There the implication that failure would not be

There are a lot of companies that aren’t being honest with their financials. Some are still committing fraud today hoping not to get caught. With all the deception that has happened in the last few years, I decided on researching and writing about Toshiba’s accounting scandal that was uncovered in 2015. Toshiba was understating their profits by more than 1 billion dollars. The employees were understating costs on long term projects. By doing this, it allowed Toshiba to overstate operating profits by at least 1.2 billion between 2008 and 2014. They also had issues with improperly valued inventory. There were different business divisions that were involved with the fraud. Toshiba would book future profits early and pushed back losses while also pushing back charges along with other similar methods that resulted in exaggerated profits. It turned out that the wrongdoing actually began under former CEO Atsutoshi Nishida in 2008. At that time, there was a worldwide economic crisis that was negatively affecting Toshiba’s profitability. The fraud did not stop under the next CEO, Norio Sasaki but it eventually ended in a scandal under CEO, Hisao Tanaka. Toshiba’s culture was an important factor in enabling the deceitful accounting practices. The corporate leadership handed down strict profit targets to business unit presidents with the implication that failure would not be accepted. Sometimes targets were given near the end of the quarter with only a few days left to accomplish those targets. The only way to satisfy the objectives that were set in place was through the use of irregular accounting techniques. One of the ways that Toshiba manipulated the profits was by outsourcing the manufacturing of computers to a partner. They would then sell computer parts to that partner who would then assemble the computers and Toshiba would buy back the computers. Toshiba would sell additional parts than needed to the partners. By doing this, it increased that company’s inventory which allowed Toshiba to inflate its profits numbers. After the fraud came to light, more than half the board resigned. Prime Minister Shinzo Abe made a change that requires publicly traded companies in Japan to have at least two outside independent directors on its board. Going forward, Toshiba needs to learn from their mistakes in order to improve their company and gain the trust of people. Goals that are set in place need to be attainable and realistic. They cannot push employees to perform at a level that they cannot achieve. By setting them up for failure, Toshiba is also setting up their own company for failure. People make mistakes and can set goals that they believe could be achieved. But when goals aren’t met, employees should not be asked to conceal the issues and lie. The truth is always better than being deceitful as it will be ultimately exposed. You cannot effectively run a company based on fabrications as it is dishonest and tasteless.  One objective that other companies can learn from Toshiba’s downfall is what an obsession with profits can do to a company. Profits are critical to the continuance and development of a company. But, a fascination with achieving near-term profit targets provides an environment for accounting manipulation. Other companies can learn from the fact that even a giant like Toshiba is not immune to fraud.