Risk Factors
Risks that can affect NIDEC's operating results, stock price, and financial condition include the following.
1. Governance risks
【Risk details】
(Internal control over trade compliance)
For the fiscal year ended March 31, 2025, at a consolidated subsidiary of the Company, the amount of unpaid tariffs was underreported due to erroneous declarations of country of origin of motors manufactured. The Company recognized that the main cause lay in the Company as a parent company failing to reflect the issue in the consolidated financial statements in a timely manner after identifying the problem. Consequently, the Company identified material weaknesses in entity-level controls (information and communication) and internal controls over its accounting and financial closing process for the fiscal year ended March 31, 2025. Although the Company has already implemented the following recurrence prevention measures, for the fiscal year ended March 31, 2026, the Company newly identified material weaknesses in entity-level controls (control environment, risk assessment and response, control activities, information and communication, and monitoring) and internal control over accounting and financial reporting processes that are evaluated from an entity-level perspective. Therefore, the Company has concluded that the previously identified material weaknesses have not yet been remediated.
(1) Nurturing awareness and a corporate culture that make regulatory compliance the top priority
- Sending a clear message from the Company's board of directors to the Group employees
- Thoroughly communicate the necessity of prioritizing compliance above all else through disciplinary actions
- Strengthening our Legal & Compliance Department’s functions and authority
(2) Strengthening organizations and systems
- Strengthening the trade compliance system
- Strengthening the global governance system
(3) Improvement of procedures, regulations and mechanisms
- Improvement of the Group's reporting lines
- Information sharing among the Company group’s Legal & Compliance Departments
- Properly organizing the internal control system
(4) Disciplinary actions
- Implementing appropriate disciplinary actions
In addition, for the fiscal year ended March 31, 2026, the Company engaged external experts to investigate whether similar trade compliance issues existed at entities other than the aforementioned consolidated subsidiary. As a result of the investigation, errors in the indication of the country of origin were identified in exports from the Group to the United States. As a result, a statistical sampling survey was conducted covering all transactions of major import bases pertaining to exports from the Company’s bases to the United States (from the fiscal year ended March 31, 2021, to the fiscal year ended March 31, 2026). The survey revealed errors in tariff classifications, country of origin, application of preferential treatment based on preferential trade agreements, and import prices in import declarations to the United States. These errors were caused not only by the relevant parties’ insufficient trade know-how and compliance awareness, but also by insufficient business standardization within the Group. Consequently, deficiencies were identified in entity-level controls (control environment and control activities). As these deficiencies are highly likely to have a significant impact on the Company's financial reporting, the Company determined that they constitute material weaknesses.
The Company will continuously execute recurrence prevention measures to enhance internal controls going forward. However, because internal controls have inherent limitations, the reliability of the Group’s financial reporting could be affected if these recurrence prevention measures do not function effectively.
(Internal controls related to improper accounting practices that could materially affect the entire consolidated financial statements, including arbitrary adjustments to the timing of write-downs of assets that carry evaluation risk)
As the Company identified suspicions of improper accounting practices that could have a significant impact on the entire consolidated financial statements, including arbitrary adjustments to the timing of write-downs of assets that carry evaluation risk, which were conducted under the involvement or knowledge of certain management members of the Company and its group companies, the Company resolved on September 3, 2025, to establish a third-party committee in accordance with the ‟Guidelines for Third-Party Committees in Cases of Corporate Misconduct” established by the Japan Federation of Bar Associations. The Company received an investigation report from the third-party committee on February 27, 2026, and a supplementary investigation report on April 17, 2026. As a result, numerous improper accounting practices were revealed across various locations of the Group, including past fiscal years (hereinafter, the facts revealed in the investigation report and supplementary investigation report are referred to as this “Issue”). The main details of the identified improper accounting practices are outlined below:
- Avoidance of recognizing inventory valuation losses by falsely recognizing asset values in raw materials and products with extremely low future usage and sales prospects and no asset value.
- Avoidance of recognizing impairment losses by including projects with low probability of realization in sales plans used as assumptions for fixed asset impairment tests.
- Avoidance of recognizing impairment losses on fixed assets by providing false explanations regarding fixed assets that are difficult to repurpose.
- Non-recognition of provisions for loss on contract, arising from the discontinuation of product development.
- Non-recognition of allowance for doubtful accounts for bad debts.
- Overstatement of inventories by falsifying the results of physical inventory counts.
- Deferral of expense recognition through the improper capitalization of labor costs as incidental costs, which were subsequently expensed through depreciation.
- Intentional capitalization of quality improvement costs and research and development costs that had been determined not to contribute to obtaining future economic benefits.
- Premature revenue recognition for unshipped sales transactions that lacked economic substance.
Based on reports regarding the facts identified and cause analysis resulting from the investigation by the third-party committee and self-inspections investigating the appropriateness of accounting treatments under the management and supervision of the third-party committee, the Company re-evaluated its internal controls over financial reporting. As a result, the Company identified deficiencies in entity-level controls (control environment, risk assessment and response, control activities, information and communication, and monitoring) of the Company and its consolidated subsidiaries, as well as in internal controls over accounting and financial reporting processes that are evaluated from an entity-level perspective. Because these deficiencies are highly likely to have a significant impact on the Company’s financial reporting, the Company determined that they constitute material weaknesses.
Furthermore, the impact of the deficiencies in entity-level controls (control environment, risk assessment and response, control activities, information and communication, and monitoring) and internal controls over accounting and financial reporting processes that are evaluated from an entity-level perspective was material and pervasive, indicating a lack of the foundation necessary for internal controls over business processes to operate effectively. In addition, deficiencies were identified in all business processes subject to evaluation, and because all of these are highly likely to have a significant impact on financial reporting, the Company determined that they constitute material weaknesses.
The Company fully recognizes the importance of internal controls over financial reporting and has been working to promptly formulate and implement recurrence prevention measures to remediate the material weaknesses. However, the implementation of these measures had not been completed as of the end of the fiscal year ended March 31, 2026. Furthermore, due to the inherent limitations of internal controls, the reliability of the Group's financial reporting could be affected if the recurrence prevention measures do not function effectively.
In addition, while the Company has identified officers and employees of the Company and its Group companies who were involved in, directed, or were aware of improper accounting practices and other related matters, or who provided false explanations to the independent auditor, and has been conducting evaluations and implementing appropriate corrective personnel measures, part of the evaluations and corrective personnel measures has not yet been completed. As a result, certain officers and employees who were involved in, directed, or were aware of improper accounting practices and other related matters, or who provided false explanations to the independent auditor currently continue to hold positions of responsibility within the financial reporting processes of the Company and its Group companies. Consequently, the reliability of the Group's financial reporting could be affected.
【Main countermeasures】
To remediate the material weaknesses for the fiscal year ended March 31, 2026, in entity-level controls (control environment, risk assessment and response, control activities, information and communication, and monitoring), internal control over accounting and financial reporting processes appropriate to evaluate from an entity-level perspective, and internal control over account closing processes, the Company has formulated the following measures. By steadily implementing these measures and continuously monitoring their implementation status, the Company seeks to avoid and mitigate these risks.
(Internal control over improper accounting practices that could materially affect the entire consolidated financial statements, such as arbitrary adjustments to the timing of write-downs of assets that carry evaluation risk)
(1) Reform of corporate culture and enhancement of compliance education
(i) Reform of corporate culture
- Collecting opinions from employees through the establishment of a new organization to promote corporate culture reform
- Conducting a corporate culture learning program based on employee level
- Creating opportunities for dialogue with employees
- Behavioral transformation by management
- Behavioral transformation by employees
- Improvement activities across the Company's departments, Group companies, and global companies
- Ensuring transparency in the implementation status of measures
(ii) Enhancement of compliance education
- Enhancement of compliance education for new hires and regular learning programs
- Thorough compliance education throughout the Group and continuous dissemination of this Issue
(iii) Clarification of responsibility
- Establishment of the Executive Responsibility Investigation Committee
- Carrying out the necessary actions for employees below Vice Presidents and officers and employees of the Group companies.
- Personnel measures in response to the third-party committee’s investigation report, etc.
(2) Review of personnel-related systems
(i) Review of the personnel evaluation system
- Setting targets other than performance, and thorough evaluation
- Implementation of measures to improve understanding of the system
(ii) Review of evaluation criteria for executive remuneration and strengthening of the effectiveness of the remuneration determination process
- Review of evaluation criteria for executive remuneration
- Implementation of measures to improve the effectiveness of the remuneration determination process
(iii) Review of the criteria for Vice President nominations and strengthening of their effectiveness
- Review of selection criteria and formulation of dismissal criteria
- Implementation of measures to improve the effectiveness of the Vice President selection process
(3) Review of business plan formulation and management methods
(i) Reorganization of the medium-term management plan and business plan formulation process
- Redefinition and clarification of rules for formulating the medium-term management plan and business plan
- Establishment of a team structure for examining the medium-term management plan and business plan
- Strengthening the medium-term management plan and business plan formulation process
(ii) Optimization of the budget vs. actual performance management process
- Change in performance management values in budget vs. actual performance management
- Analysis of results, consideration of measures, and implementation of measures to improve the accuracy of the next business plan
(iii) Review of business evaluation criteria
- Review of numerical items
- Addition of evaluation items
(4) Improving the effectiveness of the Board of Directors and the Audit and Supervisory Committee
- Implementation of measures to improve the effectiveness of the Board of Directors’ oversight of the appropriateness of performance targets
- Establishing a system for sharing important risk information and strengthening supervisory functions
- Implementation of measures to improve the effectiveness of the Audit and Supervisory Committee
- Strengthening supervisory functions by diversifying the expertise of the Board of Directors
- Enhancing the system to support outside directors
(5) Ensuring the independence of the accounting function from the business divisions
- Ensuring the independence of the accounting function
- Securing accounting resources
- Awareness raising and education on accounting
- Strengthening accounting governance
(6) Strengthening the internal audit system
- Strengthening independence through cooperation with the Audit and Supervisory Committee
- Implementation of measures to increase the number of companies subject to internal audits and improve audit quality
(7) Clarification of accounting policies and proper operation
- Revision of the NIAP and abolition of requests for exceptions
- Thorough dissemination of the NIAP
- Introduction of a declaration system for compliance with the NIAP
- Review of Business Units and domestic Group companies
(Internal control over trade compliance)
(1) Implementation of training and education
- Implementation of training on trade compliance
- Continuous communication on the importance of compliance
(2) Formulation and rollout of SOPs (Standard Operating Procedures)
- Formulation and rollout of the ‟Customs Compliance Manual” and ‟Customs Compliance Handbook”
- Formulation and rollout of SOPs (Standard Operating Procedures)
*Response to the risk of delisting due to the designation of Security on Special Alert
As described in “Ⅱ. Business Overview, 1. Management Policies, Business Environment, and Challenges, (4) Designation of Security on Special Alert,” the Tokyo Stock Exchange, Inc. has designated the Company’s stock as a Security on Special Alert. Please refer to the said paragraph for details on the reason for the designation, the date of designation and the period of designation.
As stated in the paragraph, the Company is making efforts to improve the internal management system, etc. in preparation for the lifting of the special-alert designation. However, as a result of the examination pursuant to the Securities Listing Regulations of the Tokyo Stock Exchange, Inc., if the internal management system, etc. is not deemed to be appropriately developed and operated, the designation may be continued or the Company’s shares may be delisted. We will steadily promote initiatives to ensure the effectiveness of the internal management system, etc. toward the lifting of the designation.
(Internal control over trade compliance)
For the fiscal year ended March 31, 2025, at a consolidated subsidiary of the Company, the amount of unpaid tariffs was underreported due to erroneous declarations of country of origin of motors manufactured. The Company recognized that the main cause lay in the Company as a parent company failing to reflect the issue in the consolidated financial statements in a timely manner after identifying the problem. Consequently, the Company identified material weaknesses in entity-level controls (information and communication) and internal controls over its accounting and financial closing process for the fiscal year ended March 31, 2025. Although the Company has already implemented the following recurrence prevention measures, for the fiscal year ended March 31, 2026, the Company newly identified material weaknesses in entity-level controls (control environment, risk assessment and response, control activities, information and communication, and monitoring) and internal control over accounting and financial reporting processes that are evaluated from an entity-level perspective. Therefore, the Company has concluded that the previously identified material weaknesses have not yet been remediated.
(1) Nurturing awareness and a corporate culture that make regulatory compliance the top priority
- Sending a clear message from the Company's board of directors to the Group employees
- Thoroughly communicate the necessity of prioritizing compliance above all else through disciplinary actions
- Strengthening our Legal & Compliance Department’s functions and authority
(2) Strengthening organizations and systems
- Strengthening the trade compliance system
- Strengthening the global governance system
(3) Improvement of procedures, regulations and mechanisms
- Improvement of the Group's reporting lines
- Information sharing among the Company group’s Legal & Compliance Departments
- Properly organizing the internal control system
(4) Disciplinary actions
- Implementing appropriate disciplinary actions
In addition, for the fiscal year ended March 31, 2026, the Company engaged external experts to investigate whether similar trade compliance issues existed at entities other than the aforementioned consolidated subsidiary. As a result of the investigation, errors in the indication of the country of origin were identified in exports from the Group to the United States. As a result, a statistical sampling survey was conducted covering all transactions of major import bases pertaining to exports from the Company’s bases to the United States (from the fiscal year ended March 31, 2021, to the fiscal year ended March 31, 2026). The survey revealed errors in tariff classifications, country of origin, application of preferential treatment based on preferential trade agreements, and import prices in import declarations to the United States. These errors were caused not only by the relevant parties’ insufficient trade know-how and compliance awareness, but also by insufficient business standardization within the Group. Consequently, deficiencies were identified in entity-level controls (control environment and control activities). As these deficiencies are highly likely to have a significant impact on the Company's financial reporting, the Company determined that they constitute material weaknesses.
