Journalists have traditionally been taught to avoid superlatives and other sweeping statements. Yet the New York Times just made that rookie mistake and ended up publishing an erroneous description of the track record of Toshiba prior to the recently disclosed accounting scandal that has led to the resignation of the top executives of the Japanese electronics giant.
“Toshiba Quickly Loses a Spotless Reputation” was the headline of the print version of the flawed effort by the Times to put the revelations in context. This may be the first case of extensive accounting fraud at the company, but Toshiba’s track record is far from spotless.
For example, like numerous other Japanese manufacturers, Toshiba has been the subject of price-fixing allegations. In 2012 the company paid $21 million to settle a U.S. class action case involving LCD flat panel screens after a jury ruled against the company and awarded $87 million to the plaintiffs. In 2010 Toshiba was fined 17.6 million euros for its role in a case brought by the European Union charging ten producers of memory chips with anti-competitive behavior.
In 1999 Toshiba committed to spend up to $2.1 billion to settle a class-action lawsuit alleging that the company had sold millions of defective laptop computers in the United States. The following year it agreed to pay $33 million to settle claims that it sold substandard equipment to federal agencies.
Going back further, Toshiba was involved in a scandal in 1987 over allegations that one of its subsidiaries violated Western export controls by selling submarine sound-dampening equipment to the Soviet Union. The incident led to resignations of top executives and temporary restrictions on U.S. imports of certain Toshiba products.
The lesson that the Times failed to grasp is that corporate misconduct rarely emerges out of nowhere. In fact, the 300-page report on the accounting scandal prepared by outside lawyers and accountants (the English version of which as of this writing has not been made public) charges that improprieties such as the overstatement of profits had been going on for at least seven years. Given what came to light in the Olympus scandal of a few years back, it is possible that subsequent revelations will show that Toshiba was cooking the books for a much longer period.
One thing that can be said about Japanese corporate scandals is that they usually lead to rapid resignations of top executives. Toshiba is also replacing half the members on its board of directors. Such house cleaning does not always occur at U.S. corporations involved in misconduct cases.
We have examples such as JPMorgan Chase, which has had to pay out billions of dollars to settle a variety of lawsuits and regulatory actions, including a recent one involving manipulation of foreign exchange markets that required the bank to plead guilty to a criminal charge. Throughout this all, Jamie Dimon had remained in place as CEO and, unlike apologetic Japanese executives, has loudly denounced regulators and prosecutors. American business does not believe in shame.