How internal power struggles put Toshiba on a dangerous path
Rancor among top executives left the company unable to fix its nuclear woes
TAKASHI SUGIMOTO and EIKI HAYASHI, Nikkei staff writers
TOKYO It was fall 2009 and Toshiba's new executive team was briefing current and retired executives on its management policy. A speech by the newly installed president and CEO, Norio Sasaki, stunned the audience into silence.
"You will witness a way of management that is different from the one you've seen until now. We will get the company back into the black in the first year of operations [under the new team]." Sasaki had dismissed the management policy and strategy of his immediate predecessor, Atsutoshi Nishida, with the man himself in the audience.
The rancor between Sasaki and Nishida, who now held the post of chairman, would eventually have dire consequences for Toshiba.
PARTING OF WAYS It was on Nishida's watch that Toshiba had acquired Westinghouse Electric for 600 billion yen ($5.42 billion). The price was more than two times higher than Toshiba had initially proposed paying, but this was justified by the projection that the company would win orders for 33 nuclear reactors by 2015. That projection was compiled by Sasaki, then a senior managing director. As Sasaki and Nishida had worked hand-in-hand to make the Westinghouse acquisition a success, it was only natural to expect the two would continue to be close.
That did not prove to be the case.
"Sasaki is the type of man who wants to call the shots and who hates to be told what to do," said an ex-Toshiba official. Soon after taking over as CEO, Sasaki began going his own way.
The conglomerate's nuclear operations are a case in point. Playing up his role in the Westinghouse acquisition, Sasaki raised the number of reactors the company would build worldwide to 39. That bullish projection was based on expectations that more emerging economies would adopt nuclear power generation. Today, Westinghouse has just eight reactors on its order books.
In May 2010, Sasaki began facing tough questions from shareholders in the U.S. who wanted to know why Toshiba had not revised its order expectations despite nuclear plant construction in America stalling. Even before the nuclear disaster that struck Japan in March 2011, analysts viewed Sasaki's projection as too optimistic. But tempering his outlook would have meant admitting his mistake regarding Westinghouse, a business he himself had promoted.
The best way for a chief executive to prove his or her capability is with hard data, namely figures on business performance. Some observers think Sasaki, hungry for better numbers, exacerbated the accounting irregularities that had started under Nishida.
Sasaki imposed performance targets -- he called them "challenges" -- on many business divisions. An ex-Toshiba official recalled the way Sasaki harangued managers to attain these difficult targets: "He would give them a merciless dressing-down." According to Toshiba, profits were illegally inflated by more than 200 billion yen under Sasaki.
The bitter feud between Sasaki and his predecessor only made things worse.
PUSHED ASIDE After hearing complaints from employees on the front lines, Nishida admonished Sasaki and told him to think about things from their point of view. But Sasaki turned a deaf ear to this advice.
Then Sasaki joined the Council on Economic and Fiscal Policy, a key governmental panel set up under Prime Minister Shinzo Abe in early 2013, as a private-sector member. Nishida was enraged that Sasaki had accepted the post without consulting him, and relations between the two deteriorated beyond repair.
In 2013, Nishida pushed Sasaki aside to the post of vice chairman, picking Hisao Tanaka as the new Toshiba president. Tanaka seems to have been well-aware that he would have to follow Nishida's lead on management policy.
In fall 2013, Tanaka inked a contract to buy liquefied natural gas from the U.S., with the ostensible aim of winning orders to build thermal power generation systems. The real purpose of the deal, however, was to shore up Toshiba's nuclear energy projects in the U.S., which were on the brink of going under. Toshiba hoped that in exchange for buying the LNG, it would be allowed to sell electricity produced by the nuclear power plants -- once they were completed -- to an LNG export plant.
But the nuclear construction projects have ground to a halt, and Toshiba still has an obligation to buy the LNG, a situation that could see the company incur losses of more than 100 billion yen.
In an October 2017 report on internal controls, Toshiba pointed to lax procedures regarding the appointment of board members as a factor in its current crisis. The report pointed out that, even though the company has a nomination committee, incumbent CEOs and the officials around them still effectively hand-pick their successors. This makes it difficult to keep top executives in line.