Nidec mess foregrounds dual pressure on Japan Inc

Nidec

05/09/2025 01:00

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Hudson Lockett

HONG KONG, Sept 4 (Reuters Breakingviews) - A serial acquirer is facing a reckoning over compliance at one of its foreign businesses. Accounting scandals are all too common in the country but as Japan Inc’s outbound dealmaking hits fever pitch, Nidec’s 6594.T woes are a reminder of the need to balance growth and governance.

Its shares fell a record 22.4% on Thursday after the precision motor maker said it was establishing an independent committee to investigate possible involvement of management in “suspected improper accounting” at a Chinese unit of a subsidiary. The drop lopped 800 billion yen ($5.4 billion) off the stock’s market capitalisation, equivalent to nearly five times the firm’s annual sales. The company says it discovered the problem after examining a lump-sum payment worth about 200 million yen ($1.4 million).

The scale and length of the new investigation could prove considerable given that at the end of March the firm tallied 346 “group companies”, including 75 acquisitions.

Founder Shigenobu Nagamori has tacitly admitted dealmaking can be a costly distraction. He stressed a shift to prioritising compliance rather than growth at the company’s annual general meeting in June, days after delaying filing an annual securities report due to another investigation into trade transactions and customs issues at an Italian subsidiary.

There were earlier warning signs, however. Nagamori’s expansion strategy first came under scrutiny in 2016 when Muddy Waters, the activist hedge fund run by short-seller Carson Block, accused it of “highly aggressive accounting” to boost profits and argued its acquisitions were “more effective at masking weak organic growth than at creating value”.

Nidec denied the allegations and went on to launch an ambitious pivot into electric vehicle motors that sent shares soaring. But they sank when reality failed to match growth projections, prompting the company’s founder to demote his designated successor after less than a year and return to the CEO seat in 2022. Heavy price competition in China’s EV market has since added to its struggles. Before the latest share crash, Nidec’s five-year total return to shareholders was a negative 30%.

Nidec offers a cautionary tale for other Japanese companies. Executives are simultaneously trying to meet an official mandate to boost value through improved governance and fulfill their own desire to secure future growth. It’s not impossible – but they will need to pace themselves, and keep one eye trained on the books.

Follow Hudson Lockett on Bluesky and X.

CONTEXT NEWS

Shares in Nidec fell 22.4% on September 4 after the electric motor maker said it was establishing an independent committee to investigate possible involvement of management in “suspected improper accounting” at a Chinese unit of subsidiary Nidec Techno Motor.

The company said it was notified in July of the issue relating to a lump-sum payment worth roughly 200 million yen ($1.36 million), representing a discount for a purchase from a supplier.

The company said its subsequent “investigations found multiple documents suggesting that, in addition to Techno, the Company (Nidec) and its group companies could have engaged in improper accounting with the involvement or knowledge of its or their management”.

In June, Nidec delayed the submission of its annual securities report.

($1 = 147.3300 yen)

Accounting probe at Japan’s Nidec triggers share price plunge https://www.reuters.com/graphics/BRV-BRV/klvyblzdypg/chart.png

(Editing by Una Galani; Production by Oliver Taslic)

((For previous columns by the author, Reuters customers can click on LOCKETT/ hudson.lockett@thomsonreuters.com))