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"Life is a storm... You will bask in the sunlight one moment, be shattered on the rocks the next. What makes you a man (or woman) is what you do when that storm comes.” — Alexandre Dumas

The Wall Street Journal's "Crisis of the Week"

Crisis of the Week: Accounting Problems Hobble Toshiba

Ben DiPietro, The Wall Street Journal's Risk & Compliance Journal, July 27, 2015

The crisis this week involves the actions taken by Toshiba Corp. in the wake of an accounting scandal that saw the company overstate earnings by more than $1.2 billion over seven years. The fallout from the scandal escalated last week, when the company announced the resignation of Chief Executive and board Vice Chairman Hisao Tanaka and a reorganization of its board in which half the members are stepping down. A report from the company into the overstatement said its three most recent CEOs all played roles in inflating the company's operating profit.

Looking only at the statements of company officials, and the actions taken in removing the CEO and reshuffling the board, we asked the crisis management experts how well has the company handled this crisis? Where has it done particularly well? Where has it fallen short? What should it do next?

Davia Temin, CEO, Temin and Co.: "It is extraordinarily difficult for a company to buck its own tradition and culture. Japanese companies have always been opaque and less than communicative, and are not known for admitting to misdeeds until they are absolutely forced to–and sometimes not even then. Much pain could have been avoided had they owned up to their problems quickly, rather than doubled down through denial. Now is the time to show it is serious about changing corporate culture. Nothing less will quell the massive crisis of confidence Toshiba has created.

"To be sure, in the face of incontrovertible evidence, Toshiba has acted more quickly and decisively to show 'accountability' after the fact than almost any other company in a Japanese corporate scandal. The CEO and other leaders, plus half of the board, have stepped down immediately, issuing authentic-sounding apologies. But that is hardly enough. Not only must heads roll, and practices change, but it is time to turn corporate culture on its ear.

"[The] business needs to take a page from the playbook of Pope Francis. This new pope is turning Vatican tradition and culture–easily as entrenched as Japanese culture–upside down, systematically breaking every 'rule' of papal behavior. My suggestion to cure [Toshiba's] crisis of corporate culture–follow Pope Francis' lead. Take immediate steps to make glaring, symbolic change, the kind no one thinks it can. Then create a new code of conduct, at every level of corporate life, and begin to communicate it broadly and enforce it strongly. That is the only way I know to stop a series of crises that has been going on for years."

To read the full article, CLICK HERE.

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