Nidec Internal Management Reforms Follow TSE Special Alert

Nidec Corporation announced on October 30 that it had submitted a Written Confirmation of Internal Management System to the Tokyo Stock Exchange (TSE), disclosing the implementation status of improvement measures addressing accounting misconduct and other issues. The submission follows the first anniversary of the company's designation as a Security on Special Alert on October 28, 2025. The TSE will examine the submitted information and lift the designation if it determines that Nidec's internal management system and related arrangements have been properly established and are operating effectively.

However, several important remediation requirements remain outstanding. Nidec has not completed its response to requests from its external accounting auditor concerning the identification and assessment of officers and employees involved in improper accounting practices and other misconduct, or the implementation of personnel-related remedial measures. The auditor's procedures are also incomplete. Furthermore, amendment reports and other required filings, accompanied by an auditor's report containing an audit opinion, have not been submitted, despite the company's target of completing these submissions by October 28.

As part of its management reforms, Nidec abolished the daily reporting of monthly business forecasts and shifted toward management based on monthly financial results. The company also expanded its performance evaluation criteria to include free cash flow (FCF) and return on invested capital (ROIC), alongside revenue and operating profit. In another accounting-related measure, Nidec abolished the system that allowed requests for exceptions to the Group Accounting Policy, addressing an area requiring stronger consistency in financial management and internal controls.

Nidec has also introduced changes to its quality management framework. It clarified that quality assurance managers have the authority to suspend shipments independently of manufacturing, sales and other departments. The company revised reporting procedures for major quality issues and began headquarters-led quality audits in October. These audits prioritize locations where a high number of confirmed misconduct instances have been identified, strengthening headquarters oversight of operational practices and quality-related controls.

Further challenges remain in strengthening internal staffing for consolidated accounting and reforming the company's corporate culture. Nidec is continuing efforts to secure sufficient internal personnel, develop its workforce and bring more accounting-related work in-house, with support from external specialists. To address corporate culture issues, the company launched a unified Group-wide engagement survey in October. The survey results will be used to guide improvement activities across the organization and support broader organizational reforms.

Nidec plans to continue implementing its improvement measures and aims to remediate material weaknesses in internal control over financial reporting in its assessment for the fiscal year ending March 31, 2027. Achieving this objective will require the company to address the outstanding auditor-related matters, strengthen its internal accounting capabilities and demonstrate that the revised management and governance arrangements are operating effectively.

Industry Impact & Outlook

Nidec's improvement program highlights the importance of reliable financial reporting, independent quality oversight and effective corporate governance in the automotive supply industry. Its shift toward monthly financial performance management, broader use of FCF and ROIC, and strengthened shipment suspension authority represent changes to management accountability and operational controls. However, the outstanding auditor-related procedures and personnel remediation indicate that implementing new systems is only part of the recovery process. The company's ability to resolve these issues and remediate material weaknesses by March 31, 2027, will be an important measure of the effectiveness of its internal management reforms.

Frequently Asked Questions

Why did Nidec submit a Written Confirmation of Internal Management System to the TSE?
Nidec submitted the Written Confirmation to disclose the implementation status of improvement measures addressing accounting misconduct and other internal management issues. The submission followed the first anniversary of its designation as a Security on Special Alert on October 28, 2025. The Tokyo Stock Exchange will examine the submission to determine whether the company's internal management system and related arrangements have been properly established and are operating. The designation will be lifted if the TSE determines that the required conditions have been satisfied.

Has Nidec completed all its accounting misconduct remediation requirements?
No, Nidec has not completed all its accounting misconduct remediation requirements. The company still needs to address its external accounting auditor's requests concerning the identification and assessment of officers and employees involved in improper accounting practices and other misconduct, along with personnel-related remedial measures. The auditor's procedures also remain incomplete. Additionally, amendment reports and other required filings accompanied by an auditor's report containing an audit opinion have not yet been submitted, despite the October 28 target.

What changes has Nidec introduced to strengthen financial management?
Nidec has abolished daily reporting of monthly business forecasts and shifted toward management focused on monthly financial results. It now evaluates business performance using free cash flow (FCF) and return on invested capital (ROIC), alongside revenue and operating profit. The company has also abolished the system for requesting exceptions to the Group Accounting Policy. These measures form part of its efforts to strengthen financial management practices and address weaknesses associated with its internal accounting and control environment.

How is Nidec strengthening its quality management system?
Nidec has clarified the independent authority of quality assurance managers to suspend shipments without requiring approval from manufacturing, sales or other departments. It has also revised reporting procedures for major quality issues. In addition, the company began headquarters-led quality audits in October, prioritizing sites with a high number of confirmed instances of misconduct. These measures are intended to strengthen quality oversight, clarify accountability and improve the company's ability to identify and address quality-related management issues.

What are Nidec's remaining challenges and its target for financial reporting controls?
Nidec's remaining challenges include strengthening internal staffing for consolidated accounting, completing personnel-related remediation and reforming its corporate culture. The company is developing its personnel and bringing more work in-house with assistance from external specialists. It has also launched a unified Group-wide engagement survey to guide corporate culture improvement activities. Nidec aims to remediate material weaknesses in internal control over financial reporting in its assessment for the fiscal year ending March 31, 2027, while continuing its broader improvement measures.