Fuji Xerox Overstates Revenue by $343 Million
Fuji Xerox Accounting Scandal
An independent investigation of Fuji Xerox in New Zealand and Australia revealed an estimated $343 million USD in overstated revenue over the past five years. During that time, sales managers had been reporting inflated earnings from leased photocopiers in order to meet revenue targets.
This widespread practice in New Zealand was brought to Fujifilm’s attention by an unnamed Fuji Xerox insider in 2015. While further investigation of accounting practices in other markets found similar issues in Australia, it found “nothing inappropriate” in Japan.
In an statement to the press, Kenji Kukeno, president and COO of Fujifilm Holdings, apologized for the “inappropriate accounting practices” of their subsidiary and pledged to “strengthen corporate governance at Fuji Xerox.”
The first steps in reform involved the resignation of the chairman, deputy president and two directors, effective June 22nd. Fuji Xerox senior executives will also take ten to thirty percent temporary pay cut, according to a Fujifilm representative.
Echoes of Toshiba Scandal
Although on a smaller scale, the problematic practices at Fuji Xerox are reminiscent of the repeated accounting scandals at Toshiba. In 2015, Toshiba CEO, Hisao Tanaka, resigned when improper accounting practices resulted in overstated operating profits by $1.3 billion USD over a period of seven years. Similarly in 2016, Toshiba revealed an overstatement of $51.30 million USD in profits, which ultimately resulted in a $6.6 billion USD operating loss and the resignation of multiple executives.
Toshiba is still struggling to overcome its financial troubles which have been compounded by loss of reputation and the Westinghouse bankruptcy. According to the Australia Financial Times, the problems for both Toshiba and Fuji Xerox appear “to have a common cause: managers who were unwilling to acknowledge that the business they oversaw was struggling.”
UPDATE: Fujifilm Steps In, Steps Up
In further reform efforts, Fujifilm called the shots on Fuji Xerox’s new executive appointments. According to Nikkei, “the parent company now provides seven of the unit’s board members, including Fujifilm Chairman and CEO Shigetaka Komori, who also serves as Fuji Xerox’s chairman.” Fujifilm has even greater plans for overhauling group governance by the end of 2017, including the integration of office support departments such as accounting, personnel and public relations.
According to Nikkei, this is a “radical departure from Fujifilm’s traditional stance of keeping its distance from the subsidiary, which is partly owned and heavily influenced by the U.S. document management company, Xerox. […] Fuji Xerox has been allowed an unusual amount of autonomy over the years because of its massive contribution to the bottom line. It still accounts for nearly half of the group’s sales and 40% of its operating profit.”
In a June 12th press conference, Nikkei reported that Fujifilm President Kenji Sukeno said “his company had been aloof in its dealings with Fuji Xerox. He appeared to be acknowledging that the parent’s behavior helped give rise to the accounting scandal” because “the executives at Fuji Xerox knew their company had to continue logging strong earnings to maintain its independence from the parent.”