The Company will continuously execute recurrence prevention measures to enhance internal controls going forward. However, because internal controls have inherent limitations, the reliability of the Group’s financial reporting could be affected if these recurrence prevention measures do not function effectively.
(Internal controls related to improper accounting practices that could materially affect the entire consolidated financial statements, including arbitrary adjustments to the timing of write-downs of assets that carry evaluation risk)
As the Company identified suspicions of improper accounting practices that could have a significant impact on the entire consolidated financial statements, including arbitrary adjustments to the timing of write-downs of assets that carry evaluation risk, which were conducted under the involvement or knowledge of certain management members of the Company and its group companies, the Company resolved on September 3, 2025, to establish a third-party committee in accordance with the ‟Guidelines for Third-Party Committees in Cases of Corporate Misconduct” established by the Japan Federation of Bar Associations. The Company received an investigation report from the third-party committee on February 27, 2026, and a supplementary investigation report on April 17, 2026. As a result, numerous improper accounting practices were revealed across various locations of the Group, including past fiscal years (hereinafter, the facts revealed in the investigation report and supplementary investigation report are referred to as this “Issue”). The main details of the identified improper accounting practices are outlined below:
- Avoidance of recognizing inventory valuation losses by falsely recognizing asset values in raw materials and products with extremely low future usage and sales prospects and no asset value.
- Avoidance of recognizing impairment losses by including projects with low probability of realization in sales plans used as assumptions for fixed asset impairment tests.
- Avoidance of recognizing impairment losses on fixed assets by providing false explanations regarding fixed assets that are difficult to repurpose.
- Non-recognition of provisions for loss on contract, arising from the discontinuation of product development.
- Non-recognition of allowance for doubtful accounts for bad debts.
- Overstatement of inventories by falsifying the results of physical inventory counts.
- Deferral of expense recognition through the improper capitalization of labor costs as incidental costs, which were subsequently expensed through depreciation.
- Intentional capitalization of quality improvement costs and research and development costs that had been determined not to contribute to obtaining future economic benefits.
- Premature revenue recognition for unshipped sales transactions that lacked economic substance.
Based on reports regarding the facts identified and cause analysis resulting from the investigation by the third-party committee and self-inspections investigating the appropriateness of accounting treatments under the management and supervision of the third-party committee, the Company re-evaluated its internal controls over financial reporting. As a result, the Company identified deficiencies in entity-level controls (control environment, risk assessment and response, control activities, information and communication, and monitoring) of the Company and its consolidated subsidiaries, as well as in internal controls over accounting and financial reporting processes that are evaluated from an entity-level perspective. Because these deficiencies are highly likely to have a significant impact on the Company’s financial reporting, the Company determined that they constitute material weaknesses.
Furthermore, the impact of the deficiencies in entity-level controls (control environment, risk assessment and response, control activities, information and communication, and monitoring) and internal controls over accounting and financial reporting processes that are evaluated from an entity-level perspective was material and pervasive, indicating a lack of the foundation necessary for internal controls over business processes to operate effectively. In addition, deficiencies were identified in all business processes subject to evaluation, and because all of these are highly likely to have a significant impact on financial reporting, the Company determined that they constitute material weaknesses.
The Company fully recognizes the importance of internal controls over financial reporting and has been working to promptly formulate and implement recurrence prevention measures to remediate the material weaknesses. However, the implementation of these measures had not been completed as of the end of the fiscal year ended March 31, 2026. Furthermore, due to the inherent limitations of internal controls, the reliability of the Group's financial reporting could be affected if the recurrence prevention measures do not function effectively.
In addition, while the Company has identified officers and employees of the Company and its Group companies who were involved in, directed, or were aware of improper accounting practices and other related matters, or who provided false explanations to the independent auditor, and has been conducting evaluations and implementing appropriate corrective personnel measures, part of the evaluations and corrective personnel measures has not yet been completed. As a result, certain officers and employees who were involved in, directed, or were aware of improper accounting practices and other related matters, or who provided false explanations to the independent auditor currently continue to hold positions of responsibility within the financial reporting processes of the Company and its Group companies. Consequently, the reliability of the Group's financial reporting could be affected.
【Main countermeasures】
To remediate the material weaknesses for the fiscal year ended March 31, 2026, in entity-level controls (control environment, risk assessment and response, control activities, information and communication, and monitoring), internal control over accounting and financial reporting processes appropriate to evaluate from an entity-level perspective, and internal control over account closing processes, the Company has formulated the following measures. By steadily implementing these measures and continuously monitoring their implementation status, the Company seeks to avoid and mitigate these risks.
(Internal control over improper accounting practices that could materially affect the entire consolidated financial statements, such as arbitrary adjustments to the timing of write-downs of assets that carry evaluation risk)
(1) Reform of corporate culture and enhancement of compliance education
(i) Reform of corporate culture
- Collecting opinions from employees through the establishment of a new organization to promote corporate culture reform
- Conducting a corporate culture learning program based on employee level
- Creating opportunities for dialogue with employees
- Behavioral transformation by management
- Behavioral transformation by employees
- Improvement activities across the Company's departments, Group companies, and global companies
- Ensuring transparency in the implementation status of measures
(ii) Enhancement of compliance education
- Enhancement of compliance education for new hires and regular learning programs
- Thorough compliance education throughout the Group and continuous dissemination of this Issue
(iii) Clarification of responsibility
- Establishment of the Executive Responsibility Investigation Committee
- Carrying out the necessary actions for employees below Vice Presidents and officers and employees of the Group companies.
- Personnel measures in response to the third-party committee’s investigation report, etc.
(2) Review of personnel-related systems
(i) Review of the personnel evaluation system
- Setting targets other than performance, and thorough evaluation
- Implementation of measures to improve understanding of the system
(ii) Review of evaluation criteria for executive remuneration and strengthening of the effectiveness of the remuneration determination process
- Review of evaluation criteria for executive remuneration
- Implementation of measures to improve the effectiveness of the remuneration determination process
(iii) Review of the criteria for Vice President nominations and strengthening of their effectiveness
- Review of selection criteria and formulation of dismissal criteria
- Implementation of measures to improve the effectiveness of the Vice President selection process
(3) Review of business plan formulation and management methods
(i) Reorganization of the medium-term management plan and business plan formulation process
- Redefinition and clarification of rules for formulating the medium-term management plan and business plan
- Establishment of a team structure for examining the medium-term management plan and business plan
- Strengthening the medium-term management plan and business plan formulation process
(ii) Optimization of the budget vs. actual performance management process
- Change in performance management values in budget vs. actual performance management
- Analysis of results, consideration of measures, and implementation of measures to improve the accuracy of the next business plan
(iii) Review of business evaluation criteria
- Review of numerical items
- Addition of evaluation items
(4) Improving the effectiveness of the Board of Directors and the Audit and Supervisory Committee
- Implementation of measures to improve the effectiveness of the Board of Directors’ oversight of the appropriateness of performance targets
- Establishing a system for sharing important risk information and strengthening supervisory functions
- Implementation of measures to improve the effectiveness of the Audit and Supervisory Committee
- Strengthening supervisory functions by diversifying the expertise of the Board of Directors
- Enhancing the system to support outside directors
(5) Ensuring the independence of the accounting function from the business divisions
- Ensuring the independence of the accounting function
- Securing accounting resources
- Awareness raising and education on accounting
- Strengthening accounting governance
(6) Strengthening the internal audit system
- Strengthening independence through cooperation with the Audit and Supervisory Committee
- Implementation of measures to increase the number of companies subject to internal audits and improve audit quality
(7) Clarification of accounting policies and proper operation
- Revision of the NIAP and abolition of requests for exceptions
- Thorough dissemination of the NIAP
- Introduction of a declaration system for compliance with the NIAP
- Review of Business Units and domestic Group companies
(Internal control over trade compliance)
(1) Implementation of training and education
- Implementation of training on trade compliance
- Continuous communication on the importance of compliance
(2) Formulation and rollout of SOPs (Standard Operating Procedures)
- Formulation and rollout of the ‟Customs Compliance Manual” and ‟Customs Compliance Handbook”
- Formulation and rollout of SOPs (Standard Operating Procedures)
*Response to the risk of delisting due to the designation of Security on Special Alert
As described in “Ⅱ. Business Overview, 1. Management Policies, Business Environment, and Challenges, (4) Designation of Security on Special Alert,” the Tokyo Stock Exchange, Inc. has designated the Company’s stock as a Security on Special Alert. Please refer to the said paragraph for details on the reason for the designation, the date of designation and the period of designation.
As stated in the paragraph, the Company is making efforts to improve the internal management system, etc. in preparation for the lifting of the special-alert designation. However, as a result of the examination pursuant to the Securities Listing Regulations of the Tokyo Stock Exchange, Inc., if the internal management system, etc. is not deemed to be appropriately developed and operated, the designation may be continued or the Company’s shares may be delisted. We will steadily promote initiatives to ensure the effectiveness of the internal management system, etc. toward the lifting of the designation.
【Risk details】
On September 03, 2025, We established an independent Third-Party Committee to conduct comprehensive investigations into the cause of suspicion regarding the Nidec Group’s inappropriate accounting practices.
With, among other reasons, the Third-Party Committee’s investigations ongoing, and based on the possible material and extensive impact on the Company’s consolidated financial statements, we received from our financial auditors the audit report for Nidec’s securities report for the fiscal year ended March 31, 2025, stating that the auditors would issue the report with a disclaimer of opinion. These circumstances led Nidec’s stock to be designated on October 28, 2026 as a security on special alert by the Tokyo Stock Exchange, where we are listed, which cited a high necessity for us to improve our internal management system among other actions.
After a mid-term report issued on February 27, 2026, the Company received the final report from the Third-Party Committee on April 17, 2026. The report discloses a series of Nidec Group’s accounting misconducts, describes the results of cause analysis and provides suggestions for recurrence prevention of the misconducts.
【Main countermeasures】
We received the final version of the Third-Party Committee’s investigation report on April 17, 2026, we accepted with sincerity the facts identified by the Committee, the results of its cause analysis, and its suggestions to prevent a recurrence of problems, and announced on April 27, 2026, our revised improvement plan.
To reinforce our accounting functions and accounting policies as announced in the improvement plan, we are implementing the following measures:
- Maintaining the accounting organizations’ independence
We will separate our accounting function and business management function (that, among other tasks, monitor the execution of management strategy) and consolidate the accounting function’s personnel-related authorities into the head office’s accounting function. In addition, we will reorganize dual-reporting lines (individual organizations’ CEOs and Nidec Corporation’s CFO for Business Units and Japanese domestic Nidec Group companies’ CFOs; and individual organizations’ CFOs and Nidec Corporation’s accounting personnel for Business Units and Japanese domestic Nidec Group companies) to eliminate the structure that has constrained the accounting department into working with business departments to achieve profit targets.
- Strict unification of accounting policies
We will review the Nidec Group’s accounting policies (NIAP) to always abide by accounting rules and eliminate arbitrary account processing. We abolished exceptional applications, which reduced NIAP to mere skeletons, in the FY2025 year-end account settlement.
On September 03, 2025, We established an independent Third-Party Committee to conduct comprehensive investigations into the cause of suspicion regarding the Nidec Group’s inappropriate accounting practices.
With, among other reasons, the Third-Party Committee’s investigations ongoing, and based on the possible material and extensive impact on the Company’s consolidated financial statements, we received from our financial auditors the audit report for Nidec’s securities report for the fiscal year ended March 31, 2025, stating that the auditors would issue the report with a disclaimer of opinion. These circumstances led Nidec’s stock to be designated on October 28, 2026 as a security on special alert by the Tokyo Stock Exchange, where we are listed, which cited a high necessity for us to improve our internal management system among other actions.
After a mid-term report issued on February 27, 2026, the Company received the final report from the Third-Party Committee on April 17, 2026. The report discloses a series of Nidec Group’s accounting misconducts, describes the results of cause analysis and provides suggestions for recurrence prevention of the misconducts.
【Main countermeasures】
We received the final version of the Third-Party Committee’s investigation report on April 17, 2026, we accepted with sincerity the facts identified by the Committee, the results of its cause analysis, and its suggestions to prevent a recurrence of problems, and announced on April 27, 2026, our revised improvement plan.
To reinforce our accounting functions and accounting policies as announced in the improvement plan, we are implementing the following measures:
- Maintaining the accounting organizations’ independence
We will separate our accounting function and business management function (that, among other tasks, monitor the execution of management strategy) and consolidate the accounting function’s personnel-related authorities into the head office’s accounting function. In addition, we will reorganize dual-reporting lines (individual organizations’ CEOs and Nidec Corporation’s CFO for Business Units and Japanese domestic Nidec Group companies’ CFOs; and individual organizations’ CFOs and Nidec Corporation’s accounting personnel for Business Units and Japanese domestic Nidec Group companies) to eliminate the structure that has constrained the accounting department into working with business departments to achieve profit targets.
