Goodbye, Tosh

Toshiba crisis offers chance for sweeping overhaul

Toshiba's crisis offers the chance for a sweeping overhaul. A deepening accounting scandal is set to force out Chief Executive Hisao Tanaka, his predecessor Vice-Chairman Norio Sasaki and over half of the board, according to Reuters. After the firefighting is over, the Japanese conglomerate's new leaders have more fundamental issues to confront.

This is the worst pickle the inventor of the laptop has ever faced. Toshiba first said in April it was worried about accounting in one division, and later that operating profit might have been exaggerated by about 50 billion yen ($405 million). But a closer look revealed more nasties. Toyota has since brought in a third-party committee and widened the investigation to four units. Local media now fear a 200 billion yen hole - just shy of a full year's operating profit.

Investors have reacted badly. Toshiba's market value has slid from $18 billion to $13 billion. That's fair enough: several years of results may need to be restated and estimates of future profitability will have to fall too. Many analysts have halted coverage. Toshiba's rivals must be trying like crazy to poach its business and staff.

Toshiba's financial position might also look less comfortable after the committee publishes its findings, which are due any day now. That could mean new credit lines are required. Macquarie analysts say an equity raising looks less likely, but the concern could hang over the stock for some time.

Toshiba will also need to ensure this can't happen again. That probably means getting a new auditor and a bigger and more diverse roster of independent directors. Staff must also be able to push back against impossible top-down targets.

Then comes the most painful question: is Toshiba just trying to do too many things? The answer, at least viewed from outside Japan, would almost certainly be yes. The benefits of making everything from vacuum cleaners to MRI scanners to flash memory, the main profit centre, are hard to divine. The sprawl invites a huge conglomerate discount. Fellow industrial powerhouses such as General Electric, Siemens and Philips have belatedly discovered the benefits of doing fewer things better.