What next following Fuji Xerox's "inappropriate" accounting scandal?

What next following Fuji Xerox's "inappropriate" accounting scandal?

Can Fujifilm Holdings learn from Toshiba’s ongoing shareholder legal wrangles?

Fujifilm Holdings revealed on 12 June that “inappropriate accounting practices” at its Fuji Xerox subsidiaries in Australia and New Zealand (A/NZ) resulted in an estimated $450 million hit to net income over a six-year period.

These “Inappropriate” accounting practices saw Fujifilm Holdings’ leadership ranks rattled, but will it damage the company’s long-term reputation in the local market and further afield?

The revelation, which was the result of an independent review, saw the company take immediate action, no doubt in a bid to bolster shareholder confidence – Fujifilm Holdings is publicly-listed on the Tokyo Stock Exchange.

Three executives and Fuji Xerox chairman, Tadahito Yamamoto, subsequently said they would resign, while others will see a cut in pay.

Deputy president, Huruhiko Yoshida, and two directors, Katsuhiko Yanagawa and Jun Takagi, are also exiting their roles. Meanwhile, two new corporate auditors have also been appointed.

“The company expresses its deepest regrets to its shareholders, investors and other related parties for any inconvenience and concerns caused," the company said at the time.

Swift actions, to be sure, but will they stifle long-term shareholder concern over the accounting scandal, or protect the company's brand equity?

Another publicly-listed Japanese tech giant that found itself at the centre of a major accounting scandal is now facing mounting legal action from dissatisfied shareholders.

Toshiba, which is currently also embroiled in deep financial woes following a massive write-down of subsidiary, Westinghouse Electric Company, told shareholders on 13 June that yet another legal action had been launched against it over a major accounting scandal uncovered in 2015.

It was revealed in July 2015 by a committee reviewing its earnings that the company, also publicly-listed on the Tokyo Stock Exchange, had padded its profits by almost US$1.3 billion over a six-year period ending 2014.

Like Fujfilm Holdings, the company acted quickly, with Toshiba executives resigning immediately following the news.

"I recognise there has been the most serious damage to our brand image in our 140-year history. We take what the committee has pointed out very seriously, and it is I and others in management who bear responsibility," said Toshiba’s president at the time, Hisao Tanaka, who subsequently stepped down over the scandal.

More recently, Toshiba has told shareholders that the combined value sought by those who have launched legal proceedings against the company over the accounting scandal now comes to approximately 108.4 billion yen – about $1.3 billion.

Now, as Fujifilm Holdings faces its own accounting scandal - albeit on a much smaller scale - the company’s local Fuji Xerox subsidiary seems to be playing it remarkably cool, despite the top-tier topple that has already hit the parent company’s upper echelons in Japan.

“The results of the investigation showed that certain accounting practices were inappropriate at Fuji Xerox New Zealand Ltd. as well as Fuji Xerox Australia Pty. Ltd. And the Committee pointed out inadequacy in Fuji Xerox’s corporate governance,” a representative for Fuji Xerox Australia told ARN in a statement.

“Fuji Xerox and its affiliates take the committee’s findings very seriously and [are] committed to resolving past issues and ensuring that there is no recurrence.

“To this end, Fuji Xerox (Japan) will renew its management structure and discuss countermeasures to ensure the group to adhere to the highest standards of corporate governance. For Fuji Xerox and its affiliates, the top priority is on regaining trust from the stakeholders."

However, there is no indication so far as to whether the company’s local operations will see any impact to its leadership line-up on a scale similar to the one that shook Fujifilm Holding’s headquarters earlier in the week. 

Indeed, it is yet to see any sort of shake-up at all – at least publicly.

This is despite Fujifilm Holdings itself saying openly that the investigation showed that “certain accounting practices were inappropriate at Fuji Xerox New Zealand Ltd. as well as Fuji Xerox Australia Pty. Ltd.”

At the same time, it should be stressed that, while Fuji Xerox's operations in A/NZ have been implicated in the scandal, it is not yet clear whether the roots of the "inappropriate" accounting came from the local region's overseers in Japan, or from the company's local leadership. Indeed, it's possible that the accounting issues were entirely accidental. 

Perhaps a local leadership shake-up would make little difference in the end, anyhow.

If Toshiba’s experience is anything to go by, a top-tier topple alone might not be enough to stave off action from concerned shareholders, whether legal or otherwise.

Regardless, the company appears hopeful that it will receive continued support from stakeholders as it works past the accounting troubles.

“With continued strong shareholder support from the ultimate parent, Fujifilm Holdings, and the intermediate owner, Fuji Xerox Asia Pacific…customers in Australia can be confident that Fuji Xerox Australia will continue to lead the market in the delivery of print, document management and business optimisation solutions,” the spokesperson for Fuji Xerox Australia said.

According to Fuji Xerox president and representative director, Hiroshi Kurihara, the company’s commitment to the Australian market “remains strong”. 

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