- Strict unification of accounting policies
We will review the Nidec Group’s accounting policies (NIAP) to always abide by accounting rules and eliminate arbitrary account processing. We abolished exceptional applications, which reduced NIAP to mere skeletons, in the FY2025 year-end account settlement.
【Risk details】
Our growth to date has been largely dependent on the strong leadership and management skills of the founder. However, while a management system in which authority is concentrated in specific individuals enables swift decision-making, appropriate supervisory functions and brakes do not work sufficiently, causing governance issues.
As pointed out in the Third-Party Committee’s investigation report, the lack of a check-and-balance function over top management led to a dilution of compliance awareness and an impediment to a sound organizational culture, and as a result, significantly damaged the Group’s social credibility. Currently, we are making the transition to a group management structure under a new management structure. However, if we are not able to completely break away from the influence of the founder, or if the autonomous governance functions of the next generation of leaders do not take root, it could delay the recovery of trust from investors and have a significant negative impact on our corporate value and business continuity over the medium to long term.
【Main countermeasures】
We have given top priority to the transition from management that is dependent on the founder to management based on highly transparent mechanisms and organizations, and have taken the following measures.
- Thorough implementation of organizational management under the Chief Officer (CxO) System
In April 2025, we introduced a global headquarters structure centered in the Chief Officer System and transferred authority to each CxO. In this way, each functional division and business division cooperate and check each other to create a “structured organization” that makes speedy and sound management decisions.
- Foster next-generation leaders and make the selection process transparent
We will develop management human resources with a high level of compliance awareness and governance capabilities. With regard to the Board of Directors and Vice Presidents, the Nominating Committee conducts multifaceted evaluations based on globally shared selection standards, including a perspective of ethics, compliance, and market discipline. In addition, by ensuring that the selection process is transparent and objective, we have established a sustainable management succession structure that does not rely on specific individuals.
- Change to a healthy organizational culture
Top management is promoting reforms to create an open corporate culture. By improving the reliability of the whistle-blowing system and establishing lines of communication through which opinions from the sites reach management, we are working to transform ourselves into an organization that soundly fuses bottom-up knowledge with top management strategies.
Our growth to date has been largely dependent on the strong leadership and management skills of the founder. However, while a management system in which authority is concentrated in specific individuals enables swift decision-making, appropriate supervisory functions and brakes do not work sufficiently, causing governance issues.
As pointed out in the Third-Party Committee’s investigation report, the lack of a check-and-balance function over top management led to a dilution of compliance awareness and an impediment to a sound organizational culture, and as a result, significantly damaged the Group’s social credibility. Currently, we are making the transition to a group management structure under a new management structure. However, if we are not able to completely break away from the influence of the founder, or if the autonomous governance functions of the next generation of leaders do not take root, it could delay the recovery of trust from investors and have a significant negative impact on our corporate value and business continuity over the medium to long term.
【Main countermeasures】
We have given top priority to the transition from management that is dependent on the founder to management based on highly transparent mechanisms and organizations, and have taken the following measures.
- Thorough implementation of organizational management under the Chief Officer (CxO) System
In April 2025, we introduced a global headquarters structure centered in the Chief Officer System and transferred authority to each CxO. In this way, each functional division and business division cooperate and check each other to create a “structured organization” that makes speedy and sound management decisions.
- Foster next-generation leaders and make the selection process transparent
We will develop management human resources with a high level of compliance awareness and governance capabilities. With regard to the Board of Directors and Vice Presidents, the Nominating Committee conducts multifaceted evaluations based on globally shared selection standards, including a perspective of ethics, compliance, and market discipline. In addition, by ensuring that the selection process is transparent and objective, we have established a sustainable management succession structure that does not rely on specific individuals.
- Change to a healthy organizational culture
Top management is promoting reforms to create an open corporate culture. By improving the reliability of the whistle-blowing system and establishing lines of communication through which opinions from the sites reach management, we are working to transform ourselves into an organization that soundly fuses bottom-up knowledge with top management strategies.
2. Management strategy risks
【Risk details】
In anticipation of increased demand, we may expand our production facilities in advance of orders or place advance orders for parts and materials in consideration of lead time. This entails the following risks.
- If demand is significantly lower than forecast, there may be impairment losses on fixed assets and a write down of inventories due to excess inventory, which has a negative impact on our operating results.
- There is a risk of rapid obsolescence of equipment and materials for which upfront investment was made due to discontinuous changes in technology.
- There is a risk of loss of supply opportunities and permanent loss of market share if demand is underestimated.
【Main countermeasures】
We are taking the following measures to ensure both profitability and disciplined investment.
- ROIC (Return On Invested Capital) Management
We have established ROIC as one of our management indicators and we are promoting improvement activities from both the profitability and capital efficiency perspectives.
- Introduction of a mechanism that contributes to investment decisions
In making investment decisions, we will clearly identify businesses with relatively high profitability and businesses that are expected to grow in the future. We will also build a structure to support our business portfolio strategies so that the funds generated by our businesses can be allocated in an optimal manner.
- Establishment of a flexible production system
We will avoid concentrating investment in specific sites, promote global production flexibility, facilitate the conversion of facilities through modularization, and enhance resilience to demand fluctuations.
In anticipation of increased demand, we may expand our production facilities in advance of orders or place advance orders for parts and materials in consideration of lead time. This entails the following risks.
- If demand is significantly lower than forecast, there may be impairment losses on fixed assets and a write down of inventories due to excess inventory, which has a negative impact on our operating results.
- There is a risk of rapid obsolescence of equipment and materials for which upfront investment was made due to discontinuous changes in technology.
- There is a risk of loss of supply opportunities and permanent loss of market share if demand is underestimated.
【Main countermeasures】
We are taking the following measures to ensure both profitability and disciplined investment.
- ROIC (Return On Invested Capital) Management
We have established ROIC as one of our management indicators and we are promoting improvement activities from both the profitability and capital efficiency perspectives.
- Introduction of a mechanism that contributes to investment decisions
In making investment decisions, we will clearly identify businesses with relatively high profitability and businesses that are expected to grow in the future. We will also build a structure to support our business portfolio strategies so that the funds generated by our businesses can be allocated in an optimal manner.
- Establishment of a flexible production system
We will avoid concentrating investment in specific sites, promote global production flexibility, facilitate the conversion of facilities through modularization, and enhance resilience to demand fluctuations.
【Risk details】
We have historically achieved much of our growth by acquiring and otherwise investing in other companies that have provided us with complementary technologies, product lines, marketing, sales networks, and customer base. However, business strategies that rely excessively on non-linear growth through M&A carry the risk that governance, such as the transparency of investment decisions and post-acquisition group governance, will become a mere formality, or that our in-house technology development and organic (autonomous) growth will be impeded. In addition, if we use only M&A as a means of growth in a rapidly changing market, an inability to find suitable acquisition or investment targets may mean we cannot keep up with the pace of market growth, and our businesses, operating results and financial position may be adversely affected.
Although we believe that these acquired assets appropriately reflect the future profitability achieved through the efficient integration of the acquired businesses, we may not be able to generate the estimated profit due to a deterioration of the business environment. In that case, we will need to recognize an impairment of these assets, which could adversely affect operating results and financial position.
【Main countermeasures】
We are taking the following measures to both reduce M&A risk and achieve organic growth.
- Promoting a growth strategy balanced with investment in organic growth
We will strengthen investments for organic growth, such as in-house research & development, improving the added value of existing businesses, and human resources development, without relying too much on M&As, in order to strengthen our portfolio.
- Acquisition at a fair price
We will select target companies that are in line with our business strategy, conduct thorough preliminary surveys, and acquire them at an appropriate price.
- Rapid and thorough post-acquisition PMI
We will appropriately integrate our compliance policy and governance system, unify our foundations and platforms, and create synergies upon entering the Group. At the same time, we will enhance the corporate value of the acquired company and minimize the risk of goodwill impairment.
- Advance preparation of public relations strategy for M&A activities
We are committed to avoiding reputational risk by promoting an accurate understanding of our acquisition policy through appropriate information disclosure and honest media communication.
- Continued governance and monitoring
We will monitor the status of our post-acquisition business plan on a regular basis and manage risks flexibly by taking early improvement actions or reviewing our portfolio of businesses in the event that there is a deviation from our initial assumptions.
We have historically achieved much of our growth by acquiring and otherwise investing in other companies that have provided us with complementary technologies, product lines, marketing, sales networks, and customer base. However, business strategies that rely excessively on non-linear growth through M&A carry the risk that governance, such as the transparency of investment decisions and post-acquisition group governance, will become a mere formality, or that our in-house technology development and organic (autonomous) growth will be impeded. In addition, if we use only M&A as a means of growth in a rapidly changing market, an inability to find suitable acquisition or investment targets may mean we cannot keep up with the pace of market growth, and our businesses, operating results and financial position may be adversely affected.
Although we believe that these acquired assets appropriately reflect the future profitability achieved through the efficient integration of the acquired businesses, we may not be able to generate the estimated profit due to a deterioration of the business environment. In that case, we will need to recognize an impairment of these assets, which could adversely affect operating results and financial position.
【Main countermeasures】
We are taking the following measures to both reduce M&A risk and achieve organic growth.
- Promoting a growth strategy balanced with investment in organic growth
We will strengthen investments for organic growth, such as in-house research & development, improving the added value of existing businesses, and human resources development, without relying too much on M&As, in order to strengthen our portfolio.
- Acquisition at a fair price
We will select target companies that are in line with our business strategy, conduct thorough preliminary surveys, and acquire them at an appropriate price.
- Rapid and thorough post-acquisition PMI
We will appropriately integrate our compliance policy and governance system, unify our foundations and platforms, and create synergies upon entering the Group. At the same time, we will enhance the corporate value of the acquired company and minimize the risk of goodwill impairment.
- Advance preparation of public relations strategy for M&A activities
We are committed to avoiding reputational risk by promoting an accurate understanding of our acquisition policy through appropriate information disclosure and honest media communication.
- Continued governance and monitoring
We will monitor the status of our post-acquisition business plan on a regular basis and manage risks flexibly by taking early improvement actions or reviewing our portfolio of businesses in the event that there is a deviation from our initial assumptions.
【Risk details】
We have more than 300 group companies in more than 40 countries around the world. We develop our business globally, and our overseas sales account for about 90%. As a result, changes in political and economic conditions in the countries and regions in which we operate are important uncertainties that can have a direct impact on our operating results and financial position.
In particular, the intensification and prolongation of the following geopolitical risks may cause supply chain fragmentation and major changes in cost structures.
- US-China conflict and economic security regulations
Export controls for advanced technologies, investment restrictions, and the acceleration of supply chain restructuring that excludes certain countries.
- Intensification and prolongation of regional conflicts
Soaring energy prices and the blockage of major logistics routes (straits, etc.) due to the situation in Ukraine and the Middle East.
- Rise of resource nationalism
Export restrictions on rare earths and critical minerals that are essential for the shift to EVs, and excessive reliance on certain countries for certain raw materials.
If any of these events occurs, it may have a significant negative impact on our operating results, including a decline in product demand, a slowdown in parts procurement, an increase in energy and distribution costs, an increase in foreign exchange market fluctuations, and even damage to or suspension of our operations.
【Main countermeasures】
In response to these unavoidable changes in the external environment, we are continuously strengthening the following measures to enhance management flexibility and resilience.
- Strengthening the “local production for local consumption (Made in Market)” system
We have a thorough “local development, local production, local consumption” system that integrates development, production, sales and service in major markets. This not only enables us to respond quickly to the needs of our local customers, but also minimizes the impact of trade barriers such as tariffs, logistics disruptions, and currency fluctuations, and increases our resilience to geopolitical changes.
- Strengthening supply chains and adapting to economic security
In order to avoid dependence on specific suppliers for important parts and raw materials, we constantly promote the use of multiple suppliers (multi-sourcing) and the development of alternative suppliers. In addition, from the perspective of economic security, we are promoting a multipolar supply chain and building a flexible supply system that can continue operations even in unexpected situations through the sophistication of inventory management.
- Optimization of business portfolio and market diversification
We are working to diversify our global markets by eliminating excessive dependence on specific countries and regions. By actively investing in growing markets and promoting the diversification of businesses through product and technological development, we are working to mitigate the impact of deteriorating conditions in certain regions on our overall performance.
- Improvement of the information gathering system and establishment of a flexible decision-making system
We will accelerate our information gathering by using a system to quickly grasp changes in the political situation, trade policies, and laws and regulations of each country and provide timely feedback to management. Based on this, we will implement flexible decision making in advance of changes in the business environment, such as the transfer of production sites and the revision of business strategies.
We have more than 300 group companies in more than 40 countries around the world. We develop our business globally, and our overseas sales account for about 90%. As a result, changes in political and economic conditions in the countries and regions in which we operate are important uncertainties that can have a direct impact on our operating results and financial position.
In particular, the intensification and prolongation of the following geopolitical risks may cause supply chain fragmentation and major changes in cost structures.
- US-China conflict and economic security regulations
Export controls for advanced technologies, investment restrictions, and the acceleration of supply chain restructuring that excludes certain countries.
- Intensification and prolongation of regional conflicts
Soaring energy prices and the blockage of major logistics routes (straits, etc.) due to the situation in Ukraine and the Middle East.
- Rise of resource nationalism
Export restrictions on rare earths and critical minerals that are essential for the shift to EVs, and excessive reliance on certain countries for certain raw materials.
