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July 21, 2015, 4:55 a.m. EDT

Toshiba top execs out after accounting scandal

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By Takashi Mochizuki

TOKYO-- Toshiba Corp. Chief Executive Hisao Tanaka resigned Tuesday, a day after an outside investigation said he and other current and former executives bore responsibility for an accounting scandal in which the Japanese industrial and electronics giant overstated profits by more than $1.2 billion over seven years.

In an effort to move on from what an independent panel described as a "systemic" problem, Toshiba announced a sweeping reorganization of its corporate leadership, in which eight of 16 board members are stepping down. This includes Mr. Tanaka, who has been chief executive since 2013, and his predecessor, Norio Sasaki, who has been serving as vice chairman. Also Tuesday, Mr. Sasaki resigned from a panel that advises Prime Minister Shinzo Abe on economic policy.

Toshiba said its chairman, Masashi Muromachi, would serve as interim chief executive, and that more board-member changes will be announced by the end of this month.

The shake-up follows an expression of dismay from Deputy Prime Minister Taro Aso, who overseas the finance ministry and the securities watchdog.

"I'm totally disappointed because it could damage investor confidence in the Japanese market," Mr. Aso said.

Prime Minister Abe's government has been pushing for greater transparency at Japanese companies to attract more foreign investment.

In a 300-page report published Tuesday, the independent panel hired by the company to investigate the matter said the three most recent chief executives played active roles in inflating Toshiba's operating profit by Yen151.8 billion ($1.22 billion) since 2008.

The panel, led by a former top prosecutor, said the executives put intense pressure on the company's business units, ranging from personal computers to semiconductors and nuclear reactors, to achieve unrealistic profit targets. Management sometimes issued such challenges shortly before the end of a fiscal quarter or year, encouraging division heads to cook the books, the panel said.

"The improper accounting procedures were continuously carried out as a de facto policy of the management," the report said. "And it was impossible for anyone to go against the intention amid Toshiba's corporate culture."

In addition to Mr. Tanaka and Mr. Sasaki, Atsutoshi Nishida, chief executive from 2005 until 2009 and now a paid adviser to Toshiba, is stepping down.

Toshiba's shares, which plunged following the company's disclosure of accounting irregularities this spring, bounced back 6% Tuesday to Yen399.9.

The amount of overstated profits is close to the $1.7 billion in losses that another Japanese company, Olympus Corp., concealed in a scandal that came to light in 2011. Yet Toshiba is a larger company and analysts say it isn't likely the governance crisis will cause deeper financial troubles. The planned markdown is small compared with the Yen976.4 billion operating profit the company earned from fiscal 2008 through the third quarter of fiscal 2014.

The Securities and Exchange Surveillance Commission will likely seek a penalty on Toshiba over accounting irregularities in the coming months, a person familiar with the matter said.

To bolster its financial position, Toshiba plans to tap banks for Yen500 billion in credit lines and will strengthen efforts to sell noncore assets, people familiar with the situation have said.

Two major Japanese banks, Mizuho Bank Ltd. and Sumitomo Mitsui Banking Corp., said in statements Monday they would continue supporting Toshiba as its main lenders.

Atsuko Fukase contributed to this article.

Write to Takashi Mochizuki at takashi.mochizuki@wsj.com

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