In the midst of Japanese Prime Minister Shinzo Abe’s efforts to boost the anemic domestic economy by strengthening corporate governance, a huge scandal involving one of its biggest companies—Toshiba has arisen.
The 140-year-old tech giant is currently embroiled in an accounting scandal where company profits were overstated by $1 billion to meet targets. The number-fixing took place from the fiscal years of 2008 to 2014, until it was brought to light in May 2015. Safe to say, heads will roll after such trickery and the dire lack of capable accounting services in the Philippines.
Obviously, the biggest lesson here for us is not to interfere with the numbers just to say we can hit our targets. Investor confidence and corporate integrity, in the long run, hold far more value than being able to say that our company is doing well—if illicitly so.
Look deeper though and we’ll find more learning that should strengthen the savvy of any business owner.
1) Just because they’re the boss, doesn’t mean they won’t commit wrongdoings
The illicit accounting practices went on for years in a very systematic way involving top management. These bosses have done something right to reach their position, but that doesn’t mean they won’t commit ill-advised moves just to hold onto it.
2) Employ a system of checks and balances
It is said that Toshiba’s bigwigs put immense pressure on their employees to meet targets during the 2008 global recession. Unfortunately, that meant resorting to illegal practices such as postponing the filing of losses or moving sales figures to another period.
If a company is adamant about protecting themselves from these things, they need a separate body whose purpose is to provide accounting services that review the correctness of the regular financial reports.
3) When a scandal does occur, those who are accountable must be held liable
The good thing about Japanese culture is that they know that if they’ve done something wrong and the least they could do about it is to be a man and step down. As of writing, Toshiba CEO Hisao Tanaka has resigned along with eight of the 16 board members—under whose watch the scandal took place.
4) Adapt to economic changes, rather than trying to cheat it
Unlike Toshiba, their rival tech giant, Hitachi, reorganized their business structure quickly to keep pace with the changing economic climate instead of resorting to illicit means that involved faulty accounting services.
The move has benefited Hitachi whose market capitalization is at around 3.75 trillion yen at the moment—that’s double Toshiba’s 1.6 trillion yen of market capitalization.
5) Find ways to prevent history from repeating itself
For a company like Toshiba to survive, they’ll have to show that they’re serious about changing the system. In the wake of the scandal, Toshiba reportedly plans to add more outside directors so that they’re a majority on the board and can keep things in check.
A company must be willing to learn and grow from its mistakes to prosper.
6) Do not be obsessed with the profits
Profits are no doubt the lifeblood of any business. But if you put too much focus on it alone, it’s too easy to lose track of a company’s actual purpose.
Long-term profitability must be put prioritized, and company integrity treated at a premium, as opposed to just playing a game of hitting targets.
As you can see, inflating your figures will not do much to increase the value of your company in the long run. In light of this massive issue, we urge you to employ other profit-building strategies instead of using your energy to devise ways to cheat, as it’s something that will be uncovered sooner or later.