If any of these events occurs, it may have a significant negative impact on our operating results, including a decline in product demand, a slowdown in parts procurement, an increase in energy and distribution costs, an increase in foreign exchange market fluctuations, and even damage to or suspension of our operations.
【Main countermeasures】
In response to these unavoidable changes in the external environment, we are continuously strengthening the following measures to enhance management flexibility and resilience.
- Strengthening the “local production for local consumption (Made in Market)” system
We have a thorough “local development, local production, local consumption” system that integrates development, production, sales and service in major markets. This not only enables us to respond quickly to the needs of our local customers, but also minimizes the impact of trade barriers such as tariffs, logistics disruptions, and currency fluctuations, and increases our resilience to geopolitical changes.
- Strengthening supply chains and adapting to economic security
In order to avoid dependence on specific suppliers for important parts and raw materials, we constantly promote the use of multiple suppliers (multi-sourcing) and the development of alternative suppliers. In addition, from the perspective of economic security, we are promoting a multipolar supply chain and building a flexible supply system that can continue operations even in unexpected situations through the sophistication of inventory management.
- Optimization of business portfolio and market diversification
We are working to diversify our global markets by eliminating excessive dependence on specific countries and regions. By actively investing in growing markets and promoting the diversification of businesses through product and technological development, we are working to mitigate the impact of deteriorating conditions in certain regions on our overall performance.
- Improvement of the information gathering system and establishment of a flexible decision-making system
We will accelerate our information gathering by using a system to quickly grasp changes in the political situation, trade policies, and laws and regulations of each country and provide timely feedback to management. Based on this, we will implement flexible decision making in advance of changes in the business environment, such as the transfer of production sites and the revision of business strategies.
【Risk details】
Rapid technological innovation and changes in the industrial structure could have a serious impact on our business model. In particular, the transformation of the need for thermal solutions at data centers due to the spread of generative AI and the development of autonomous driving technology against the backdrop of the shift to software defined vehicles (SDV) involve the risk of sudden changes of demand for conventional product lineups. For example, the integration of electric drive systems, as typified by the E-Axle, and advances in sensor technology have the potential to displace or reduce demand for conventional individual machine parts.
In addition, the opening up of technology and the shortening of development periods through the use of digital twins will accelerate the entry of new competitive players, including those from other industries, and threaten our market share. If research & development and the transformation of businesses do not progress appropriately and promptly in response to these technological paradigm shifts, our products may become obsolete and our market competitiveness may decline, which may have an adverse effect on our operating results and financial position.
【Main countermeasures】
We regard these changes in the technological environment and industrial structure as important management issues, and are taking the following measures to maintain and strengthen our competitiveness.
- Shifting to modularization and systemization and strengthening ability to propose solutions
In addition to the provision of stand-alone motors, we will promote the development and proposal of system solutions that combine control technology and cooling systems to increase added value for customers and differentiate ourselves from other companies.
- Strengthening the research & development structure and promoting open innovation
We will focus our research & development investment on next-generation technologies (thermal solutions, electrification, sensing, etc.) and actively utilize strategic partnerships and alliances with external institutions, including start-up companies, to build a system that can quickly capture innovative technologies and knowledge.
- Strengthening marketing functions and optimizing the portfolio
We will strengthen marketing research to accurately grasp changes in market trends and customer needs and quickly review the optimal medium- to long-term portfolio based on the technology roadmap for each product.
- Development of highly skilled technical human resources and knowledge sharing
By holding regular workshops with internal experts and utilizing external re-skilling programs, we share information on the latest technologies (AI, digital development tools, etc.) throughout the company, and develop and assign highly skilled technical human resources who can respond flexibly to changes.
Rapid technological innovation and changes in the industrial structure could have a serious impact on our business model. In particular, the transformation of the need for thermal solutions at data centers due to the spread of generative AI and the development of autonomous driving technology against the backdrop of the shift to software defined vehicles (SDV) involve the risk of sudden changes of demand for conventional product lineups. For example, the integration of electric drive systems, as typified by the E-Axle, and advances in sensor technology have the potential to displace or reduce demand for conventional individual machine parts.
In addition, the opening up of technology and the shortening of development periods through the use of digital twins will accelerate the entry of new competitive players, including those from other industries, and threaten our market share. If research & development and the transformation of businesses do not progress appropriately and promptly in response to these technological paradigm shifts, our products may become obsolete and our market competitiveness may decline, which may have an adverse effect on our operating results and financial position.
【Main countermeasures】
We regard these changes in the technological environment and industrial structure as important management issues, and are taking the following measures to maintain and strengthen our competitiveness.
- Shifting to modularization and systemization and strengthening ability to propose solutions
In addition to the provision of stand-alone motors, we will promote the development and proposal of system solutions that combine control technology and cooling systems to increase added value for customers and differentiate ourselves from other companies.
- Strengthening the research & development structure and promoting open innovation
We will focus our research & development investment on next-generation technologies (thermal solutions, electrification, sensing, etc.) and actively utilize strategic partnerships and alliances with external institutions, including start-up companies, to build a system that can quickly capture innovative technologies and knowledge.
- Strengthening marketing functions and optimizing the portfolio
We will strengthen marketing research to accurately grasp changes in market trends and customer needs and quickly review the optimal medium- to long-term portfolio based on the technology roadmap for each product.
- Development of highly skilled technical human resources and knowledge sharing
By holding regular workshops with internal experts and utilizing external re-skilling programs, we share information on the latest technologies (AI, digital development tools, etc.) throughout the company, and develop and assign highly skilled technical human resources who can respond flexibly to changes.
【Risk details】
The markets in which we operate, including small precision motors, automotive, consumer electronics, commercial and industrial, and equipment markets, are global markets in which competition is extremely intense. In particular, the rapid emergence of local manufacturers in emerging countries and the acceleration of technological innovations by existing competitors could have a significant impact on our competitiveness and profitability under the following circumstances.
- Turnaround of technology development and speed to market
When competitors make next-generation technologies (such as AI integrated products and high-efficiency motors) into products faster than our company and secure a de facto standard.
- Relative decline in cost competitiveness
When competitors build more efficient procurement and production systems in response to fluctuations in raw materials prices and rising energy costs, resulting in inferior price competition.
- Delay in adapting to business model changes
When losing customer support in new value-added competition, such as progress in software definition and the shift to services, which is not limited to products alone.
- Drastic changes in the competitive environment due to industry reorganization
A major merger or tie up between competitors or the entry of a company from a different industry (e.g., a big tech company) that undermines market share and pricing power.
- Lack of compliance with local regulations and standards
When we fail to launch products in a timely and appropriate manner in response to environmental regulations and security standards unique to each country and the specific needs of the region.
【Main countermeasures】
In order to secure a sustainable advantage in an increasingly competitive environment, we have established the following five areas, based on the pillars of “maximizing Group synergies” and “concentrating resources on high-value-added areas,” with the resolution of social issues as the starting point. By concentrating the technologies and resources of each Group company, we aim to differentiate ourselves from competitors.
- Base of AI society
Provide cooling systems and high-precision actuators for AI servers.
- Sustainable infrastructure and energy
Focus on renewable energy and energy storage systems (BESS).
- Efficient manufacturing
Robotics and factory automation solutions.
- Pursuit of a Better Life
Motor solutions for energy-saving, high-performance home appliances.
- Mobility innovation
Contributing to the next generation of mobility with a focus on the E-Axle.
(*For details of the core areas, please refer to the latest integrated report and financial results materials.)
The markets in which we operate, including small precision motors, automotive, consumer electronics, commercial and industrial, and equipment markets, are global markets in which competition is extremely intense. In particular, the rapid emergence of local manufacturers in emerging countries and the acceleration of technological innovations by existing competitors could have a significant impact on our competitiveness and profitability under the following circumstances.
- Turnaround of technology development and speed to market
When competitors make next-generation technologies (such as AI integrated products and high-efficiency motors) into products faster than our company and secure a de facto standard.
- Relative decline in cost competitiveness
When competitors build more efficient procurement and production systems in response to fluctuations in raw materials prices and rising energy costs, resulting in inferior price competition.
- Delay in adapting to business model changes
When losing customer support in new value-added competition, such as progress in software definition and the shift to services, which is not limited to products alone.
- Drastic changes in the competitive environment due to industry reorganization
A major merger or tie up between competitors or the entry of a company from a different industry (e.g., a big tech company) that undermines market share and pricing power.
- Lack of compliance with local regulations and standards
When we fail to launch products in a timely and appropriate manner in response to environmental regulations and security standards unique to each country and the specific needs of the region.
【Main countermeasures】
In order to secure a sustainable advantage in an increasingly competitive environment, we have established the following five areas, based on the pillars of “maximizing Group synergies” and “concentrating resources on high-value-added areas,” with the resolution of social issues as the starting point. By concentrating the technologies and resources of each Group company, we aim to differentiate ourselves from competitors.
- Base of AI society
Provide cooling systems and high-precision actuators for AI servers.
- Sustainable infrastructure and energy
Focus on renewable energy and energy storage systems (BESS).
- Efficient manufacturing
Robotics and factory automation solutions.
- Pursuit of a Better Life
Motor solutions for energy-saving, high-performance home appliances.
- Mobility innovation
Contributing to the next generation of mobility with a focus on the E-Axle.
(*For details of the core areas, please refer to the latest integrated report and financial results materials.)
3. Business operation risks
【Risk details】
NIDEC is engaged in the manufacture and sale of products in various countries around the world and is subject to various trade-related laws and regulations, such as customs laws, import and export regulations, and rules of origin in each country and region.
Inappropriate customs declaration practices have been identified at some subsidiaries in the Group. The Company has hired outside experts to conduct an investigation and has made voluntary declarations to the relevant authorities and payment of additional customs duties, etc., for some import transactions in the United States. In addition, we have been conducting similar investigations for the other U.S. import bases and assessing customs and trade risks for intra-group import and export transactions in countries and regions other than the U.S. through commercial distribution analysis and other means. Based on the results of these investigations and risk assessment, the necessary accounting impact is reflected in the financial statements, and corrective measures are being sequentially implemented at each import and export base.
If additional investigations or confirmations in the future reveal that the Group had not been properly complying with customs declarations and other trade-related laws and regulations, we may be subject to administrative or legal measures by the relevant authorities, as well as financial burdens of additional customs duties, penalty taxes, and delinquent taxes, etc. Also, new facts or decisions by the relevant authorities may result in additional burdens that exceed the effects recognized by the Company at present.
Depending on the details of these events, new facts that may come to light in the future, and decisions made by the relevant authorities, the Group’s business performance, financial position and cash flows may be affected by additional financial burdens and legal liabilities, as well as deterioration of relationships with business partners and social credibility.
【Main countermeasures】
In order to reduce risks associated with customs duties, the following measures have been taken:
-In addition to using outside experts to investigate and analyze the causes of the issues related to customs declarations, we have expanded the scope of the investigation to include other import and export bases and transactions to confirm whether there are other similar issues. In addition, based on the results of the investigation, the Company has taken necessary actions, such as filing tax returns and paying taxes, and has taken necessary corrective measures at each import and export base.
-In addition, to enhance the trade compliance structure of the entire group, we have revised relevant regulations and updated them to a globally unified trade compliance structure. At the same time, we have developed a system to manage trade compliance across the group by strengthening the system for collecting and sharing information and coordinating among regions and locations.
-The Company is working to strengthen its governance system related to trade control by strengthening cooperation between the Logistics Division, which is responsible for import and export operations, and the Legal and Trade Control Division, which is responsible for legal compliance and trade control. -In addition to developing guidelines on country of origin declarations, tariff classifications, and the application of free trade agreements, reviewing business processes relating to import and export transactions, and strengthening internal audits and monitoring, we are providing employees with systematic and comprehensive learning programs, including trade compliance.
-At the same time, in order to strengthen our response to economic security, we are developing a system to properly comply with laws and regulations related to export controls and economic sanctions.
-Through these initiatives, we are ensuring thorough compliance with trade-related laws and regulations and working to prevent recurrence and reduce tariff risk.
NIDEC is engaged in the manufacture and sale of products in various countries around the world and is subject to various trade-related laws and regulations, such as customs laws, import and export regulations, and rules of origin in each country and region.
Inappropriate customs declaration practices have been identified at some subsidiaries in the Group. The Company has hired outside experts to conduct an investigation and has made voluntary declarations to the relevant authorities and payment of additional customs duties, etc., for some import transactions in the United States. In addition, we have been conducting similar investigations for the other U.S. import bases and assessing customs and trade risks for intra-group import and export transactions in countries and regions other than the U.S. through commercial distribution analysis and other means. Based on the results of these investigations and risk assessment, the necessary accounting impact is reflected in the financial statements, and corrective measures are being sequentially implemented at each import and export base.
If additional investigations or confirmations in the future reveal that the Group had not been properly complying with customs declarations and other trade-related laws and regulations, we may be subject to administrative or legal measures by the relevant authorities, as well as financial burdens of additional customs duties, penalty taxes, and delinquent taxes, etc. Also, new facts or decisions by the relevant authorities may result in additional burdens that exceed the effects recognized by the Company at present.
Depending on the details of these events, new facts that may come to light in the future, and decisions made by the relevant authorities, the Group’s business performance, financial position and cash flows may be affected by additional financial burdens and legal liabilities, as well as deterioration of relationships with business partners and social credibility.
