Toshiba headquarters in Tokyo, Japan. |
In February of 2015, Japan’s Securities and Exchange Surveillance Commission suspected accounting irregularities at the Toshiba corporation and began a probe investigation (Nagata, 2015). They were to investigate Toshiba’s “profit recognition on large long-term projects in the areas of nuclear, hydroelectric, and wind-powered equipment; air traffic control, and other systems” (Verschoor, 2015). Specifically, the Securities and Exchange Surveillance Commission was to investigate Toshiba’s practice of the “percentage-of-completion” accounting principle (Koichi, Hideki, Taigi, & Kazuyasu, 2015, p. 13).
When the Toshiba Corporation received the report order from the Securities and Exchange Surveillance Commission, it willingly conducted an internal investigation on the matter (Koichi, Hideki, Taigi, & Kazuyasu, 2015, p. 13). It was not until April 2015 that the firm realized the seriousness of the issue and announced its troubles to the public. During this time, the Toshiba Corporation determined that its profits were overstated—it was unknown by how much. After realizing the gravity of the accounting errors, Toshiba established a third-party investigation committee “led by a former top prosecutor and aided by outside lawyers and accountants” (Verschoor, 2015).
The findings of the report prepared by the Special Investigation Committee, released in July of 2015, were astonishing and revealed several wrongdoings of the Toshiba corporation. First, the report “cited Toshiba’s toxic ethical tone at the top as the major cause of the improper accounting practices” (Verschoor, 2015). Second, the report disclosed that Toshiba had inflated profits of at least $1.2 billion (Verschoor, 2015). Furthermore, the Special Investigation Committee determined that the internal control systems at Toshiba did not function correctly or sufficiently. Therefore, the committee cited various forms of internal controls to be the indirect cause of Toshiba’s accounting fraud.
CEO Hisao Tanaka bows deeply in remorse during public apology. |
Stakeholders
A
stakeholder is someone who is affected by the actions of a business. The
stakeholders in Toshiba’s accounting scandal are: Toshiba stockholders, Toshiba
executives, Japan’s Securities and Exchange Surveillance Commission, Toshiba
employees in the consumer electronic department and their families, Toshiba’s
accounting department, and Toshiba’s customers. Toshiba executives and
accounting department employees have an interest in the case because they are
directly responsible for the false reporting of project losses. Toshiba’s
employees in the consumer electronic department and their families are affected
by the case because roughly 7,000 employees from that department were fired so
that Toshiba might recover from the scandal. Toshiba stockholders are interested
in the case because Toshiba was forced to recognize the losses they failed to
record, which caused stock prices to plummet. Toshiba customers are invested in
this case because they will no longer be able to purchase consumer electronics
from Toshiba. Finally, the Japan Securities and Exchange Surveillance
Commission has an interest in this case because they are responsible for
catching fraudulent reporting of financial statements.
Hiroyuki Itami was named interim audit director as a result of the scandal. |
Individualism is a broad ethical theory that states that the sole obligation of a business is to maximize stockholder wealth within the constraints of the law. First, Toshiba did not maximize stockholder wealth. Toshiba reported revenue numbers that were much higher than actual numbers. While that may have profited stockholders in the short-run, Toshiba did not profit stockholders in the long run because they were forced to report their losses, which drove stock prices down. Second, Toshiba did not act within the constraints of the law. Not only is it illegal for a corporation to report fake numbers, but it is also illegal for Toshiba is incorrectly use the percentage-of-completion accounting principle. For these reasons, an individualist would declare Toshiba’s actions unethical.
Utilitarianism
A laptop is an example of a consumer electronic |
Kantianism
The basic principles of Kantianism say to always act in ways that respect and honor individuals and their choices. Instead of lying, cheating, stealing, or performing other deceitful actions, businesses should use informed and rational consent from all parties. Kant believes that the only thing that is good in itself is good will. Kantians judge the ethicality of an action on two things: (1) rationality and (2) motivation.
For an action to be rational, it must align with the Formula of Humanity, which states that to act rationally means to “treat all people as ends and never only as means” (DesJardins, 2014, p. 38). This can be interpreted to mean that people “have their own ends and purposes and therefore should not be treated simply as a means to the end of others” (DesJardins, 2014, p. 38). When subjected to the Law of Humanity, a Kantian would view Toshiba’s actions as unethical because Toshiba, specifically upper management, treated their employees as a mean—something that is valuable as a way to get to something else. When told that certain projects had incurred losses, managers and senior management alike instructed employees to postpone the reporting of those losses (Koichi, Hideki, Taigi, & Kazuyasu, 2015).
