The current CEO and one former CEO of Toshiba Corp. resigned this week in connection with the accounting scandal the company has been embroiled in since May. Senior executives are alleged to have pressured subordinates to meet unachievable financial targets, leading the company to overstate its earnings by more than USD $1.2-billion between 2008 and 2014. Toshiba employees are alleged to have postponed losses or pushed forward sales on accounting in order to meet these unrealistic targets. Eight of the 16 board members have now resigned. The fallout from Toshiba’s accounting issues comes amidst increased regulation in Japan into matters of corporate governance.

Toshiba, one of the world’s largest electronics manufacturers with over 400 overseas companies, more than 200,000 employees and net sales in excess of USD $63-billion, had long been considered a model of corporate governance. In addition to the reputational harm, the scandal caused the company’s share prices to drop 17% in May and over 25% leading up to this week’s announcements , following a USD $2.8 billion loss in market value after the company withdrew its earnings forecast in May pending an internal probe into the allegations. That probe led to Monday’s report detailing systematic involvement by upper management in improper accounting. The findings will likely lead to a restatement of earnings at a later date. The company has yet to release its earnings for the 2014 fiscal year and will hold a shareholders meeting in September to approve a new board.

The Toshiba story broke shortly after the Japanese government’s recent introduction of a new set of guidelines targeted at enhancing the number of outside directors (Japan’s corporate culture had previously been one where independent directors were rare, with boards filled largely by corporate managers) and fostering greater concern for shareholders.

Canadian companies have dealt with similar scandals in the past. Allegations of financial misstatements at Biovail Corp. resulted in a $138-million class action settlement with shareholders in 2007 and a payment of $10-million to the SEC in 2008. The allegations now facing Toshiba echo aspects of the SEC’s allegations against Biovail, including that senior executives at Biovail were “obsessed with meeting quarterly and annual earnings guidance” and had repeatedly overstated earnings in order to mislead investors.

Toshiba’s current scandal is a particularly stark reminder of the importance of strong corporate governance policies and robust internal controls , and the need for recognition that the tone and culture set by management will often dictate the compliance practices of lower level employees.