Two Top Toshiba Executives Quit Over Soviet Sales

The two top executives of Toshiba Corp. resigned on Wednesday in Tokyo, within hours of the U.S. Senate’s approval of legislation that would bar the giant Japanese electronics company from selling finished products in the United States for two to five years.

The resignations of Toshiba Chairman Shoichi Saba and President Sugiichiro Watari were a solemn public acknowledgement of the company’s embarrassment over sales of sensitive technology to the Soviet Union by one of its subsidiaries--sales that the United States has called “a serious loss” to the West’s lead in anti-submarine warfare.

The Senate vote on Tuesday, in the form of an amendment to pending trade legislation, would also ban a Norwegian company, Kongsberg Vaapenfabrikk, from sales in the United States. Although Toshiba sells a wide range of products in the United States, including television sets, computers, motors and video cassette recorders, Kongsberg’s U.S. sales are primarily military equipment.

President Reagan has threatened to veto any legislation containing mandatory retaliation provisions. And a State Department spokesman on Wednesday reiterated that position, saying retaliation could be “counterproductive” to U.S. interests.

Congress ‘Outraged’

However, congressional leaders expressed confidence that the final trade legislation would include retaliation against Toshiba and Kongsberg. Congress has been “outraged” by the export incident, one congressional aide said. Already, the House has overwhelmingly approved an amendment to the State Department authorization bill that would require the United States to negotiate with Japan and Norway for compensation.

In the House, three retaliatory measures have been proposed.

The 92-5 Senate vote “is a good indication of how strong the sentiments are, and, in the House, the sentiments are running just as high. . . . At this juncture, there is a good likelihood” that a punitive measure will be added to the trade bill, the aide said.

In 1984, Toshiba Machine, a subsidiary 51%-owned by Toshiba Corp., along with Kongsberg and two other Japanese firms, sold to and installed in the Soviet Union sophisticated milling machines and computer programs. Such technology is used to produce submarine propellers quiet enough to evade detection by most sonar.

The executives’ resignations and the Senate action are viewed as serious setbacks to Toshiba, Japan’s third-largest manufacturer of electrical equipment. The company generates about 10% of its sales in the United States.

It was still unclear, however, exactly which Toshiba products would be affected by the ban, should the amendment become law. An exemption for “components vital to U.S. production” is included, and a Senate Banking Committee spokesman said that means that products assembled by Toshiba operations in the United States would not be affected.

The Toshiba America Inc. subsidiary, together with its affiliated companies, has annual sales of $2.2 billion and accounts for more than 4,000 U.S. jobs.

“As a general proposition, yes, they would be able to continue to operate their assembly plants in the United States . . . . That’s what the exception for components is for,” said John Walsh, staff economist at the Senate Banking Committee.

But Toshiba’s U.S. customers already have begun to express concerns. Among the items Toshiba sells in the United States are semiconductors, devices often called “computer chips” that store and manipulate information in computers and other electronic goods.

It is one of only two manufacturers selling the newest generation of memory chips, the 1-megabit D-RAM, in any quantity.

Toshiba already is suffering from the rising protectionist mood in the United States. Its lap-top computers are on the list of Japanese imports facing 100% tariffs, as part of sanctions imposed last April by President Reagan in retaliation for what the United States called Japan’s failure to implement a trade agreement on semiconductors. Toshiba, which already had been found guilty of “dumping” chips on the U.S. market, had also been identified as one of the primary violators of the trade agreement.

At a hastily called press conference in Tokyo on Wednesday, Saba denied that the resignations were prompted by the Senate action, or by pressure from the Japanese or U.S. governments. “We did not receive any outside pressure,” Saba said.

Saba reiterated the company’s position that the parent Toshiba Corp. “was in no way involved in or aware of the Soviet sales, which violated Japanese export control laws.” But, Saba said he and Watari “must take personal responsibility for not creating an atmosphere throughout the Toshiba group that would make such activity unthinkable, even in an independently run subsidiary.”

In Japan, resignations of heads of corporations are not uncommon when the company has experienced troubles, be they financial or political. “Resignation of the highest officials,” said Toshiba America Chairman Nobuo Ishizaka, “is regarded as the highest form of apology and expression of regret.”

Saba, an influential member of Japan’s inner circle of top corporate executives, became Toshiba’s president in 1980 and was named its chairman in 1986. In Japan, the role of chairman is chiefly honorific. But Saba this year assumed also the highly visible and influential role of chairman of the Electronic Industry Assn. of Japan. U.S. electronics industry executives said on Wednesday that they expect Saba to step down from that post as well.

Restructured Firm

Analysts said the loss of Watari may be more significant to Toshiba. Watari, who succeeded Saba as president, is credited with quickly implementing a restructuring that more clearly focuses Toshiba’s efforts in leading technologies--including electronic components, office automation and telecommunications.

Joichi Aoi, 61, was named the new president of Toshiba. Aoi, who was one of the architects, with Watari, of the company’s restructuring, pledged to do his best “to regain trust in Toshiba.” No replacement has been named for Saba.

The Japanese government has punished Toshiba Machine with a one-year ban on exports to communist nations--the harshest action ever taken against a company by Japan’s Ministry of International Trade and Industry.

In May, four executives of Toshiba Machine, including its president, resigned in the wake of the sales; two of the company’s employees were arrested May 27.

Toshiba Machine said in a statement that it will “do everything necessary to ensure that problems of this nature will never occur again” and will cooperate with an investigation started by its parent company.

Ishizaka said the executives decided to resign after the company’s annual shareholders’ meeting last Friday, and the action was approved by Toshiba’s board. The decision was conveyed to International Trade and Industry Minister Hajime Tamura, who said: “I understand them taking responsibility for the Toshiba group as a whole. I hope the U.S. Congress will appreciate this action.”