Kantian principles state that for an action to be rightly motivated, it must come from moral law or duty. Kant believes that “[i]f we are motivated to do the right thing because it is the right thing, then we are performing actions that are not merely in accordance with morality, but are in fact moral” (Salazar Kantian Essay page 13). A Kantian would conclude that Toshiba’s actions are not moral because they stem from motivations of self-interest. Toshiba’s management concealed the losses on long-term projects to protect the reputation of the business they were working for. Additionally, Toshiba’s management had a personal interest in making sure that their salaries continued to be fulfilled. In conclusion, a Kantian would view Toshiba’s actions as unethical because they are irrational and stem from the wrong type of motivation.
Justified Ethics Evaluation
Virtue Theory
Virtue ethics is “a tradition within philosophical ethics that seeks a full and detailed description of those character traits, or virtues, that would constitute a good and full human life” (DesJardins, 2014, p. 41). A virtue is a characteristic that allows something to function properly. A vice is the opposite in that it is a negative characteristic that is likely to lead us to a life of unhappiness. The four main virtues in business are: courage, honesty, temperance, and justice. Toshiba possesses none of these virtues because it did not stand for the right ideas and actions, they lied to the public and stockholders, had unreasonable expectations of their employees, and unfair practices. For these reasons, Toshiba is neither virtuous nor ethical.
Virtue ethics is “a tradition within philosophical ethics that seeks a full and detailed description of those character traits, or virtues, that would constitute a good and full human life” (DesJardins, 2014, p. 41). A virtue is a characteristic that allows something to function properly. A vice is the opposite in that it is a negative characteristic that is likely to lead us to a life of unhappiness. The four main virtues in business are: courage, honesty, temperance, and justice. Toshiba possesses none of these virtues because it did not stand for the right ideas and actions, they lied to the public and stockholders, had unreasonable expectations of their employees, and unfair practices. For these reasons, Toshiba is neither virtuous nor ethical.
Justified Ethics Evaluation
I view Toshiba's actions as highly unethical. Overall, I agree with the findings of the ethical theories used to analyze this case. Specifically, I am appalled by Toshiba's corporate governance, which did not allow employees to go against the wrongful, illegal intentions of their superiors. One thing I think the ethical theories fail to address, however, is the fact that Tohsiba willingly hired an independent investigation committee to investigate their accounting practices, which they knew were fraudulent. I admire Toshiba for their willingness to come forward with their internal issues, and I think it was an important step to restoring their reputation. Something else the ethical theories overlook is the position of the accounting department employees, who were being asked to choose between acting ethically and keeping their job. This is a position no employee should ever have to be in. For that reason, I do not fault the accounting department employees for the fraudulent activity they were forced to carry out.
References:
DesJardins, J. (2014). An Introduction to
Business Ethics (Fifth ed.). New York: McGraw Hill.
Koichi, U., Hideki, M., Taigi, I., & Kazuyasu, Y. (2015). Investigation
Report: Summary Version. Special Investigation Committee. Tokyo: Toshiba
Corporation.
Nagata, K. (2015, September 18). Pressure to show a profit led to Toshiba's accounting scandal. Retrieved from The Japan Times.
Nagata, K. (2015, September 18). Pressure to show a profit led to Toshiba's accounting scandal. Retrieved from The Japan Times.
Reuters. (2015, December 21). Toshiba Plans to Fire 7,000 Employees
in wake of $1.3 billion Accounting Scandal. Retrieved from Venturebeat:
http://venturebeat.com/2015/12/21/toshiba-plans-to-fire-7000-employees-in-wake-of-1-3-billion-accounting-scandal/
Soble, J. (2015, July 21). Panel Finds Accounting Irregularities at
Toshiba. Retrieved from The New York Times.
Soble, J. (2015, July 22). Scandal Upends Toshiba's Lauded Reputation.
Retrieved from The New York Times.
Verschoor, C. C. (2015). Toshiba's Toxic Culture: In Japan where it's
disrespectful to disobey orders, a poor tone at the top can be detrimental to
a company. Strategic Finance, 18+.
No comments:
Post a Comment