority given to the financial health of the firm, the stock market is now retaliating by drastically devaluing shares.

Personal Virtues – The Toshiba executives resigned when their accounting practices were discovered. This action asserts their disregard for this ethical duty due to their shame following the investigation. Toshiba executives should only assign reasonable performance targets and publish accurate financial statements.

Religious Injunctions – In the sense that a business is interconnected with its community, Toshiba executives did not honor this ethical duty. This global company, with relationships with major brands like Apple, did not work to improve each community in which it conducts business. The leadership’s decisions did not direct Toshiba to provide better support for its partnerships or a better work environment for its employees. Under this ethical code, Toshiba executives would not incur losses of over $1 billion for personal gain.

Government Requirements – Misreporting accounting information is not supported by the Japanese or U.S. governments. By overstating profits and understating losses, Toshiba did not meet the minimum standard of the law.

Utilitarian Benefits – The Toshiba scandal will result in savings and retirement losses for innocent investors and job losses for many of its employees. These are two examples of how Toshiba did not work to create more benefits than harms for its community. Actions of top management and relevant authorities should not create a moral impact on the majority in a negative manner.

Universal Duties – It is unclear if the Toshiba executives would disapprove of other executives conducting dubious accounting as they did. However, if the Toshiba team were heavily invested in a company that was suffering heavy losses without informing stakeholders, it is reasonable to believe they would not encourage the decision makers to take the same actions they did.

Distributive Justice – The inequality of results for Toshiba employees demonstrates the absence of distributive justice ethics. Thousands of employees will abruptly lose their jobs while the former executives were, prior to the scandal and lawsuits, able to resign from their jobs after the investigation. The shareholders who lost money, the families of the unemployed, and the local businesses patronized by Toshiba staff are harmed far more drastically than the former executives. However, this may change depending on the lawsuit rulings.

Contributive Liberty – Toshiba stakeholders were not able to exercise their freedom of choice to continue investing in the firm, continue employment at the firm, or continue their working relationship with the firm because they did not have complete information regarding the brand’s financial health. The deception does not allow contributive liberty ethics to operate.

Power Point Presentation (Summary) of the Case


Carpenter, J. W. (2015, August 13). Toshiba’s Accounting Scandal: How It Happened (OTCBB:TOSBF). Retrieved February 02, 2016, from Investopedia:

CNBC. (2015, November 07). Toshiba swings to operating loss, sues former CEOs | ASIA-PACIFIC NEWS. (CNBC) Retrieved February 02, 2016, from CNBC:

Dent, S. (2015, December 21). Toshiba to cut 6,800 jobs following accounting scandal. Retrieved February 02, 2016, from Engadget:

Hosmer, L. R. (2005). Tyco International Ltd. and Questionable Actions by the Chairman. In L. R. Hosmer, The Ethics of Management (pp. 16-20). Boston, MA: McGraw-Hill.

Huang, G., & Alpeyev , P. (2015, September 29). Toshiba Adds $3.3 Billion Credit Line After Accounting Probe. Retrieved February 02, 2016, from BloombergBusiness:

Nagata, K. (2015, September 18). Pressure to show a profit led to Toshiba’s accounting scandal. Retrieved February 02, 2016, from The Japan Times:

Nickolas, S. (2015, March 27). What is accounting fraud? Retrieved February 02, 2016, from Investopedia:

Reuters. (2015, December 21). It’s The End of Toshiba As You Know It. Retrieved February 02, 2016, from Fortune:

Smith, G. (2015, July 21). Toshiba just lost its CEO to a huge accounting scandal. Retrieved February 02, 2016, from Fortune:

Yan, S., & Wakatsuki, Y. (2015, December 21). Toshiba forecasts massive $4.5 billion annual loss. Retrieved February 02, 2016, from CNN Money: