Not fade away: problems with money in business have a lasting impact

Alice Shepherd of Leeds University Business School discusses how the recent Toshiba scandal highlights what can go wrong when people and finance interact within a business context. Alice is one of the educators on the free online course “The Importance of Money in Business” run in association with ICAEW.

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During the last year, there have been several high profile corporate scandals at household name organisations. Toshiba is the latest business to join this list of shame.

Overstating profits for six years

The release of a statement on 21 July 2015, confirming that the company had overstated profits by 151.8bn Yen – or £780m (GBP) – from 2008 to 2014 led to the resignation of Toshiba’s chief executive and other senior figures.

Since the first indications of problems in April 2015, shares in the company had lost a quarter of their value, but they rallied after the resignations, suggesting that investors feel the changes in management were a positive move.

Details are still emerging, but it appears that Toshiba’s managers, faced with stretching financial targets, manipulated profits so it appeared to their bosses – and the outside world – that they had met or exceeded those targets.

Commentators have blamed Japanese corporate culture, which meant middle managers did not want to challenge the targets being set by senior managers, or suggest they were unrealistic.

Is financial misrepresentation a wider issue?

The problems at Toshiba come hot on the heels of similar issues at Olympus, the Japanese camera firm, suggesting that misrepresentation of profits might not be attributable to isolated incidents in particular companies, but could be a wider issue in Japan.

It’s important to note, however, that financial scandals happen from time to time in businesses in all sectors globally.

We need to look at the bigger picture to understand what really led to the scandal. The manipulation of profits came at a difficult time for the company: the continuing economic difficulties in Japan; the global financial crisis; and the 2011 Fukushima nuclear disaster, which had a large impact on the company’s nuclear division.

Illegal financial practices can be hard to resist

Against the context of hard times, the pressures on managers are heightened and the temptation to engage in unethical or even illegal financial practices can be hard to resist. What is certain is that the interaction of people and finance within a business context is complex, and sometimes goes wrong.

The consequences of this scandal for Toshiba will be severe, with regulatory action and fines almost a certainty. The consequences for the Japanese corporate sector, in terms of damage to reputation and loss of trading opportunities, may be even more severe and long-lasting.

The role of people in managing money

The Importance of Money in Business” course considers the role of money and finance when starting, growing and managing an established business. An important theme within the course is that the role of people, in managing and interacting with money and financial information, cannot be underestimated.

During Week 4 of the course, we will consider how organisations measure and report on their success (or lack of success), to interested external parties including investors. We will also highlight the importance of ethical behaviour in a business context, even when the pressure is on to adopt unethical practices.

If you want to know more, you can join “The Importance of Money in Business” now or join the conversation using #FLmoneybiz.

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Comments (7)

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  • Isaac Eshun

    Hi,Alice and Peter,may God richly bless you treating this topic through this all-important free online course.Factually speaking,the major problem Africa continent is faced with is lack of good management of organizations’ finances.

  • radia akkari

    Money is important sure to start a business but never can stand it’s success life. And the good idea alone is like a sick body powerless. What about to have both, money and good idea I guess the most of time can’t led us to the top ..to the success because we have to remember that the idea must be famillar with a need of the market and money is a real energy to give a birth to a succeful project.

    Thank you
    Best regards
    Radia akarı

  • William Ferrer

    Hi Alice. What about the people who invests in that company? How they do it? What about the Stock Market authorities and externa Audit company? It would be interesting to know to avoid that kind of actions. Thanks

  • Andrea Tara-Chand

    Hi Alice and Peter. The Importance of Money-In-Business e-learning course is just great. I am involved as a volunteer at Chapeltown Development Trust and we have been/are successfully supporting the development of new and growth of existing businesses in inner city NE Leeds. One of the largest problems we face is access to business skills. This course is great news for us – I wonder if you are planning to set up any others. We will certainly advise our small businesses to use the course and feel certain they will benefit.

    • Illeana

      Thats right, people need to understand more about business specially nowadays that compettition is bigger. It is so sad what happened with Toshiba´s Company because it was greater than others which stiil are working.

    • Alice Shepherd

      Hi Andrea
      Good to hear from you. There are two innovation/entrepreneurship courses that Leeds University Business School has run on Futurelearn. They are likely to be repeated and you can have a look at them in the business and management category list. They are called ‘Innovation: The key to business success’ and ‘Starting a business: realise your vision’. I hope the businesspeople you advise find the course useful!

      • Frank Lam

        Dear Alice,
        the relevance of your subject just proved again on the continent, where the large service company Imtech (22.000 staff) crashed to a bankrupt caused by bonus grabbing management. (I do not know if you can find stories about this in English)