How “Excessive Pressure” Led to Accounting Fraud at Japan’s Nidec

In a recent Financial Times report, journalists Harry Dempsey and David Keohane detail the findings of an independent commission into Nidec, the world’s largest motor manufacturer, which has been found at the center of Japan’s biggest accounting fraud in a decade.

The commission found that profits were inflated by ¥160bn ($1bn) over several years, with further significant write-downs potentially still to come. The commission traced the fraud directly to a culture of “excessive pressure” driven by founder Shigenobu Nagamori, who reportedly called red ink a “sin” and wrote to executives that “every last one of you is an unmotivated and irresponsible bastard.” Staff at subsidiaries described being ordered to stay up all night to improve profit figures and facing verbal abuse, including being called “a class-A war criminal,” for missing targets.

The commission also revealed that the firm had a shadow auditor between 2011 and 2020 who reported directly to Nagamori and concealed findings from the firm’s auditor, PwC Kyoto, and independent directors. Nagamori told the commission he had deliberately withheld suspicions of accounting fraud from the wider auditing department because sharing them “would also be shared with PwC Kyoto, which would be a major issue.” 

Nidec faces potential delisting from the Tokyo Stock Exchange unless it can demonstrate a governance overhaul by October. This episode adds to a growing list of Japanese corporate scandals, including those at Olympus and Toshiba, characterized by excessive loyalty to individual executives and deficient governance, the FT explains.