Thursday, July 23, 2015

What FIFA Can Learn from Toshiba

Earlier this week Hisao Tanaka, president of Toshiba Corporation, and two top executives resigned after an independent investigation found that earnings had been improperly inflated by $1.2 billion under his watch. Simultaneously, FIFA's president Sepp Blatter announced that he was staying on for another 7 months, despite the arrest of numerous top FIFA officials and widespread corruption on his watch. FIFA appears to be looking to that Domenico Scala, who is on the FIFA payroll, to lead a new reform effort.

The vastly different approaches to investigation by Toshiba and FIFA helps to illustrate the difference between an accountable organization and one that plays by its own rules. Here is a recap of what Toshiba did leading up to the leadership resignations this week.

Upon learning of possible wrong-doing Toshiba set up an "Special Investigation Committee" chaired by the chairman of its board of directors. This committee included experts from outside Toshiba.

Upon learning of the scope of possible wrong-doing here is what Toshiba did (details here in PDF):
[I]n order to further enhance the confidence of stakeholders in the results of the investigation, the Company has decided to change the framework of the investigation from one conducted by the current Special Investigation Committee to one conducted by an Independent Investigation Committee that conforms to the guideline prescribed by the Japan Federation of Bar Associations by being composed solely of fair and impartial outside experts who do not have any interests in the Company.
How were the members of the Independent Investigation Committee chosen?
The members of the Independent Investigation Committee are currently being selected from among experts in the fields of law and accounting, based on the recommendations of the outside members of the Special Investigation Committee, and the Company plans to promptly disclose the composition of the Independent Investigation Committee once the selection process has concluded.
The announcement above was made on May 8, 2015. The IIC reported this week and the Toshiba CEO resigned immediately.

Here are some key differences between how Toshiba and FIFA handle alleged scandal:
  • Toshiba has an internal process for setting up an investigation of alleged wrongdoing that involves external experts. FIFA does not.
  • Toshiba has a board of directors. FIFA does not.
  • Toshiba has a process to create a truly independent investigatory body.  FIFA does not.
  • Toshiba relies on the standards of an outside body to guide its investigative process (the JFBA). FIFA does not.
Bottom line? Toshiba is accountable to its stakeholders. FIFA is not.

This issue is not complicated. Toshiba's guidelines for its independent investigation barely read one and a half pages. Why FIFA should not practice standards of accountability equivalent to Toshiba's is a question that might be posed to those wanting to assume its presidency after Sepp Blatter. Implementing corporate controls like those in the business world should be a no-brainer for FIFA. But it hasn't happened yet.


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