Tuesday, July 21, 2015

Not rocket science, Toshiba.

My go-to joke about rocket science is that my husband's best friend is, in fact, a rocket scientist at NASA--so every time I need to know if something's rocket science, I can just ask Randy.  ("No, that's not rocket science, Nancy.")

It's not rocket science to figure out that alleged pressure from Toshiba's top brass may have led to serious accounting problems (see here and here).  The formula is [top brass has particular incentives to get big rewards] + [incentives are linked to the company's financial performance] + [the better the performance, the bigger the incentives] = [increased tendency to lean on lower-level managers to fudge results].

Do the lower-level managers have options?  Sure, but none of those options will end with happy results.  Balk at upper-level pressure?  Get fired.  Yield to upper-level pressure?  Run the risk of being part of a conspiracy.  Blow the whistle (I have no idea what the whistleblower laws are in Japan)?  Maybe come out unscathed (technically) but run the risk of becoming a pariah.  Cynthia Cooper's autobiography is still my favorite book about whistleblowing.

So what's the solution?  Boards need to think hard--and strategically--about what incentives they're giving to their C-level officers.  Bad incentives = bad consequences, every single time.

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