Nidec Corp. may book ¥250 billion ($1.6 billion) in impairment charges as it begins tallying the cost of an accounting scandal that's forced a leadership exodus and reportedly sparked an investigation from Japan's securities commission.
Nidec warned there could be additional charges that would impact its past financial results, with third-party investigators saying Tuesday they've uncovered at least 1,000 instances of improper accounting. The company hasn't disclosed a timeline for the release of its revised financial reports.
Scrutiny of Nidec is ramping up. Japan's Securities and Exchange Surveillance Commission is planning to probe Nidec, including whether additional payments are necessary, Nikkei reported, citing a person it didn't identify. Depending on the findings, there may be criminal prosecution, it said.
The world's largest manufacturer of precision motors has been embroiled in crisis since June when it disclosed
Nidec's founder Shigenobu Nagamori, whose unyielding focus on performance was blamed for the scandal, relinquished his post as chairman emeritus last week. He left the board in December, though he remains Nidec's largest individual shareholder.
Management exodus
The departures continued Tuesday with Chairman Hiroshi Kobe, Chief Financial Officer Akinobu Samura, and vice president Yoshihisa Kitao announcing their resignations.
That leaves Chief Executive Officer Mitsuya Kishida tasked with navigating the fallout of the scandal and overhauling a culture of excessive pressure to meet targets. He'll forfeit his base salary until he's submitted a plan to transform Nidec's corporate governance, with other executives also forgoing part of their base pay, the company said.
"It's our responsibility to dedicate our efforts to the company's revival," Kishida told reporters on Tuesday, after offering an apology with a deep bow. A committee will be formed to look into the legal liabilities of all directors, including those who have already resigned, he added.
An internal probe into a payment of approximately ¥200 million by Nidec Techno Motor in Zhejiang spurred concern that group companies arbitrarily decided when to write down risky assets with management's knowledge, necessitating the third-party investigation.
The 272-page report Tuesday detailed a litany of accounting issues at almost every location and level of Nidec — though the impairment charge is primarily connected to its automotive business.
Irregularities include inflating the value of raw materials and inventories, incorrectly declaring customs values, presenting government grants as revenue in financial statements and counting labor costs as fixed assets to defer expenses. As financial pressure built, units attempted to cover losses by reporting higher revenue but that, in turn, led to even greater strain.
High pressure
The investigative committee also offered further insight into Nidec's pressure-cooker environment.
For Nidec, anything less than a 10% operating profit margin was considered a loss. And Nagamori himself set financial goals, which were filtered down to more than 350 subsidiaries, affiliates and business partners.
Failure to meet targets resulted in criticism, pushing employees to engage in creative accounting practices such as recognizing sales early, avoiding loss on valuation of inventory or changing asset valuation methods.
Nidec said that Nagamori didn't instruct or direct improper accounting. But he was made aware of instances of accounting irregularities, which the company didn't specify and which weren't corrected immediately.
Even without direct involvement in the accounting issues, the culture that Nagamori cultivated was ultimately to blame.
"Pressure originated with Mr. Nagamori and, through Nidec's management executives, became intense pressure on the executives of its business units and subsidiaries, ultimately leading to the improper accounting," the report said.
The crisis has bogged down auditors assessing the company's finances, delaying the submission of its financial results and seeing Moody's Ratings downgrading the company's debt three levels to junk.
Still, Nidec released a snapshot of its recent performance, reporting revenue rose 3.9% to ¥678 billion in the three months ended Dec. 31. The company won't pay a year-end dividend.
Nidec's stock has been removed from the benchmark Nikkei 225 index and the Tokyo Stock Exchange has said it may delist the company if it can't show an improvement in its internal management.