【Main countermeasures】
In order to reduce risks associated with customs duties, the following measures have been taken:
-In addition to using outside experts to investigate and analyze the causes of the issues related to customs declarations, we have expanded the scope of the investigation to include other import and export bases and transactions to confirm whether there are other similar issues. In addition, based on the results of the investigation, the Company has taken necessary actions, such as filing tax returns and paying taxes, and has taken necessary corrective measures at each import and export base.
-In addition, to enhance the trade compliance structure of the entire group, we have revised relevant regulations and updated them to a globally unified trade compliance structure. At the same time, we have developed a system to manage trade compliance across the group by strengthening the system for collecting and sharing information and coordinating among regions and locations.
-The Company is working to strengthen its governance system related to trade control by strengthening cooperation between the Logistics Division, which is responsible for import and export operations, and the Legal and Trade Control Division, which is responsible for legal compliance and trade control. -In addition to developing guidelines on country of origin declarations, tariff classifications, and the application of free trade agreements, reviewing business processes relating to import and export transactions, and strengthening internal audits and monitoring, we are providing employees with systematic and comprehensive learning programs, including trade compliance.
-At the same time, in order to strengthen our response to economic security, we are developing a system to properly comply with laws and regulations related to export controls and economic sanctions.
-Through these initiatives, we are ensuring thorough compliance with trade-related laws and regulations and working to prevent recurrence and reduce tariff risk.
【Risk details】
In recent years, customers have been increasingly demanding higher levels of product quality, safety, reliability and compliance. If we are unable to provide safe, high quality products on a continuous basis, it may result not only in damage to the products themselves, but also in property damage, the loss of human life, quality-related problems with customer products, and impacts on our customers’ production activities.
As a result, we may incur significant expenses associated with the collection and repair of defective products, alternative production, customer compensation, damage compensation, investigation response, corrective measures, recurrence prevention measures, etc. In addition, a deterioration in the brand image and social credibility could lead to a decline in sales, the loss of opportunities to receive orders, a reduction in business with major customers, or an outflow of human resources. This may result in financial burdens and the loss of human resources and cause a serious negative impact on the Group’s operating results, financial position, and cash flows.
【Main countermeasures】
As part of the improvement of the internal management system through the “Nidec Rehabilitation Committee,” which was established on October 30, 2025, we began a comprehensive quality inspection of the Group’s production bases and R&D bases on January 8, 2026, with the aim of confirming the status of the quality control system and change management process, identifying quality-related issues, and considering necessary corrective measures and recurrence prevention measures. Specifically, The Company conducted interviews with employees in each production base, reviewed records of process changes, design changes, etc., and established a reporting desk (hereinafter referred to as the “Quality Feedback Channel”) for all employee to provide information on quality-related concerns. We also conducted voluntary inspections of the Group’s production activities going back to 2020. As a result of the comprehensive quality inspections, suspected misconduct was found with certain products manufactured by the Company and group companies, such as changes in materials, processes, designs, etc., that were not confirmed by customers.
As there had been reports of suspected misconduct at multiple locations, the Company determined that an objective investigation by outside experts, who have extensive experience and expertise in investigating similar cases, was necessary in order to clarify the facts in more detail, determine the causes, and consider effective improvement measures to strengthen its commitment to quality assurance, and established an investigation committee on May 13, 2026. The investigation by the Investigation Committee has been completed and we have received the investigation report on September 2, 2026.
The issues related to our corporate stance and organizational culture, such as excessive performance pressure and a culture that discourages speaking up, which were recognized as background factors behind instances of quality misconduct, share common root causes with our accounting issues. Therefore, we will continue to steadily drive the cultural reform initiatives outlined in our Improvement Plan while fostering and establishing a culture of quality compliance. Furthermore, in addition to these shared cultural issues, we will address challenges specific to quality assurance systems and processes by strengthening monitoring and deterrence mechanisms through our Quality Assurance organization.
・Fostering and Establishing a Quality Compliance Culture
We made the "Quality Suggestion Box" a permanent channel and, between July and September 2026, issued the "CQO Re-Definition Declaration" to all employees. This message conveyed our commitment to moving forward together toward proud craftsmanship that prioritizes quality and puts our customers first. In addition, at the general meeting on September 7, 2026, the CEO, CCO, and CSCO delivered a message to all employees regarding measures to prevent recurrence and restore trust. Alongside these messages, in September 2026, we conducted quality compliance training led by an external attorney for corporate management, division heads, and group company presidents. Going forward, we will roll out quality compliance training for all employees. This will serve to reemphasize that misconduct revealed in this incident, such as unauthorized changes to materials, processes, or designs without customer approval, as well as the improper handling of test and inspection data, constitutes a violation of quality compliance. We will also ensure everyone is aware of the need to report any such incidents to the appropriate report lines or submit them via the Quality Suggestion Box.
・Strengthening monitoring and deterrence mechanisms by the Quality Assurance Organization
In September 2026, we revised the Global Quality Assurance Basic Regulations to clarify the authority of Quality Assurance leaders at each division and group company to independently order shipments to be halted, separate from other departments such as manufacturing and sales. We also strengthened the involvement and control of Quality Assurance Departments regarding 4M changes and inspection processes. To confirm and ensure compliance with these regulations, our Global Quality Management Department will conduct quality audits starting in October 2026. Furthermore, we will review escalation rules and reporting lines between the Chief Quality Officer (CQO)/Headquarters Global Quality Management Divison and the Quality Assurance leaders at each business division and group company (including their respective subsidiaries), rebuilding our framework to ensure that information regarding quality compliance across the group is promptly reported to and addressed by the company.
In recent years, customers have been increasingly demanding higher levels of product quality, safety, reliability and compliance. If we are unable to provide safe, high quality products on a continuous basis, it may result not only in damage to the products themselves, but also in property damage, the loss of human life, quality-related problems with customer products, and impacts on our customers’ production activities.
As a result, we may incur significant expenses associated with the collection and repair of defective products, alternative production, customer compensation, damage compensation, investigation response, corrective measures, recurrence prevention measures, etc. In addition, a deterioration in the brand image and social credibility could lead to a decline in sales, the loss of opportunities to receive orders, a reduction in business with major customers, or an outflow of human resources. This may result in financial burdens and the loss of human resources and cause a serious negative impact on the Group’s operating results, financial position, and cash flows.
【Main countermeasures】
As part of the improvement of the internal management system through the “Nidec Rehabilitation Committee,” which was established on October 30, 2025, we began a comprehensive quality inspection of the Group’s production bases and R&D bases on January 8, 2026, with the aim of confirming the status of the quality control system and change management process, identifying quality-related issues, and considering necessary corrective measures and recurrence prevention measures. Specifically, The Company conducted interviews with employees in each production base, reviewed records of process changes, design changes, etc., and established a reporting desk (hereinafter referred to as the “Quality Feedback Channel”) for all employee to provide information on quality-related concerns. We also conducted voluntary inspections of the Group’s production activities going back to 2020. As a result of the comprehensive quality inspections, suspected misconduct was found with certain products manufactured by the Company and group companies, such as changes in materials, processes, designs, etc., that were not confirmed by customers.
As there had been reports of suspected misconduct at multiple locations, the Company determined that an objective investigation by outside experts, who have extensive experience and expertise in investigating similar cases, was necessary in order to clarify the facts in more detail, determine the causes, and consider effective improvement measures to strengthen its commitment to quality assurance, and established an investigation committee on May 13, 2026. The investigation by the Investigation Committee has been completed and we have received the investigation report on September 2, 2026.
The issues related to our corporate stance and organizational culture, such as excessive performance pressure and a culture that discourages speaking up, which were recognized as background factors behind instances of quality misconduct, share common root causes with our accounting issues. Therefore, we will continue to steadily drive the cultural reform initiatives outlined in our Improvement Plan while fostering and establishing a culture of quality compliance. Furthermore, in addition to these shared cultural issues, we will address challenges specific to quality assurance systems and processes by strengthening monitoring and deterrence mechanisms through our Quality Assurance organization.
・Fostering and Establishing a Quality Compliance Culture
We made the "Quality Suggestion Box" a permanent channel and, between July and September 2026, issued the "CQO Re-Definition Declaration" to all employees. This message conveyed our commitment to moving forward together toward proud craftsmanship that prioritizes quality and puts our customers first. In addition, at the general meeting on September 7, 2026, the CEO, CCO, and CSCO delivered a message to all employees regarding measures to prevent recurrence and restore trust. Alongside these messages, in September 2026, we conducted quality compliance training led by an external attorney for corporate management, division heads, and group company presidents. Going forward, we will roll out quality compliance training for all employees. This will serve to reemphasize that misconduct revealed in this incident, such as unauthorized changes to materials, processes, or designs without customer approval, as well as the improper handling of test and inspection data, constitutes a violation of quality compliance. We will also ensure everyone is aware of the need to report any such incidents to the appropriate report lines or submit them via the Quality Suggestion Box.
・Strengthening monitoring and deterrence mechanisms by the Quality Assurance Organization
In September 2026, we revised the Global Quality Assurance Basic Regulations to clarify the authority of Quality Assurance leaders at each division and group company to independently order shipments to be halted, separate from other departments such as manufacturing and sales. We also strengthened the involvement and control of Quality Assurance Departments regarding 4M changes and inspection processes. To confirm and ensure compliance with these regulations, our Global Quality Management Department will conduct quality audits starting in October 2026. Furthermore, we will review escalation rules and reporting lines between the Chief Quality Officer (CQO)/Headquarters Global Quality Management Divison and the Quality Assurance leaders at each business division and group company (including their respective subsidiaries), rebuilding our framework to ensure that information regarding quality compliance across the group is promptly reported to and addressed by the company.
【Risk details】
We possess a wide range of confidential and personal information of customers, business partners, and employees through our global business activities. In addition, with the progress of digital transformation (DX) at factories, intellectual property and operation data at production sites have become important assets. Appropriately protecting this information is an important management issue for ensuring competitive advantage and maintaining the trust of stakeholders. However, cyberattacks are becoming increasingly sophisticated, and information security risks may materialize due to the following factors.
- Advanced cyberattacks
Information theft and system outage due to ransomware attacks, sophisticated phishing scams and targeted attacks that exploit generative AI.
- Impact on the supply chain
The risk of a serious impact on the entire supply chain, such as the stagnation of parts supply, due to cyberattacks that cause disruptions of networks and core systems within the Group, including overseas bases.
- Internal factors
Information leakage caused by human factors such as misconduct by officers and employees, inadequate management of contractors, or setting errors.
If a serious information leakage or system failure occurs, we may have to pay large amounts of compensation or fines arising from legal liabilities, may lose the opportunity to receive orders due to the loss of social trust, and may delay deliveries due to the suspension of production lines, which may have a significant negative impact on our operating results and financial position.
【Main countermeasures】
To counter the ever-increasing threats, we are strengthening our technological and organizational defense and surveillance systems to maintain a uniform level of security throughout the Group.
- Integrate global governance and surveillance systems
A Group-wide information security management system is operated under the Chief Information Security Officer (CISO). Furthermore, through integration and centralization at the Security Operations Center (SOC), we are developing a system that monitors equipment, etc. at our sites around the world 24 hours a day, 365 days a year, and detects and responds to signs of incidents at an early stage.
- Defend the external perimeter through attack surface management
In order to prevent supply chain disruptions caused by the Company, we are strengthening our efforts to comprehensively visualize and manage the “attack surface” (public servers and external connection devices subject to cyberattacks) of the entire Group, including domestic and overseas sites. We continuously check for vulnerabilities in these assets, which is an easy entry point for cyberattacks, and quickly take corrective measures, such as applying the latest patches, to thoroughly eliminate “weak points” at the external perimeter.
- Raise employee awareness and foster a corporate culture
We are working to raise and maintain information security awareness through ongoing security education for all officers and employees (including the distribution of warning content and targeted attack email training). We also explain and comment on the latest threat trends and damage cases to prevent information leaks due to human errors.
We possess a wide range of confidential and personal information of customers, business partners, and employees through our global business activities. In addition, with the progress of digital transformation (DX) at factories, intellectual property and operation data at production sites have become important assets. Appropriately protecting this information is an important management issue for ensuring competitive advantage and maintaining the trust of stakeholders. However, cyberattacks are becoming increasingly sophisticated, and information security risks may materialize due to the following factors.
- Advanced cyberattacks
Information theft and system outage due to ransomware attacks, sophisticated phishing scams and targeted attacks that exploit generative AI.
- Impact on the supply chain
The risk of a serious impact on the entire supply chain, such as the stagnation of parts supply, due to cyberattacks that cause disruptions of networks and core systems within the Group, including overseas bases.
- Internal factors
Information leakage caused by human factors such as misconduct by officers and employees, inadequate management of contractors, or setting errors.
If a serious information leakage or system failure occurs, we may have to pay large amounts of compensation or fines arising from legal liabilities, may lose the opportunity to receive orders due to the loss of social trust, and may delay deliveries due to the suspension of production lines, which may have a significant negative impact on our operating results and financial position.
【Main countermeasures】
To counter the ever-increasing threats, we are strengthening our technological and organizational defense and surveillance systems to maintain a uniform level of security throughout the Group.
- Integrate global governance and surveillance systems
A Group-wide information security management system is operated under the Chief Information Security Officer (CISO). Furthermore, through integration and centralization at the Security Operations Center (SOC), we are developing a system that monitors equipment, etc. at our sites around the world 24 hours a day, 365 days a year, and detects and responds to signs of incidents at an early stage.
