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TSE's decision to remove Toshiba shares from watch list seen as too soft

Japan Exchange Regulation President Takafumi Sato speaks at a press conference, at which the removal of Toshiba Corp. shares from its watch list was confirmed, in Tokyo's Chuo Ward, on Oct. 11, 2017. (Mainichi)

The Tokyo Stock Exchange (TSE)'s decision on Oct. 11 to remove struggling Toshiba Corp. shares from its watch list partially puts an end to the firm's accounting scandal chapter -- which first came to light in 2015 -- but some still doubt that this move really wipes the slate clean.

Trust in the electronics giant has plummeted due to a spate of accounting scandals, and there remains skepticism over TSE's two-year screening process that led to its conclusion on Oct. 11. Furthermore, the company still faces the genuine risk of being delisted from the stock exchange, owing to excessive debts, thereby making it difficult to claim that Toshiba has put an end to its financial problems.

Speaking on the decision to remove the Toshiba's stock from the watch list, Japan Exchange Regulation President Takafumi Sato stated at a press conference on Oct. 11: "This is the result of serious discussions that took place over a long period of time."

After Toshiba was placed on the watch list in September 2015, TSE embarked on a two-year screening process -- which Sato rates positively. Toshiba set up new-style business meetings consisting of only external board members, prompting Sato to state that, "The firm has reformed its corporate governance." Regarding the revelations at the end of 2016 that the company's U.S. nuclear business unit had incurred huge losses, Sato was positive, saying that, "The risk of such an event happening again has become smaller."

However, in its securities report of Toshiba's fiscal 2016 accounts, the auditor issued an "inappropriate" opinion in relation to the company's internal controls -- and many people were skeptical that the electronics colossus had managed to improve its business structure.

Even at the Japan Exchange Regulation board meeting on Oct. 11, there was apparently one board member who opposed the decision to remove Toshiba shares from the watch list, stating that, "I want further confirmation showing an improvement in performance."

Sato said, "We've only confirmed that Toshiba barely meets the minimum criteria for a listed company. Further improvement in the firm's business operations is required."

It has also been pointed out that the stock of such a large listed company remaining on the stock exchange for two years without a decision on whether to delist it was confusing investors. Sato justifies this prolonged period of doubt by explaining that, "It became apparent that more and more issues needed to be investigated."

Nevertheless, a decision regarding the watch list was reached in the end. As a senior official within TSE explains, "If the conclusion had been any later, it would have been problematic in terms of stockholder protection."

With regard to the timing of TSE's decision, there are some skeptical commentators who think that TSE deliberately waited until Toshiba concluded sales negotiations for its lucrative semiconductor unit in September.

Noburo Gohara, who is a lawyer with vast expertise in corporate governance, says, "Considering that the firm clashed with its auditor even after its accounting scandal came to light, creating a stir in society and leaving doubts over its corporate governance, the TSE's treatment of Toshiba has been too soft. The responsibility of the Toshiba management team must be made clear."

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