The Toshiba scandal: what went wrong?

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The Toshiba scandal: what went wrong?
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A defining moment of Nishida's career came when he led a 1980s push into laptop computers, overcoming scepticism within the company. After launching the world's first IBM-compatible laptop in 1985, Toshiba developed increasingly smaller and more powerful models, propelling it to the top of the market, a position it held through 2000.

"Only a few people understood the potential of the laptop market. Nishida was one of them," said former Toshiba engineer Masao Suga.

When the PC division fell into the red after the IT bubble burst in the early 2000s, Toshiba split off the business and tasked Nishida, then a director in charge of digital products, with making it profitable. He achieved that with a raft of reforms in 2004 that included outsourcing production and a new system for procuring parts.

As the financial crisis took hold in 2008, the PC division came under intense pressure from Nishida to stem losses and in response turned to "channel stuffing" to temporarily book gains at the end of quarters, investigators say.

At a monthly CEO meeting in January 2009, Nishida rejected the division's projection of an ¥18.4 billion (A$220 million) loss for the half-year ending two months later, saying it should be reduced by at least 10 billion yen.

"Fight like your life is on the line," he said, according to the panel's report.

Then came a threat: "We're at a point where the continued existence of this business is in question. If you don't see a problem with that then don't bother trying for the 10 billion-plus improvement. But that means this unit will be sold," Nishida said, according to the report.

At February's CEO meeting, when Nishida was told the division's second half loss would now be ¥23.7 billion, he lobbed a ¥16 billion "challenge".

The PC division responded by ramping up the parts transactions and finished with a smaller loss of ¥9.2 billion. The head of the PC division declined to comment.

The report did not offer evidence that Nishida gave orders to boost the transactions and said he denied he knew this was going on.

However the investigators, citing a report Nishida had received about dealings with contract manufacturers, said his assertion that he was unaware what was happening "could not be deemed logical".

Keidanren post

The panel found the profit inflation grew under Sasaki, who became CEO in 2009. Sasaki told the panel he was aware that the PC parts transactions were being used to generate profits but that he had been told it was not illegal. At the same time he said he thought the overuse of the scheme was "unhealthy" for the business and told the division to reduce the volume, according to the panel. Sasaki did not respond to an interview request.

Sasaki at times came under intense pressure from Nishida to improve Toshiba's performance, according to people familiar with the matter.

Nishida was named a vice chairman of business lobby Keidanren in 2009 and came close to being chosen to replace Canon's Fujio Mitarai as chairman in 2010. He was a possible candidate for the post in 2013 when he tapped Tanaka to replace Sasaki as president, sources said. Sasaki became vice chairman.

The move was unusual because Nishida remained chairman instead of stepping aside as would have been the normal protocol at Toshiba. Some Keidanren watchers recall they saw the maneuver as a way for him to remain eligible for the lobby post, traditionally chosen from active chairmen or presidents of blue-chip firms.

But sources said a rift with Sasaki helped doom Nishida's prospects. In presenting Tanaka as CEO at a 2013 press conference, Nishida took a swipe at Sasaki's performance, saying Toshiba needed to return to a growth track, while Sasaki retorted he had done that.

The public rebuke of Sasaki - rare in consensus-minded Japan - raised concerns at the lobby and in government about whether he had the finesse for a role in which he would have to work with lawmakers and be the face of the business world, sources said.

"In Japanese there is a proverb - the nail that sticks out gets hammered down," the associate said. "Nishida stood out."

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