- Defend the external perimeter through attack surface management
In order to prevent supply chain disruptions caused by the Company, we are strengthening our efforts to comprehensively visualize and manage the “attack surface” (public servers and external connection devices subject to cyberattacks) of the entire Group, including domestic and overseas sites. We continuously check for vulnerabilities in these assets, which is an easy entry point for cyberattacks, and quickly take corrective measures, such as applying the latest patches, to thoroughly eliminate “weak points” at the external perimeter.
- Raise employee awareness and foster a corporate culture
We are working to raise and maintain information security awareness through ongoing security education for all officers and employees (including the distribution of warning content and targeted attack email training). We also explain and comment on the latest threat trends and damage cases to prevent information leaks due to human errors.
【Risk details】
In order to achieve sustainable growth and increase our corporate value by solving social issues, it is essential to secure technical and management human resources with a high level of expertise and diverse human resources who can play an active role on a global scale.
However, in addition to intensifying competition for human resources in Japan and overseas, there is a risk that it will be difficult to hire as planned or that we will lose existing excellent human resources due to a deterioration in our social credibility and brand value and a decline in external evaluations of our compliance-related corporate culture. In particular, if there is an outflow of specialized human resources or next-generation leaders who are responsible for inheriting proprietary technologies, it may cause a delay in research & development and adversely affect the long-term growth and operating results of the Group.
【Main countermeasures】
Based on the recognition that people are the source of our sustainable growth, we are focusing on rebuilding our foundation and retaining our human resources through the following measures.
- Reform of corporate culture and improvement of organizational climate
In order to quickly regain the trust of stakeholders and create an environment in which employees can work with pride, we are promoting company-wide reforms to increase awareness of compliance and create an open organizational culture. By communicating the progress of these initiatives in a highly transparent manner and promoting our sound governance system, we aim to establish and acquire a foothold in human resources.
- Strategic recruitment
We have drawn up a hiring plan that appropriately addresses the needs of our business divisions and clarifies our targets. In particular, in the recruitment of new graduates, we are strengthening cooperation with universities and specialized institutions, and through internship programs in cooperation with departments, we are able to quickly acquire excellent human resources.
- Career and skill development support
We encourage employees to develop their own careers through career training for managers and young employees, career interviews with managers using career sheet plans, and in-house job postings.
- Skill development support
We have introduced programs to help employees acquire knowledge and skills that are useful for their current and future work, and we support employee skill development.
- Global Human Resources Strategy Committee
Key personnel from each business and region gather together to discuss and promote personnel issues and measures that should be given global priority, such as identifying and developing with expertise, in order to realize the right person in the right place beyond the boundaries of the business and region.
In order to achieve sustainable growth and increase our corporate value by solving social issues, it is essential to secure technical and management human resources with a high level of expertise and diverse human resources who can play an active role on a global scale.
However, in addition to intensifying competition for human resources in Japan and overseas, there is a risk that it will be difficult to hire as planned or that we will lose existing excellent human resources due to a deterioration in our social credibility and brand value and a decline in external evaluations of our compliance-related corporate culture. In particular, if there is an outflow of specialized human resources or next-generation leaders who are responsible for inheriting proprietary technologies, it may cause a delay in research & development and adversely affect the long-term growth and operating results of the Group.
【Main countermeasures】
Based on the recognition that people are the source of our sustainable growth, we are focusing on rebuilding our foundation and retaining our human resources through the following measures.
- Reform of corporate culture and improvement of organizational climate
In order to quickly regain the trust of stakeholders and create an environment in which employees can work with pride, we are promoting company-wide reforms to increase awareness of compliance and create an open organizational culture. By communicating the progress of these initiatives in a highly transparent manner and promoting our sound governance system, we aim to establish and acquire a foothold in human resources.
- Strategic recruitment
We have drawn up a hiring plan that appropriately addresses the needs of our business divisions and clarifies our targets. In particular, in the recruitment of new graduates, we are strengthening cooperation with universities and specialized institutions, and through internship programs in cooperation with departments, we are able to quickly acquire excellent human resources.
- Career and skill development support
We encourage employees to develop their own careers through career training for managers and young employees, career interviews with managers using career sheet plans, and in-house job postings.
- Skill development support
We have introduced programs to help employees acquire knowledge and skills that are useful for their current and future work, and we support employee skill development.
- Global Human Resources Strategy Committee
Key personnel from each business and region gather together to discuss and promote personnel issues and measures that should be given global priority, such as identifying and developing with expertise, in order to realize the right person in the right place beyond the boundaries of the business and region.
【Risk details】
We are prioritizing the investment of business resources in the development of cutting-edge technology with a focus on solving social issues in high-growth fields such as AI server cooling, aerospace (defense), humanoid robots, energy storage (BESS), and semiconductor-related industries. However, R&D activities involve the following risks.
- Risk of obsolescence of R&D assets due to discontinuous changes in technology
In areas where the pace of technological innovations is extremely rapid, if discontinuous innovations (discontinuous technological changes) occur or if the transition to “system solutions,” in which hardware and software are highly integrated, is delayed, there is a risk that the technological assets and research & development investment accumulated in advance will rapidly become obsolete.
- Risk of incompatible development resources due to misreading of market trends
Failure to capture technological trends and changing market needs in a timely and accurate manner may result in an inability to quickly allocate resources to high-growth areas, resulting in our development speed being behind our competitors’ and a loss of future market position.
- Risk of loss of capital efficiency (EV) due to diversification of R&D investment
There is a risk that the efficiency of R&D investments will decline and the creation of medium- to long-term corporate value will be impeded if there is duplication of elemental technology development among business divisions or if resources continue to be poured into R&D in commoditized general-purpose product fields.
【Main countermeasures】
In order to maximize the efficiency of research & development investment and make the competitive advantage permanent, we are taking the following measures in the R&D sector:
- Ensure self-evolving R&D governance and strict stage-gate discipline
We evaluate the return on investment of all R&D projects based on their contribution to ROIC and corporate value. In the development process, we will introduce a “stage-gate system” and thoroughly enforce discipline in shifting resources from R&D in low-growth projects with lower WACC and commoditized businesses with little future revenue to high-growth fields.
- Maximizing development efficiency through a common technology platform across business divisions
Based on core technologies such as “rotating/moving,” “thermal management,” and “energy conversion,” we are building a “common technology platform” that transcends the boundaries of each business division to share product and production technology assets. This will eliminate the duplication of elemental technology development, accelerate development speed and maximize investment efficiency at the same time.
- Strategic shift of resources to the high-certification, high-reliability market
We will shift R&D resources to hard-to-imitate domains that require extremely high levels of certification and reliability, such as aerospace (eVTOL) and healthcare. As a result, we will establish high-value-added system solutions that combine hardware and software and build strong entry barriers.
We are prioritizing the investment of business resources in the development of cutting-edge technology with a focus on solving social issues in high-growth fields such as AI server cooling, aerospace (defense), humanoid robots, energy storage (BESS), and semiconductor-related industries. However, R&D activities involve the following risks.
- Risk of obsolescence of R&D assets due to discontinuous changes in technology
In areas where the pace of technological innovations is extremely rapid, if discontinuous innovations (discontinuous technological changes) occur or if the transition to “system solutions,” in which hardware and software are highly integrated, is delayed, there is a risk that the technological assets and research & development investment accumulated in advance will rapidly become obsolete.
- Risk of incompatible development resources due to misreading of market trends
Failure to capture technological trends and changing market needs in a timely and accurate manner may result in an inability to quickly allocate resources to high-growth areas, resulting in our development speed being behind our competitors’ and a loss of future market position.
- Risk of loss of capital efficiency (EV) due to diversification of R&D investment
There is a risk that the efficiency of R&D investments will decline and the creation of medium- to long-term corporate value will be impeded if there is duplication of elemental technology development among business divisions or if resources continue to be poured into R&D in commoditized general-purpose product fields.
【Main countermeasures】
In order to maximize the efficiency of research & development investment and make the competitive advantage permanent, we are taking the following measures in the R&D sector:
- Ensure self-evolving R&D governance and strict stage-gate discipline
We evaluate the return on investment of all R&D projects based on their contribution to ROIC and corporate value. In the development process, we will introduce a “stage-gate system” and thoroughly enforce discipline in shifting resources from R&D in low-growth projects with lower WACC and commoditized businesses with little future revenue to high-growth fields.
- Maximizing development efficiency through a common technology platform across business divisions
Based on core technologies such as “rotating/moving,” “thermal management,” and “energy conversion,” we are building a “common technology platform” that transcends the boundaries of each business division to share product and production technology assets. This will eliminate the duplication of elemental technology development, accelerate development speed and maximize investment efficiency at the same time.
- Strategic shift of resources to the high-certification, high-reliability market
We will shift R&D resources to hard-to-imitate domains that require extremely high levels of certification and reliability, such as aerospace (eVTOL) and healthcare. As a result, we will establish high-value-added system solutions that combine hardware and software and build strong entry barriers.
【Risk details】
We procure most of the raw materials (steel, copper, aluminum, rare earths, etc.) and electronic components that are indispensable for the manufacture of products from outside sources. If the supply and demand conditions for these materials deteriorate extremely, it could cause production plans to stagnate or delivery times to be delayed and have a serious impact on operating results. Especially in recent years, the following factors have complicated procurement risks:
- Geopolitical tensions and tariff barriers
There is a risk that existing procurement channels will become difficult to maintain or that procurement costs will rise sharply due to export restrictions resulting from confrontations between countries or the introduction of high tariff measures (tariff barriers) on imports from specific countries or regions.
- Policy changes related to economic security
From the perspective of environmental protection, human rights protection (the elimination of forced labor), or national security, there is a possibility that procurement constraints will arise due to the need to adapt to stricter regulations by governments around the world on the traceability of raw materials origin and parts.
- Disruption of the supply chain
There is a risk of supply disruptions due to logistics network disruptions caused by regional conflicts and large-scale disasters, or excessive dependence on a particular supplier.
【Main countermeasures】
We are strengthening the following measures to build a resilient supply chain that can withstand drastic changes in the procurement environment.
- Multi-sourcing and geographical diversification of suppliers
We are building a global procurement system based on the principle of “local production for local consumption (Made in Market)” that does not depend on any particular suppliers, countries or regions. This allows us to quickly source from alternative routes in the event of supply disruptions due to geopolitical risks or tariff measures.
- Thorough implementation of sustainable procurement (ESG due diligence)
When selecting suppliers, in addition to quality, price, and delivery times, we strictly pre-assess that consideration is given to environmental impact, compliance with human rights, the working environment, and resource availability (responsible procurement of minerals, etc.). We are focusing on improving the transparency of the entire supply chain to respond quickly to regulatory changes.
- Secure stability through strategic inventory management and long-term contracts
We have entered into long-term contracts to ensure priority allocation and price stability for critical raw materials and low-utility components. In addition, we are increasing our resilience to sudden changes in demand and distribution risks by optimally allocating safety stocks and diversifying procurement sites based on demand forecasts using AI.
- Promote the development of alternative materials and technologies
For materials (such as rare earths) with a risk of export restrictions from specific countries, we are promoting product design that is unaffected by changes in the external environment by developing technology to reduce the amount used and accelerating the switch to alternative materials.
We procure most of the raw materials (steel, copper, aluminum, rare earths, etc.) and electronic components that are indispensable for the manufacture of products from outside sources. If the supply and demand conditions for these materials deteriorate extremely, it could cause production plans to stagnate or delivery times to be delayed and have a serious impact on operating results. Especially in recent years, the following factors have complicated procurement risks:
- Geopolitical tensions and tariff barriers
There is a risk that existing procurement channels will become difficult to maintain or that procurement costs will rise sharply due to export restrictions resulting from confrontations between countries or the introduction of high tariff measures (tariff barriers) on imports from specific countries or regions.
- Policy changes related to economic security
From the perspective of environmental protection, human rights protection (the elimination of forced labor), or national security, there is a possibility that procurement constraints will arise due to the need to adapt to stricter regulations by governments around the world on the traceability of raw materials origin and parts.
- Disruption of the supply chain
There is a risk of supply disruptions due to logistics network disruptions caused by regional conflicts and large-scale disasters, or excessive dependence on a particular supplier.
【Main countermeasures】
We are strengthening the following measures to build a resilient supply chain that can withstand drastic changes in the procurement environment.
- Multi-sourcing and geographical diversification of suppliers
We are building a global procurement system based on the principle of “local production for local consumption (Made in Market)” that does not depend on any particular suppliers, countries or regions. This allows us to quickly source from alternative routes in the event of supply disruptions due to geopolitical risks or tariff measures.
- Thorough implementation of sustainable procurement (ESG due diligence)
When selecting suppliers, in addition to quality, price, and delivery times, we strictly pre-assess that consideration is given to environmental impact, compliance with human rights, the working environment, and resource availability (responsible procurement of minerals, etc.). We are focusing on improving the transparency of the entire supply chain to respond quickly to regulatory changes.
- Secure stability through strategic inventory management and long-term contracts
We have entered into long-term contracts to ensure priority allocation and price stability for critical raw materials and low-utility components. In addition, we are increasing our resilience to sudden changes in demand and distribution risks by optimally allocating safety stocks and diversifying procurement sites based on demand forecasts using AI.
