Toshiba says 'sayonara' to CEO and top execs amid accounting scandal

Toshiba CEO Hisao Tanaka

Toshiba has come under scrutiny for allegedly unsound accounting practices, with an investigation expanding earlier this month to include interviews with top executives and reviews of internal emails. And apparently the probe did not turn out well for the company, as its chief executive and a slew of top executives are resigning amid new evidence.

As Reuters reports, Toshiba's CEO Hisao Tanaka is stepping down after an independent inquiry found the CEO was aware the company inflated its profits by $1.2 billion over the past several years. Tanaka will be replaced in the interim by Chairman Masashi Muromachi.

Tanaka's two predecessors, Vice Chairman Norio Sasaki and adviser Atsutoshi Nishida, are also heading out the door after a report showed that they played a role in the scandal. And 8 officials will join them, saying Toshiba is now considering appointing outside directors to fill more than half its board seats.

The news comes on the heels of a report by an outside panel of accountants and lawyers, which found that Toshiba overstated its operating profit by ¥151.8 billion ($1.22 billion)--about triple the company's original estimate, according to the Reuters story. Tanaka and Sasaki pressured business divisions to meet difficult targets and knew they were inflating profits and delaying the reporting of losses, the report said.

Toshiba's scandal is the biggest Japan has seen in years. In 2011, medical device maker Olympus said it used false accounting to hide $1.7 billion in investment losses. And Tanaka seems aware of the impact the scandal could have on Toshiba, calling it "the most damaging event for our brand in the company's 140-year history," he said, as quoted by Reuters. "I don't think these problems can be overcome overnight," Tanaka added.

The company is dismissing accusations that its accounting practices stemmed from the company's faltering nuclear business. Toshiba invested $5.4 billion in Westinghouse in 2006 but the Fukushima Daiichi nuclear disaster in 2011 put a damper on profits. Still, the business is doing well overall, executive vice president Keizo Maeda told Reuters. "Compared with the time of the acquisition, operating profit has expanded a great deal," he said.

But Toshiba could have a long road ahead as it attempts to recover from the recent turn of events. Shares of the company are down more than 20% since Toshiba first disclosed cases of accounting irregularities in April, Reuters reports. And the scandal could lead to the company's credit rating being downgraded, rating agency Standard & Poor's told the news outlet.

- read the Reuters story