The Yomiuri ShimbunA crisis confronts the very existence of a prestigious company regarded as one of Japan’s iconic firms. It must swiftly compile a clear strategy for reviving its business operations and ensuring its survival.
Toshiba Corp. announced that projected losses caused by its U.S. nuclear power business could swell to ¥712.5 billion for the April-December 2016 period, and that its net loss could reach ¥499.9 billion.
Given its worsening financial condition, as things stand Toshiba could enter a crucial stage in which it ends up with a negative net worth of ¥150 billion at the end of March.
In addition to shrinking its nuclear power business, Toshiba plans to sell off its profit-making semiconductor unit and establish a new company.
Toshiba initially intended to accept an equity investment of “less than 20 percent” from outside parties in the new firm, but it has shown an intention to lift this proportion and sell a majority stake. Toshiba aims to put priority on gaining preferable financial terms, even if that means control of the new semiconductor firm is held elsewhere.
However, even if Toshiba avoids having excess liabilities by selling off pieces of its business, this would be no more than a temporary fix. The key challenge will be whether Toshiba can secure revenue sources if it reduces its nuclear power and semiconductor operations — the two main pillars of its business.
The Toshiba group has 190,000 employees overall. The direction of Toshiba’s reconstruction is being closely watched not only by these staffers and their families, but also by investors and clients. It is of paramount importance that Toshiba provide a future vision that is convincing to its many stakeholders.
A fundamental review of Toshiba’s corporate governance is essential for overcoming this crisis.
Minimize impact of crisis
This week, Toshiba suddenly delayed the release of its consolidated accounts on the day they were scheduled to be announced. The delay arose from an internal report that noted accounting irregularities at its U.S. subsidiary, Westinghouse Electric Corp. Toshiba was unable to gain auditors’ approval and therefore could not accurately settle its accounts.
There reportedly are suspicions that Westinghouse management applied “inappropriate pressure” over the bookkeeping for a nuclear construction company it purchased in 2015.
What we find particularly serious is that, once again, a problem has emerged from Westinghouse, which has been at the epicenter of the crises roiling Toshiba.
During the accounting scandal exposed at Toshiba in 2015, top managers were severely criticized for demanding subordinates achieve unreasonable targets. Revelations about these new suspicions and the postponement of its earnings report indicate that Toshiba is not learning lessons from its conduct and that its internal reforms are proceeding at a snail’s pace.
Negative repercussions of the management woes at Toshiba, which also has played a major role in Japan’s nuclear power projects, could reach the nation’s energy policy and even affect the domestic economy.
Yoshimitsu Kobayashi, an outside director at Toshiba and chairman of the Japan Association of Corporate Executives (Keizai Doyukai), said it must be considered whether the domestic nuclear power industry can be sustained by just one company, and it “should stay in Japan.”
To minimize the impact of Toshiba’s crisis, government ministries and agencies, electric power companies and nuclear power-related firms must maintain sufficient levels of communication.