By Shingo Ito
Toshiba president Hisao Tanaka and his predecessor Norio Sasaki have resigned over a US$1.2 billion accounting scandal blamed on overzealous pursuit of profit.
The pair were among eight high-level executives and directors at the sprawling conglomerate to take the fall on Tuesday (local time).
The group stepped down after an independent report found senior management complicit in a years-long scheme to pad profits.
In a stinging indictment, the report by a company-hired panel said managers were involved in "systematically" inflating profits over several years, in one of the most damaging accounting scandals to hit Japan in recent years.
"It has been revealed there has been inappropriate accounting going on for a long time, and we deeply apologise for causing this serious trouble for shareholders and other stakeholders," said a company statement.
"Because of this Hisao Tanaka, our company president, and Norio Sasaki, our company's vice chairman ... will resign today."
Tanaka, 64, and Sasaki, 66, both joined Toshiba in the early seventies.
Sasaki served as Toshiba president between June 2009 and June 2013, covering most of the period during which the company inflated the profits.
Chairman Masashi Muromachi will take over as president in the interim.
The panel, headed by a former prosecutor, painted a picture of a corporate culture where underlings could not challenge powerful bosses intent on boosting profits at almost any cost.
"Inappropriate accounting was systematically carried out as a result of management decisions ... betraying the trust of many stakeholders," according to a summary released by the firm late on Monday.
Despite the storm engulfing the company, Toshiba shares jumped Tuesday as the report ended months of uncertainty about the extent of the problems, and who was to blame.
The Tokyo-listed shares soared 6.13 percent to 399.90 yen by the close.
Analysts said the jump was the result of some investors buying back into the battered stock, which had lost more than 20 percent since May.
"The numbers are out and investors have no further reasons to sell for the moment, so we are seeing some repurchasing momentum," Mitsushige Akino, executive officer at Ichiyoshi Asset Management, said.
The scandal risked further fallout, including lawsuits but was unlikely to bring one of Japan Inc.'s giants to its knees, said SMBC Nikko analyst Yutaka Ban.
"While the profit downgrade isn't a small amount of money, it should not significantly harm the company's credit strength," Ban said.
The findings drew a rebuke from Japan's finance minister Taro Aso who called the affair "woefully regrettable".
The embarrassing findings come less than two months after the country adopted a long-awaited corporate governance code backers hoped would usher in an era of transparency.
In May, Toshiba warned over the ballooning accounting "irregularities" and yanked its earnings forecast - a 120 billion yen net profit on sales of 6.7 trillion yen - for the past fiscal year.
The findings mean Toshiba will have to restate its profits by 151.8 billion yen for the period between April 2008 and March 2014.