Toshiba CEO quits over accounting scandal

Toshiba CEO quits over accounting scandal

By Ritsuko Ando

TOKYO (Reuters) – Toshiba Corp's <6502.T> chief executive Hisao Tanaka & a string of other senior officials resigned on Tuesday for their roles in the country's biggest accounting scandal in years.

Tanaka will be temporarily replaced by Chairman Masashi Muromachi after an independent inquiry found the CEO had been aware the company had inflated its profits by $1.2 billion over a period of several years.

p>"I see this as the most damaging event for our brand in the company's 140-year history," Tanaka told a news conference after making a ritual deep bow of contrition to a flurry of camera shutters & flashes.

"I don't think these problems can be overcome overnight."

Muromachi is considered a safe pair of hands to lead Toshiba through its current turmoil before handing the reins to a successor. The company plans to announce next month the delayed business results for the financial year ended in March.

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Toshiba Corp President & Chief Executive Officer Hisao Tanaka (C), flanked by Chairman of the Boar …

Tanaka's predecessors as presidents of the laptops-to-nuclear conglomerate, Vice Chairman Norio Sasaki & adviser Atsutoshi Nishida, will moreover step down after the third-party report showed they played a part in the overstatement of profits going back to the 2008 financial year.

A total of eight officials resigned on Tuesday & Tanaka said that the company is now considering appointing outside directors to over half of its board seats.

Monday's report by an outside panel of accountants & lawyers said Toshiba had overstated its operating profit by 151.8 billion yen ($1.22 billion), roughly triple Toshiba's initial estimate.

Tanaka & Sasaki pressured business divisions to meet difficult targets & knew they were overstating profits & delaying the reporting of losses, amid a culture of not going against the wishes of superiors, the report said.

Koichi Ueda, an attorney & head of the panel, said he was surprised by what they had found.

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Toshiba Corp President & Chief Executive Officer Hisao Tanaka (C), Chairman of the Board Masashi M …

"That a company that represents Japan, to be doing something like this institutionally, was shocking," he told reporters on Tuesday.

Tanaka did not dispute the findings, yet said he had no intention of encouraging accounting irregularities.

"It's not my understanding that I gave orders for improper accounting, yet the reality is that such an observation has been made," Tanaka said.

The findings are expected to lead to the restatement of earnings & potentially hefty fines in Japan's worst boardroom scandal since Olympus Corp was found to have covered up $1.7 billion in losses.

RISKS TO INVESTOR CONFIDENCE

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Toshiba Corp President & Chief Executive Officer Hisao Tanaka (C), Chairman of the Board Masashi M …

Japanese Finance Minister Taro Aso said earlier on Tuesday that the accounting irregularities at Toshiba were "very regrettable", coming at a time when Prime Minister Shinzo Abe is trying to regain global investors' confidence with better corporate governance guidelines.

Aso declined to comment when asked if Toshiba would face any kind of financial penalty. Sources have said regulators were beginning their own review of Toshiba's book-keeping, based on Monday's report.

Some analysts have voiced concerns that there could be more issues ahead, including a possible writedown on Toshiba's Westinghouse nuclear business which was not a major target of the latest probe.

A Toshiba executive brushed off suggestions that the $5.4 billlion the company invested in Westinghouse in 2006 had weighed on its finances & led to improper accounting, saying the business was doing well.

"Compared with the time of the acquisition, operating profit has expanded a tremendous deal," Keizo Maeda, executive vice president, told reporters.

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Toshiba Corp President & Chief Executive Officer Hisao Tanaka speaks during a news conference afte …

Shares in Toshiba rose 6 percent on Tuesday on relief the report had few nasty surprises. But they are still down over 20 percent since Toshiba first disclosed cases of accounting irregularities in early April.

Rating Agency Standard & Poor's said on Tuesday that the required restatement of Toshiba's profit could lead to its credit rating being downgraded.

"Institutional investors & other long-term funds have already unloaded Toshiba shares, so currently the stock price is being driven by short-term investors," said Takatoshi Itoshima, chief portfolio manager at Commons Asset Management.

(Additional reporting by Taiga Uranaka, Chang-Ran Kim & Ayai Tomisawa; Editing by Richard Pullin & Rachel Armstrong)

Toshiba CorpHisao Tanaka

Source: “Reuters”

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