- Promote the development of alternative materials and technologies
For materials (such as rare earths) with a risk of export restrictions from specific countries, we are promoting product design that is unaffected by changes in the external environment by developing technology to reduce the amount used and accelerating the switch to alternative materials.
【Risk details】
Although we protect our core technologies through intellectual property rights to maintain their superiority, we are aware of the following risks.
- A risk that we may be required to pay a large amount of damages, an injunction, or unreasonable license fees (royalties) after a third-party claims that our products infringe on its intellectual property rights.
- A risk that a past intellectual property dispute will surface or there will be a deficiency in the intellectual property management system in a business newly entered through M&A.
- A risk of improper leakage of manufacturing know-how and trade secrets accumulated over many years through employee mobility and joint development.
- A risk that existing intellectual property rights may become invalid due to differences in the legal systems in each country.
【Main countermeasures】
We have taken the following measures to minimize risks related to intellectual property.
- From the initial stage of product development, we conduct comprehensive and ongoing investigations into the intellectual property rights of third parties to eliminate the risk of infringing on their intellectual property rights. When necessary, we cooperate with external law firms to respond promptly and appropriately.
- To maintain competitiveness by protecting our proprietary technologies, we actively acquire, maintain and manage intellectual property rights related to our core technologies, monitor product operations of other companies, and protect our business activities. In addition, we thoroughly educate employees on information management to prevent leaks of confidential information.
- We strengthen the protection of international business by acquiring, maintaining and managing intellectual property rights appropriately in accordance with the intellectual property rights legal systems of each country.
Through these measures, we aim to minimize risks related to intellectual property and achieve sustainable business growth.
Although we protect our core technologies through intellectual property rights to maintain their superiority, we are aware of the following risks.
- A risk that we may be required to pay a large amount of damages, an injunction, or unreasonable license fees (royalties) after a third-party claims that our products infringe on its intellectual property rights.
- A risk that a past intellectual property dispute will surface or there will be a deficiency in the intellectual property management system in a business newly entered through M&A.
- A risk of improper leakage of manufacturing know-how and trade secrets accumulated over many years through employee mobility and joint development.
- A risk that existing intellectual property rights may become invalid due to differences in the legal systems in each country.
【Main countermeasures】
We have taken the following measures to minimize risks related to intellectual property.
- From the initial stage of product development, we conduct comprehensive and ongoing investigations into the intellectual property rights of third parties to eliminate the risk of infringing on their intellectual property rights. When necessary, we cooperate with external law firms to respond promptly and appropriately.
- To maintain competitiveness by protecting our proprietary technologies, we actively acquire, maintain and manage intellectual property rights related to our core technologies, monitor product operations of other companies, and protect our business activities. In addition, we thoroughly educate employees on information management to prevent leaks of confidential information.
- We strengthen the protection of international business by acquiring, maintaining and managing intellectual property rights appropriately in accordance with the intellectual property rights legal systems of each country.
Through these measures, we aim to minimize risks related to intellectual property and achieve sustainable business growth.
【Risk details】
As the pace of global expansion accelerates, our corporate social responsibility to respect human rights is regarded as extremely important. If human rights due diligence is deemed to be insufficient, or if trends in our social credibility and other factors raise doubts about our stance on human rights, there is a risk that external evaluations will decline significantly. In addition to legal sanctions and damage to brand value, these could lead to exclusion from the global supply chain and boycotts, affecting our revenue, market share and business continuity.
【Main countermeasures】
We recognize the importance of respecting human rights based on international guidelines. In addition to prohibiting forced labor and child labor, eliminating discrimination, and ensuring appropriate working conditions, we use our supply chain to implement initiatives that involve business partners and suppliers. Specific activities are as follows.
- Thoroughly implement human rights policies
As part of our efforts to make management more transparent and restore trust, we continue to ensure that all executive officers, employees and business partners are well informed based on the Nidec Group Basic Policies on Human Rights. Based on the revision of the Basic Policies in 2024, we are working to foster compliance awareness in response to the latest social conditions, strengthening supervisory functions by the Board of Directors, and placing respect for human rights at the core of management.
- Improve the effectiveness of human rights due diligence
The Group and supply chain self-assessments (SAQ) are conducted on an ongoing basis. Based on the collected data, in the event of a negative impact on human rights, risks are assessed with two axes of “severity” and “probability of occurrence,” and responses are clearly prioritized. Based on the results of surveys conducted at approximately 300 sites and major suppliers in fiscal 2023, we designated the Southeast Asian region as a priority area in fiscal 2024. We have increased the accuracy of information through direct interviews to the local sites and have begun collecting information to identify and assess risks according to regional characteristics.
- Develop a system to address human rights
We are committed to improving the workplace environment and raising awareness of human rights through regular monitoring, education, and training programs. In the event of any incident, we have developed a system to ensure prompt corrective action and remediation. In particular, we are working to identify potential risks at an early stage by raising awareness of the whistle-blowing system and strengthening whistle-blower protection. In addition, we discontinue, prevent, and mitigate negative impacts on human rights via daily activities by the Sustainability Promotion Meeting, chaired by the President, and by the Human Rights Subcommittee, which comprises departments in charge of human rights issues. The Human Rights Subcommittee’s actions are supervised by the Sustainability Committee, composed of the members of the Board, to which reports are submitted regularly. Furthermore, reports to the Sustainability Committee are submitted to the Board of Directors by the Committee’s chair.
As the pace of global expansion accelerates, our corporate social responsibility to respect human rights is regarded as extremely important. If human rights due diligence is deemed to be insufficient, or if trends in our social credibility and other factors raise doubts about our stance on human rights, there is a risk that external evaluations will decline significantly. In addition to legal sanctions and damage to brand value, these could lead to exclusion from the global supply chain and boycotts, affecting our revenue, market share and business continuity.
【Main countermeasures】
We recognize the importance of respecting human rights based on international guidelines. In addition to prohibiting forced labor and child labor, eliminating discrimination, and ensuring appropriate working conditions, we use our supply chain to implement initiatives that involve business partners and suppliers. Specific activities are as follows.
- Thoroughly implement human rights policies
As part of our efforts to make management more transparent and restore trust, we continue to ensure that all executive officers, employees and business partners are well informed based on the Nidec Group Basic Policies on Human Rights. Based on the revision of the Basic Policies in 2024, we are working to foster compliance awareness in response to the latest social conditions, strengthening supervisory functions by the Board of Directors, and placing respect for human rights at the core of management.
- Improve the effectiveness of human rights due diligence
The Group and supply chain self-assessments (SAQ) are conducted on an ongoing basis. Based on the collected data, in the event of a negative impact on human rights, risks are assessed with two axes of “severity” and “probability of occurrence,” and responses are clearly prioritized. Based on the results of surveys conducted at approximately 300 sites and major suppliers in fiscal 2023, we designated the Southeast Asian region as a priority area in fiscal 2024. We have increased the accuracy of information through direct interviews to the local sites and have begun collecting information to identify and assess risks according to regional characteristics.
- Develop a system to address human rights
We are committed to improving the workplace environment and raising awareness of human rights through regular monitoring, education, and training programs. In the event of any incident, we have developed a system to ensure prompt corrective action and remediation. In particular, we are working to identify potential risks at an early stage by raising awareness of the whistle-blowing system and strengthening whistle-blower protection. In addition, we discontinue, prevent, and mitigate negative impacts on human rights via daily activities by the Sustainability Promotion Meeting, chaired by the President, and by the Human Rights Subcommittee, which comprises departments in charge of human rights issues. The Human Rights Subcommittee’s actions are supervised by the Sustainability Committee, composed of the members of the Board, to which reports are submitted regularly. Furthermore, reports to the Sustainability Committee are submitted to the Board of Directors by the Committee’s chair.
【Risk details】
We operate globally, and most of our sales are made in currencies other than Japanese yen, such as the U.S. dollar, euro, Chinese yuan, and Thai baht. As a result, fluctuations in foreign exchange rates may have a direct impact on our operating results. If the yen appreciates, sales outside Japan will decline on a yen equivalent basis, resulting in pressure on operating profit and net income. Also, when we integrate the performance of our foreign subsidiaries into the consolidated financial statements operations, the impact of exchange rate fluctuations is significant, and currency instability, particularly in emerging markets, is a risk factor. In addition, there are concerns that fluctuations in assets and liabilities denominated in foreign currencies may generate foreign exchange gains and losses and have a negative impact on financial conditions.
【Main countermeasures】
We have taken the following measures to minimize risks related to exchange rates.
- Offset sales and purchase transactions are denominated in foreign currencies and utilize natural hedges.
- Periodically monitor the status of foreign exchange risks and review transaction currencies as necessary.
- Diversify risk by conducting transactions in various currencies in overseas markets and reducing dependence on specific currencies.
We operate globally, and most of our sales are made in currencies other than Japanese yen, such as the U.S. dollar, euro, Chinese yuan, and Thai baht. As a result, fluctuations in foreign exchange rates may have a direct impact on our operating results. If the yen appreciates, sales outside Japan will decline on a yen equivalent basis, resulting in pressure on operating profit and net income. Also, when we integrate the performance of our foreign subsidiaries into the consolidated financial statements operations, the impact of exchange rate fluctuations is significant, and currency instability, particularly in emerging markets, is a risk factor. In addition, there are concerns that fluctuations in assets and liabilities denominated in foreign currencies may generate foreign exchange gains and losses and have a negative impact on financial conditions.
【Main countermeasures】
We have taken the following measures to minimize risks related to exchange rates.
- Offset sales and purchase transactions are denominated in foreign currencies and utilize natural hedges.
- Periodically monitor the status of foreign exchange risks and review transaction currencies as necessary.
- Diversify risk by conducting transactions in various currencies in overseas markets and reducing dependence on specific currencies.
【Risk details】
We hold long term and short term receivables and interest bearing liabilities with fixed and variable interest rates. Changes in these interest rates could have a material impact on funding costs and revenue from investments. A rise in interest rates could increase borrowing costs and have a direct negative impact on operating profit ratio and cash flows.
【Main countermeasures】
We have taken the following measures to minimize risks related to interest rates.
- Utilize derivative products such as interest swaps and interest options to ensure predictable funding costs.
- Monitor interest rates on a regular basis and diversify risks by reviewing the composition of assets and liabilities. Also optimize the ratio of interest sensitive assets and liabilities.
- For long term cash planning, conduct stress tests assuming multiple scenarios to assess resilience to interest rate fluctuations, thereby supporting prompt decision making.
- Pay close attention to economic trends and changes in monetary policy and flexibly review our funding strategy as necessary.
- Mitigates the risk of being forced to refinance large-scale borrowings in a high-interest-rate environment by smoothing out funding periods so that repayments and maturities in borrowings and bonds payable are not concentrated in a specific period.
We hold long term and short term receivables and interest bearing liabilities with fixed and variable interest rates. Changes in these interest rates could have a material impact on funding costs and revenue from investments. A rise in interest rates could increase borrowing costs and have a direct negative impact on operating profit ratio and cash flows.
【Main countermeasures】
We have taken the following measures to minimize risks related to interest rates.
- Utilize derivative products such as interest swaps and interest options to ensure predictable funding costs.
- Monitor interest rates on a regular basis and diversify risks by reviewing the composition of assets and liabilities. Also optimize the ratio of interest sensitive assets and liabilities.
- For long term cash planning, conduct stress tests assuming multiple scenarios to assess resilience to interest rate fluctuations, thereby supporting prompt decision making.
- Pay close attention to economic trends and changes in monetary policy and flexibly review our funding strategy as necessary.
- Mitigates the risk of being forced to refinance large-scale borrowings in a high-interest-rate environment by smoothing out funding periods so that repayments and maturities in borrowings and bonds payable are not concentrated in a specific period.
【Risk details】
We rely primarily on borrowings from financial institutions and direct equity financing from financial markets to finance our growth and operations. There is a risk that financial institutions may tighten their lending conditions or restrict their funding opportunities due to fluctuations in financial markets and uncertainties in the economic environment. In particular, if the global economic situation worsens, credit ratings decline and investors become more risk averse, increasing the possibility that the necessary funds cannot be raised under suitable conditions. This situation can result in a shortage of working capital and delays in capital investment, which can have a serious impact on the growth strategy and competitiveness of the business. In addition, there are concerns that an increase in funding costs and a deterioration in cash flow will lead to a deterioration in financial conditions.
【Main countermeasures】
We have taken the following measures to minimize risks related to the liquidity of funds.
- Secure liquidity
In preparation for unexpected demand for funds due to turmoil in the financial markets, we have established commitment line agreements with our main financial institutions to ensure sufficient liquidity to continue business.
- Diversify funding
Consider financing methods such as bank loans and the issuance of bonds to broaden the sources of funding. In particular, develop a long term funding plan and regularly conduct stress tests to mitigate risks to short-term funding needs.
- Efficient management of working capital
By reviewing our inventory management and accounts receivable collection processes, we stabilize our cash flow and create a system that can respond quickly to sudden demands for funds.
- Maintain and improve credit ratings
Promote management that emphasizes financial soundness and conduct highly transparent financial reporting.
- Global cash management system:
Aim to efficiently allocate funds by consolidating surplus funds in each region.
We rely primarily on borrowings from financial institutions and direct equity financing from financial markets to finance our growth and operations. There is a risk that financial institutions may tighten their lending conditions or restrict their funding opportunities due to fluctuations in financial markets and uncertainties in the economic environment. In particular, if the global economic situation worsens, credit ratings decline and investors become more risk averse, increasing the possibility that the necessary funds cannot be raised under suitable conditions. This situation can result in a shortage of working capital and delays in capital investment, which can have a serious impact on the growth strategy and competitiveness of the business. In addition, there are concerns that an increase in funding costs and a deterioration in cash flow will lead to a deterioration in financial conditions.
