Toshiba corp logo is seen on the top of a building at the company's headquarters in Tokyo on June 23, 2017. Toshiba delayed the release of its long-overdue earnings again on June 23, with the troubled conglomerate saying it needed more time to finish accounting work at its loss-hit US nuclear unit Westinghouse Electric (WEC). / AFP PHOTO / Toshifumi KITAMURATOSHIFUMI KITAMURA/AFP/Getty Images
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Six months into its financial crisis, Toshiba is shaping up as the Sistine Chapel of corporate catastrophes: you have to lie on your back to appreciate its scale, and once you get your eye in, the beauty is mesmerising.

It is also a picture that, to committed contrarians and true believers in corporate governance reform, whispers “buy Japan”. At the very least, Toshiba stands to give the Tokyo stock market a new note from which everything else will in future be tuned.

Toshiba’s mess is usefully eye-catching. In the past two weeks alone, Toshiba has lurched from lawsuit to counter-lawsuit with a key business ally, Western Digital; it has been told that it will be downgraded to the second section of the Tokyo Stock Exchange and kicked out of the Nikkei 225 Average; its auditor refuses to sign off on the accounts for the most recent financial year; and it has watched arguably its best hope of financial salvation — the $18bn sale of the memory chip business — being blown off course.

It risks being delisted from the Tokyo Stock Exchange, and some analysts suggest it could go bankrupt. Yet the company, conditioned over decades to assume its permanence at the summit of corporate Japan, strikes investors as less worried or repentant than its formal expressions of regret suggest. At the company’s shareholder annual meeting on the outskirts of Tokyo yesterday, Toshiba’s president and senior executives’ bow of apology lasted just five seconds — about half a second for every billion dollars it lost in the most recent financial year.

It took a lone, anonymous shareholder at the annual meeting to point out the emperor’s nudity in all this: “Toshiba is becoming a third-rate company that needs a sense of crisis,” he said.

Toshiba’s plight is miserable, self-inflicted stuff that encapsulates much that investors — both foreign and domestic — have long despaired of. The company, in common with so many other Japanese firms, has not evolved to reward shareholders or adapted in fear of their wrath. For a Japanese government apparently committed to reversing decades of shoddy corporate governance, however, Toshiba provides the perfect example of why it is pushing for change.

Since the introduction of Japan’s stewardship code in 2014, and its first-ever corporate governance code the following year, the administration of prime minister Shinzo Abe has battled to convince Japan and the world that it has not only identified the problems with stock investment in Japan, but that it has meaningful solutions.

To a domestic audience, the effort was all about making the market look investable and transparent to three generations of Japanese that each have their own reasons for thinking otherwise but are sitting on spectacular mountains of savings in bank deposits that the country needs them to invest more profitably.

For foreign investors, it was an unspoken deal: you have spotted that 56 per cent of non-financial companies in the Topix are net cash, and that 36 per cent of all listed companies are trading below tangible book value — we will give you the language and licence to hold managements to account. There are conflicting views on whether this has been a success, but brokers are clear that the issue overseas clients care about more than any other in Japan is progress on corporate governance reform.

This is where Toshiba comes in. Previous crises — like those at Olympus or Kanebo could be passed off as company-specific. Toshiba, in its role as exemplar of corporate Japan, gives no such leeway: its problems are Japan’s problems.

When its crisis is unpicked, say analysts, almost every issue is one that stems from a failure of corporate governance — from inadequate diligence before its purchase of the Westinghouse US nuclear business to the lingering influence of retired top executives to the 2015 revelation that it had falsified profits over seven years. When the nameless investor accused management of lacking a sense of crisis he was, in essence, castigating a corporate hierarchy that has consistently failed to grasp why better corporate governance makes for better companies.

Investors’ question of corporate governance progress in Japan, and how many Japanese institutions are truly committed to it, will become immediately more scientific — answerable through empirical observation of what happens to Toshiba over coming months.

leo.lewis@ft.com

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