Toshiba: The false marriage between Japanese and corporate culture

By Yousef Hamdi, The International Interest Asia Bureau Chief based in Tokyo, Japan.

Despite the dizzying heights of the skyscrapers and state-of-the-art technology at every turn that suggest a wholehearted embracing of modernity, Japan is a country that keeps traditional values at its core. From a young age children are reminded to always ‘think about how your actions affect others before acting.’ It is for this reason that a person can drop a money laden wallet on the street and have it turn up at a police station within the hour. Yet there are other parts to these ‘traditional values’ that have contributed to the country’s ‘dark side.’

As one of the largest companies in the world, the Toshiba scandal caused shockwaves across the globe.  An investigating committee found that they had overstated their profits by $1.2 billion in the period between March 2008 and April 2014. Yet for those with knowledge of the internal workings of Japanese corporations, the cause was clear. Strict Japanese discipline and a requirement for utmost company loyalty in order to progress meant that a blind eye was turned to malpractice within the company.

The rule is simple; pledge loyalty to your company, work for 20 years with little risk of being sacked and you are promised a title, a salary to match as well as a retirement package. During this period you will abide by the rules. You will obey all orders from your Senpai (senior colleague) without question. You will see and hear no evil and will be the ideal Japanese ‘Salary man’ lest you be hammered into line.

Toshiba is no exception. The investigating committee found that Toshiba cultivated “a corporate culture where it is impossible to go against one’s bosses’ wishes.” Under pressure since the global economic crisis of 2008, the investigating committee found that there was “systematic involvement, including by top management, with the goal of intentionally inflating the appearance of net profits.” Toshiba financial officials had “deliberately provided insufficient explanations to auditors, with the intention of carrying out a systematic cover-up.” Manipulation of the bookings of profits and losses were just some of the methods used to achieve this goal. Setting higher targets for the next quarter and the vicious cycle continued.

Despite President Abe’s attempts to address Japanese issues with corporate governance, these tenets continue to form an integral part of corporate culture in Japan and so this end result was no surprise, particularly when considering the stark similarities with the Olympus Scandal (where $1.1 billion in losses had been hidden). After the shaming of two behemoths of Japanese technology, there is the feeling that other companies may have similar skeletons rattling in the closet and the Japanese market may well be rocked by further scandal.

Living in Japan a person can walk through litter free streets, having arrived on to-the-minute train, buy a sandwich from the 24-hour convenience store and then browse the electronics in one of the many megastores in complete safety. But when their eyes lay on the Toshiba branded products that dominate the showroom floors, one cannot help but be reminded that there are two sides to every coin. The discipline-heavy Japanese culture leads to wondrous feats of teamwork and an infrastructure that runs like clockwork. However, the pressure to uphold this clean image has pushed many companies to malpractice, and in an era of state-of-the-art technology and increased financial regulation, such practices will inevitably be discovered.

As Abe presses for necessary changes to Japanese corporate governance, the question has inevitably moved on from if other scandals remain discovered to one of when the next scandal will be discovered.

Yousef Hamdi is the International Interest Asia Bureau Chief based in Tokyo, Japan.