Toshiba inflated profits by $1.2B for seven years — a culture where no one could say no

Toshiba, the 140-year-old Japanese electronics and industrial conglomerate, was a national champion. But in May 2015 it announced it was investigating an accounting problem and might have to restate several years of profits. Two months later, an independent panel found the problem was vast: Toshiba had inflated its operating profits by about $1.2 billion over the previous seven years.

The cause was as much cultural as technical. Toshiba ran on a top-down system in which senior managers set aggressive profit targets — internally called 'the challenge' — and subordinates were expected to meet them no matter what. Saying the targets were unrealistic was effectively not an option. So divisions found ways to make the numbers work: pulling profits forward, delaying the booking of losses, and other accounting maneuvers, quarter after quarter, across multiple businesses and multiple CEOs.

When it came out, the fallout was severe. On July 21, 2015, CEO Hisao Tanaka resigned, calling the scandal 'the most damaging event for our brand in the company's 140-year history.' Eight other senior officials also stepped down, including two former CEOs. Toshiba was dropped from a stock index of Japan's best-run companies, and the episode wiped roughly $8 billion off its market value. It was the latest in a string of governance failures that would eventually see Toshiba taken private in 2023.