HONG KONG (Reuters Breakingviews) - Investors are wary of a new blot on Japan Inc's image. Camera and photocopier-maker Fujifilm said on Thursday it had uncovered some dodgy accounting abroad. The negative stock market reaction to a $200 million flub is telling.
The problems centre on subsidiary Fuji Xerox's New Zealand unit in the years up to fiscal 2015. Fujifilm is worried about how the unit booked sales from leasing deals, where instead of charging for copiers or other kit upfront, it aimed to make its money back through servicing the equipment.
Fujifilm reckons the total impact on net income over several years is about 22 billion yen ($201 million). That is a small sum for a parent that made 123 billion yen in net income last year. By noon in Tokyo on Friday, however, Fujifilm stock was off 3.9 percent, against a Topix index up nearly 1 percent, erasing roughly $650 million of market value.
The caution makes sense. For a start, Fujifilm says outside investigators will also probe if similar problems have come up elsewhere in the company. If a unit in New Zealand, rated one of the least corrupt countries on earth, went rogue, it is not hard to imagine problems in rougher outposts.
Moreover, investors may fear a pattern. They have a worrying precedent in Japan. Two years ago Toshiba started disclosing accounting problems. Those proved to be just the start of an epic meltdown; it is now headed for a 1 trillion yen net loss and a fire sale of its best business unit as it battles to avoid delisting. An overseas arm, in this case a U.S. nuclear business, was also at the centre of Toshiba's biggest problems.
There is no suggestion anything remotely similar is in train at Fujifilm. But Toshiba's case highlights how seemingly isolated issues can often be symptomatic of bigger problems.
Fujifilm's reputation for comparatively poor corporate governance bolsters the case for shooting first and asking questions later. A December ranking of Topix 500 boards by Jefferies strategist Zuhair Khan and colleagues, looking at measures like directors' skills, diversity, and alignment with shareholders, put Fujifilm among the worst 30. The new trouble throws those shortcomings into even sharper focus.