The current CEO and one former CEO of Toshiba Corp. resigned
this week in connection with the accounting scandal the company has
been embroiled in since May. Senior executives are alleged to have
pressured subordinates to meet unachievable financial targets,
leading the company to overstate its earnings by more than USD
$1.2-billion between 2008 and 2014. Toshiba employees are alleged
to have postponed losses or pushed forward sales on accounting in
order to meet these unrealistic targets. Eight of the 16 board
members have now resigned. The fallout from Toshiba's
accounting issues comes amidst increased regulation in Japan into
matters of corporate governance.
Toshiba, one of the world's largest electronics manufacturers with
over 400 overseas companies, more than 200,000 employees and net
sales in excess of USD $63-billion, had long been considered a model of corporate governance. In
addition to the reputational harm, the scandal caused the
company's share prices to drop 17% in May and over 25% leading up to this week's
announcements , following a USD $2.8 billion loss in market
value after the company withdrew its earnings forecast in May
pending an internal probe into the allegations. That probe led to
Monday's report detailing systematic involvement by upper
management in improper accounting. The findings will likely lead to
a restatement of earnings at a later date. The company has yet to release its earnings for the 2014
fiscal year and will hold a shareholders meeting in September to
approve a new board.
The Toshiba story broke shortly after the Japanese
government's recent introduction of a new set of guidelines targeted at enhancing
the number of outside directors (Japan's corporate culture had
previously been one where independent directors were rare, with
boards filled largely by corporate managers) and fostering greater
concern for shareholders.
Toshiba's current scandal is a particularly stark reminder
of the importance of strong corporate governance policies and
robust internal controls, and the need for recognition
that the tone and culture set by management will often
dictate the compliance practices of lower level employees.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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