"Please accept my deepest apologies for causing all of you so much distress, for still being unable to explain the financial results for fiscal year 2014, and for cancelling dividend payments." At the outset of the conference, Hisao Tanaka, president of Japanese electronics maker Toshiba, faced straight ahead, speaking matter-of-factly, and bowed his head deeply.
The emergency press conference was held on the evening of May 15th, and Mr. Tanaka appeared in public for the first time since irregularities in his company's accounting processes came to light.
No explanation was offered
There he announced the establishment of the independent committee to investigate the issue. Four members were selected, including the attorney Koichi Ueda, a former superintending prosecutor with the Tokyo High Public Prosecutor's Office. This conference with the president was held after the panel's first meeting had adjourned. The special investigating panel had been established internally, but this panel is a more rigorous group composed of outside experts.
During the press conference, Mr. Tanaka did not offer much information about the scale of accounting irregularities, and the circumstances behind the issue coming to light were scant.
On April 3, Toshiba announced that there were problems with certain accounting processes related to infrastructure projects that required investigation in fiscal year 2013. It then formed the special investigating panel chaired by Toshiba Chairman Masashi Muromachi.
On May 8, it revealed that cost-price estimates were excessively low for certain infrastructure projects using the percentage-of-completion method of accounting. It withdrew its financial results for fiscal year 2014, revising them to yet-to-be-determined, and decided not to pay a dividend for the fiscal year for the first time in five years. The announcement of the financial results itself was postponed to June.
Further, in accordance with the postponement of the announcement of the financial results, the annual shareholder's meeting normally held in June is also expected to be postponed this year.
On May 13, Toshiba announced it anticipated a markdown on its operating profit for the three period encompassing fiscal years 2011 through 2013 totaling more than 50 billion yen. Then, on 15, it disclosed there were nine cases in which accounting irregularities were present.
Breaking down the 50 billion-plus markdown on operating profits, it confirmed four cases (6 billion yen) at Power Systems division, four cases (30 billion yen) at Social Infrastructure Systems division, and one case (14 billion) yen at Community Solutions division, which engages in water processing projects, etc. It appears there were multiple cases in other divisions as well.
Nothing is clear
Asked whether the nine cases at issue were connected, President Tanaka stated, "The majority of the cases are domestic, and there is no connection as far as we can determine," and evaded the question, saying, "I wish to limit my responses on specific cases and their details, as they also concern customers."
Regarding why a month had passed between the time the issue broke and the conference was held, Mr. Tanaka justified himself by stating, "It would not have been appropriate to discuss unconfirmed facts, so I have refrained from holding a conference."
In response to the strong backlash from the market, Toshiba plans to disclose information in as timely a fashion as possible going forward.
On management accountability, he announced that starting with May, compensation for all board members and executives will be cut in response to the cancellation of dividend payments for fiscal year 2014. Asked about the size of his own pay cut, Mr. Tanaka responded, "I am thinking 50%." He stated that the amount for other executives would be considered in the future.
The real probe by the independent panel begins now. The actual scope and duration of the probe remain unclear. Whether the losses will ultimately be limited to tens of billions of yen and the overall amount of the effect on the financial results are unknown.