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Editorial: Toshiba’s resolve to rebuild nuclear business put to the test

  • February 01, 2017
  • , The Japan News , 7:18 pm
  • English Press

A corporate management crisis that could affect the future of Japan’s energy policy must be averted. To restore the lost trust, a fresh start is needed through drastic restructuring.

 

Toshiba Corp. has worked out plans to shrink its overseas nuclear power business, which was positioned as a pillar of its growth, as well as to split off some of its semiconductor business, a jewel in the company’s crown.

 

The company took action after the losses incurred by its U.S. nuclear business arm Westinghouse Electric Co. rapidly snowballed. For the year ending in March, Toshiba could book a loss of up to ¥700 billion.

 

Toshiba’s deteriorating management situation has become evident since its accounting scandal came to light in 2015. The company plunged into a crisis again, just after escaping from the scandal through such measures as selling off large appliance operations and a medical instrument subsidiary.

 

Facing the risk of falling into excess liabilities, Toshiba was forced to review the two-tier core business structure intended for its recovery.

 

An ad hoc strategy will not work. The company should figure out the cause of the huge losses and accelerate efforts to establish a governance system to prevent similar failures.

 

Unless distrust in the company’s management is dispelled, Toshiba cannot receive aid from financial institutions and positive evaluations by the market, both necessary for its turnaround.

 

The most serious problem is that Toshiba failed to detect losses in its subsidiary.

 

In a bid to expand its nuclear business abroad, Toshiba made the much-publicized purchase of Westinghouse in 2006 at a heavy cost.

 

Restructuring essential

 

However, Westinghouse’s corporate value declined, leading Toshiba to post a ¥250 billion loss in May last year. After that, additional losses emerged from delays in the construction of nuclear power plants in America. Toshiba became aware of the losses only late last year.

 

Since the nuclear accident in Fukushima Prefecture, safety regulations for nuclear power plants have been tightened worldwide, pushing construction costs up. However, Toshiba failed to grasp a series of losses generated from the nuclear business earlier.

 

It cannot be denied that the company’s risk management of hard-to-supervise overseas operations was nothing short of sloppy. Toshiba Chairman Shigenori Shiga, who has overseen the company’s nuclear power operations, is said to be stepping down. The remaining members of the top management cannot escape from taking responsibility.

 

Toshiba, Mitsubishi Heavy Industries Ltd. and Hitachi Ltd. have operated global nuclear power businesses with their respective U.S. and European partners. The shrinkage of Toshiba’s operations, one of the big three camps, could have an impact on such nuclear business alliances.

 

Toshiba plans to put the nuclear power business under the direct control of its president to strengthen the governance of Westinghouse. It also intends to cease taking new orders for nuclear plant construction and focus on supplying reactors and other nuclear equipment.

 

Toshiba President Satoshi Tsunakawa stressed a social role for the company, saying, “[Toshiba] intends to fulfill its responsibility by restarting, maintaining and decomissioning reactors.” This is reasonable. To advance Japan’s nuclear power policy measures, Toshiba should rebuild its management steadily.

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