【Main countermeasures】
We have taken the following measures to minimize risks related to the liquidity of funds.
- Secure liquidity
In preparation for unexpected demand for funds due to turmoil in the financial markets, we have established commitment line agreements with our main financial institutions to ensure sufficient liquidity to continue business.
- Diversify funding
Consider financing methods such as bank loans and the issuance of bonds to broaden the sources of funding. In particular, develop a long term funding plan and regularly conduct stress tests to mitigate risks to short-term funding needs.
- Efficient management of working capital
By reviewing our inventory management and accounts receivable collection processes, we stabilize our cash flow and create a system that can respond quickly to sudden demands for funds.
- Maintain and improve credit ratings
Promote management that emphasizes financial soundness and conduct highly transparent financial reporting.
- Global cash management system:
Aim to efficiently allocate funds by consolidating surplus funds in each region.
【Risk details】
We must assess on an ongoing basis whether deferred tax assets are recoverable from future taxable profit. Changes in economic conditions, deterioration in business performance, or the introduction of new regulations may significantly affect the recoverability of deferred tax assets. As a result, there is a risk that we may determine that some or all its deferred tax assets are unrecoverable, which could result in a decrease in income. In particular, there are concerns that intensifying competition and market fluctuations could exert a material impact on our financial soundness.
【Main countermeasures】
We have taken the following measures to minimize risks related to deferred tax assets uncertainty.
- Conduct periodic reviews of the recoverability of deferred tax assets and develop a framework for reviewing the amounts in response to performance and market trends.
- In formulating tax strategy, we analyze the future taxable income prospects in detail and visualize risks through scenario planning.
- In cooperation with specialized tax advisors, strengthen information gathering based on the latest tax reforms and industry trends, and build a system to support prompt decision making.
We must assess on an ongoing basis whether deferred tax assets are recoverable from future taxable profit. Changes in economic conditions, deterioration in business performance, or the introduction of new regulations may significantly affect the recoverability of deferred tax assets. As a result, there is a risk that we may determine that some or all its deferred tax assets are unrecoverable, which could result in a decrease in income. In particular, there are concerns that intensifying competition and market fluctuations could exert a material impact on our financial soundness.
【Main countermeasures】
We have taken the following measures to minimize risks related to deferred tax assets uncertainty.
- Conduct periodic reviews of the recoverability of deferred tax assets and develop a framework for reviewing the amounts in response to performance and market trends.
- In formulating tax strategy, we analyze the future taxable income prospects in detail and visualize risks through scenario planning.
- In cooperation with specialized tax advisors, strengthen information gathering based on the latest tax reforms and industry trends, and build a system to support prompt decision making.
4. Contingency risk
【Risk details】
Natural disasters (earthquakes, typhoons, floods, etc.) and man made disasters (wars, conflicts, terrorism, etc.) can have a serious impact on corporate activities in Japan and overseas where we conduct business. In particular, if a large scale disaster occurs in an area where major manufacturing sites and supply chains are concentrated, product manufacture and supply may stagnate, resulting in delays in delivery to customers and higher production costs. As a result, our brand image and customer confidence may decline, adversely affecting revenue in the long term.
【Main countermeasures】
We have taken the following measures to minimize risks related to natural and man made disasters.
- Risk monitoring
Risk Officers at each of our business sites around the world play a central role in the early detection of factors that could hinder business continuity and the appropriate response.
- Risk diversification
Work to minimize the impact of a disaster by geographically dispersing our production sites and duplicating our supply chain.
- Risk transfer
Purchase non life insurance to reduce the financial impact when damage occurs.
- Business continuity management
Develop a Business Continuity Plan (BCP) and conduct training at domestic and overseas sites to prepare for business interruptions.
Natural disasters (earthquakes, typhoons, floods, etc.) and man made disasters (wars, conflicts, terrorism, etc.) can have a serious impact on corporate activities in Japan and overseas where we conduct business. In particular, if a large scale disaster occurs in an area where major manufacturing sites and supply chains are concentrated, product manufacture and supply may stagnate, resulting in delays in delivery to customers and higher production costs. As a result, our brand image and customer confidence may decline, adversely affecting revenue in the long term.
【Main countermeasures】
We have taken the following measures to minimize risks related to natural and man made disasters.
- Risk monitoring
Risk Officers at each of our business sites around the world play a central role in the early detection of factors that could hinder business continuity and the appropriate response.
- Risk diversification
Work to minimize the impact of a disaster by geographically dispersing our production sites and duplicating our supply chain.
- Risk transfer
Purchase non life insurance to reduce the financial impact when damage occurs.
- Business continuity management
Develop a Business Continuity Plan (BCP) and conduct training at domestic and overseas sites to prepare for business interruptions.
【Risk details】
Climate change is a serious threat to our business’s sustainability and competitiveness, particularly in the manufacturing sector. The materialization of the following risk events could have a material adverse effect on our financial condition. Please refer to “Ⅱ. Business Overview, 2. Views and Initiatives on Sustainability, (Reference) Major climate change risks, opportunities, and mitigation approaches” for details on risks and measures related to climate change.
【Main countermeasures】
Please refer to “Ⅱ. Business Overview, 2. Views and Initiatives on Sustainability, (Reference) Major climate change risks, opportunities, and mitigation approaches”.
Climate change is a serious threat to our business’s sustainability and competitiveness, particularly in the manufacturing sector. The materialization of the following risk events could have a material adverse effect on our financial condition. Please refer to “Ⅱ. Business Overview, 2. Views and Initiatives on Sustainability, (Reference) Major climate change risks, opportunities, and mitigation approaches” for details on risks and measures related to climate change.
【Main countermeasures】
Please refer to “Ⅱ. Business Overview, 2. Views and Initiatives on Sustainability, (Reference) Major climate change risks, opportunities, and mitigation approaches”.
5. Risks for foreign investors
【Risk details】
Our Articles of Incorporation provide that 100 shares of our stock constitute one "unit". The Companies Act of Japan imposes significant restrictions and limitations on holdings of shares that constitute less than a whole unit. Holders of shares constituting less than a unit do not have the right to vote. A shareholder who owns shares representing less than one unit will not be able to exercise any rights relating to voting rights, such as the right to participate in a demand for the resignation of a director, the right to participate in a demand for the convocation of a general meeting of shareholders and the right to join with other shareholders to propose an agenda item to be addressed at a general meeting of shareholders. Under the unit share system, holders of shares constituting less than a unit have the right to require us to purchase their shares. However, holders of the American Depositary Shares ("ADSs") that represent other than multiples of whole units cannot withdraw the underlying shares representing less than one unit and, therefore, they will be unable to exercise the right to require us to purchase the underlying shares. As a result, holders of ADSs representing shares in lots of less than one unit may not have access to the Japanese markets to sell their shares through the withdrawal mechanism.
Our Articles of Incorporation provide that 100 shares of our stock constitute one "unit". The Companies Act of Japan imposes significant restrictions and limitations on holdings of shares that constitute less than a whole unit. Holders of shares constituting less than a unit do not have the right to vote. A shareholder who owns shares representing less than one unit will not be able to exercise any rights relating to voting rights, such as the right to participate in a demand for the resignation of a director, the right to participate in a demand for the convocation of a general meeting of shareholders and the right to join with other shareholders to propose an agenda item to be addressed at a general meeting of shareholders. Under the unit share system, holders of shares constituting less than a unit have the right to require us to purchase their shares. However, holders of the American Depositary Shares ("ADSs") that represent other than multiples of whole units cannot withdraw the underlying shares representing less than one unit and, therefore, they will be unable to exercise the right to require us to purchase the underlying shares. As a result, holders of ADSs representing shares in lots of less than one unit may not have access to the Japanese markets to sell their shares through the withdrawal mechanism.
【Risk details】
Our Articles of Incorporation, Regulations of the Board of Directors, Share Trading Regulations and the other related regulations, as well as the Companies Act govern our corporate affairs. Legal principles relating to such matters as the validity of corporate procedures, directors’ and officers’ fiduciary duties and shareholders’ rights may be different from those that would apply if we were a non Japanese company. Shareholders’ rights under Japanese law may not be as extensive as shareholders’ rights under the laws of other countries or jurisdictions within the United States. Shareholders may have more difficulty in asserting their rights as a shareholder than they would as a shareholder of a corporation organized in another jurisdiction. In addition, Japanese courts may not be willing to enforce liabilities against us in actions brought in Japan that are based upon the securities laws of the United States or any U.S. state.
Our Articles of Incorporation, Regulations of the Board of Directors, Share Trading Regulations and the other related regulations, as well as the Companies Act govern our corporate affairs. Legal principles relating to such matters as the validity of corporate procedures, directors’ and officers’ fiduciary duties and shareholders’ rights may be different from those that would apply if we were a non Japanese company. Shareholders’ rights under Japanese law may not be as extensive as shareholders’ rights under the laws of other countries or jurisdictions within the United States. Shareholders may have more difficulty in asserting their rights as a shareholder than they would as a shareholder of a corporation organized in another jurisdiction. In addition, Japanese courts may not be willing to enforce liabilities against us in actions brought in Japan that are based upon the securities laws of the United States or any U.S. state.
【Risk details】
The rights of the shareholders under Japanese law to take actions, including voting their shares, receiving dividends and distributions, bringing derivative actions, examining our accounting books and records and exercising appraisal rights are available only to holders of record. Because the depositary, through its custodian agent, is the record holder of the shares underlying the ADSs, only the depositary can exercise those rights in connection with the deposited shares. The depositary will make efforts to vote the shares underlying ADSs as instructed by the ADS holder and will pay to ADS holders the dividends and distributions collected from us. However, as an ADS holder, shareholders will not be able to bring a derivative action, examine our accounting books and records or exercise appraisal rights in their capacity as ADS holder.
The rights of the shareholders under Japanese law to take actions, including voting their shares, receiving dividends and distributions, bringing derivative actions, examining our accounting books and records and exercising appraisal rights are available only to holders of record. Because the depositary, through its custodian agent, is the record holder of the shares underlying the ADSs, only the depositary can exercise those rights in connection with the deposited shares. The depositary will make efforts to vote the shares underlying ADSs as instructed by the ADS holder and will pay to ADS holders the dividends and distributions collected from us. However, as an ADS holder, shareholders will not be able to bring a derivative action, examine our accounting books and records or exercise appraisal rights in their capacity as ADS holder.
【Risk details】
Stock prices on Japanese stock exchanges are determined on a real time basis by the equilibrium between bids and offers. These exchanges are order driven markets without specialists or market makers to guide price formation. To prevent excessive volatility, these exchanges set daily upward and downward price fluctuation limits for each stock, based on the previous day’s closing price. Although transactions may continue at the upward or downward limit price if the limit price is reached on a particular trading day, no transactions may take place outside these limits. Consequently, an investor wishing to sell at a price above or below the relevant daily limit may not be able to sell his or her shares at such price on a particular trading day, or at all.
Stock prices on Japanese stock exchanges are determined on a real time basis by the equilibrium between bids and offers. These exchanges are order driven markets without specialists or market makers to guide price formation. To prevent excessive volatility, these exchanges set daily upward and downward price fluctuation limits for each stock, based on the previous day’s closing price. Although transactions may continue at the upward or downward limit price if the limit price is reached on a particular trading day, no transactions may take place outside these limits. Consequently, an investor wishing to sell at a price above or below the relevant daily limit may not be able to sell his or her shares at such price on a particular trading day, or at all.
【Risk details】
Market prices for our ADSs may fall if the value of the yen declines against the U.S. dollar. In addition, the U.S. dollar amount of cash dividends and other cash payments made to holders of our ADSs would be reduced if the value of the yen declines against the U.S. dollar.
Market prices for our ADSs may fall if the value of the yen declines against the U.S. dollar. In addition, the U.S. dollar amount of cash dividends and other cash payments made to holders of our ADSs would be reduced if the value of the yen declines against the U.S. dollar.
【Risk details】
We are a limited liability, joint stock corporation incorporated under the laws of Japan. Most of our members of the Board of Directors or members of the Audit and Supervisory Board reside in Japan. A substantial portion of our assets and all or substantially all of the assets of these persons are located in Japan and elsewhere outside the United States. It may not be possible, therefore, for investors to effect service of process within the United States upon us or these persons or to enforce against us or these persons judgment obtained in United States courts predicated upon the civil liability provisions of the federal securities laws of the United States. There is doubt as to the enforceability in Japan, in original actions for enforcement of judgments of United States courts, of liabilities predicated solely upon the federal securities laws of the United States.
We are a limited liability, joint stock corporation incorporated under the laws of Japan. Most of our members of the Board of Directors or members of the Audit and Supervisory Board reside in Japan. A substantial portion of our assets and all or substantially all of the assets of these persons are located in Japan and elsewhere outside the United States. It may not be possible, therefore, for investors to effect service of process within the United States upon us or these persons or to enforce against us or these persons judgment obtained in United States courts predicated upon the civil liability provisions of the federal securities laws of the United States. There is doubt as to the enforceability in Japan, in original actions for enforcement of judgments of United States courts, of liabilities predicated solely upon the federal securities laws of the United States.