The Company That's Investigating Whether to Sue Itself

Here is the setup: a single individual shareholder has twice asked Nidec Corporation to sue its own former directors. Nidec has twice announced that it received the request. And the clock is ticking.

The second demand arrived on July 16. It was filed under Article 847 of Japan's Companies Act, which lets any shareholder who has held stock continuously for six months demand that the company pursue legal liability against its directors. If the company doesn't file suit within 60 days, the shareholder can file it himself. The damages, if recovered, go to the company, not the shareholder.

This is the second time this particular shareholder has done this. The first demand, announced March 30, covered the broad accounting irregularities the company has been untangling for a year. The July 16 demand is narrower and older: it targets the 2023 episode when Nidec paid an interim dividend and bought back shares that, according to its own later reckoning, exceeded the amount the company was legally allowed to distribute.

What is odd about this is not that a shareholder is pushing for accountability. It's the shape of the machine Nidec has built around the request.

Nidec announced on March 13 that it created an Officer Liability Investigation Committee to decide whether current and former directors, auditors, and executive officers bear legal liability for the accounting misconduct. The committee's job is to examine whether these people breached their duties and then recommend whether the company should pursue damages.

The basic point is that the company has set up a committee to decide whether to sue itself - or more precisely, the people who ran it - while an outside shareholder watches the 60-day clock on two separate demands.

It's a funny structure. You can imagine the internal dialogue.

Committee: We need to determine whether to bring legal action against certain directors. Shareholder: I'm making my demand now. You have 60 days. After that, I'll file it myself. Committee: We'll let you know.

The Article 847 mechanism is designed precisely for this situation. It exists because a company whose directors are under investigation might not be eager to sue those directors. The law gives a shareholder the procedural right to step in if the company stalls. The stamp tax to file a derivative suit in Japan is fixed at 13,000 yen - about $85 - regardless of how large the claim is, which is part of the system's design: it's supposed to be easy for a small holder to trigger it.

To understand what the shareholder is asking the company to sue for, you need the background. The accounting scandal at Nidec has been expanding since September 2025, when an independent third-party committee was established after the Tokyo Stock Exchange grew concerned.

The committee's final report, delivered April 17, found misconduct across multiple accounting categories at numerous business bases:

• Inventory with virtually no future use or sales value was kept on the books as if it were viable, to avoid writing it down.
• Unlikely sales plans were used as the basis for fixed-asset impairment tests, again to avoid recording losses.
• Labor costs that should have been expensed were recorded as fixed assets, pushing the charge recognition into the future through depreciation.
• Government grants - which shouldn't be counted as operating revenue - were booked as revenue by falsifying the underlying treatment.
• Subsidiary-level provisions for government subsidy repayments were improperly reversed in the consolidated statements.
• Bad-loan reserves for uncollectible loans were understated.

The cumulative hit to consolidated net assets as of the end of the first quarter of fiscal 2025 was provisionally estimated at ¥160.7 billion (about $1.05 billion) in the final report, up from ¥139.7 billion in the earlier March 3 interim report. On top of that, Nidec warned of a possible additional ¥250 billion ($1.6 billion) in impairment charges, primarily on automotive-business goodwill and fixed assets.

The year-end dividend for the fiscal year ending March 31, 2026, was set to zero. Moody's downgraded Nidec to Ba3 - junk status - in January, citing unreliable financial disclosures and governance risks.

The root cause, the third-party committee said, was "excessive pressure" to hit performance targets set by founder Shigenobu Nagamori, who stepped down as chairman emeritus. The company's culture had internalized the belief that "losses are unacceptable". CFO Akinobu Samura, VP Yoshihisa Kitao, and Chairman Hiroshi Kobe have all departed.

The July demand focuses on a narrower but structurally interesting episode. In October 2022, Nidec's board resolved to pay a 35-yen-per-share interim dividend. In June 2023, the company discovered that this dividend - and a share buyback program running from September 2022 through March 2023 - had exceeded the "distributable amount" allowed under the Japanese Companies Act.

The distributable amount is a legal ceiling on how much a company can pay out to shareholders, based on its retained earnings and other statutory equity measures. Paying dividends above this ceiling is illegal under Japanese corporate law, though Nidec said it would not ask shareholders to return the money already received.

The company's outside auditor at the time, PwC Kyoto, missed the excess entirely. It was an oversight, Nidec said, not a deliberate override - which makes it arguably more revealing than a deliberate breach would be. If the books were wrong enough to authorize a dividend the company couldn't legally pay, and nobody on the audit side noticed, then the accounting foundations were unreliable in a way that wasn't just about creative accruals.

The shareholder's July demand targets the former directors who approved that dividend and buyback. The logic is straightforward: if the underlying financial data was materially overstated, then the directors who relied on it to authorize distributions arguably breached their duty of care.

The question now is what the Officer Liability Investigation Committee will recommend, and how fast.

Under Article 847, Nidec has 60 days from the July 16 demand to either file suit or notify the shareholder of why it hasn't. That puts the deadline somewhere around mid-September. If the company doesn't act by then, the shareholder can file the derivative suit directly. The company may intervene on the side of the defendant directors, but it would need the consent of all its corporate auditors to do so.

The March demand's 60-day window has already passed. Nidec has not announced that it filed suit on that front either. Whether the shareholder followed through with a direct filing after the March deadline, or whether the company provided the required notification of non-action, hasn't been separately disclosed in the coverage I could find. (The company's own statements say it will "determine whether to pursue damage claims" based on the committee's report - which suggests the committee has not yet delivered a final recommendation that the company has acted on.)

What the committee will find is hard to predict. The committee members were chosen for their independence from the potential defendants, which is the right design. But the committee's mandate is broad - covering fiscal years 2020 through the first quarter of 2025 - and its task involves untangling which directors were responsible for which decisions, based on what information, at what point in time. In a company where "deficit is a sin" was the operating doctrine and where misconduct spanned multiple business units and multiple accounting categories, drawing clear lines of individual causation is going to be difficult.

The shareholder seems to expect the committee to either be slow or inconclusive - hence the pre-emptive demands. The demands don't require the shareholder to prove the case yet. They just require the company to respond, and if the response is "no" or silence, the shareholder gets to be the one in court.

This is basically the same governance problem that exists in every corporate scandal, dressed in Japanese statutory form. The company's own organs are supposed to police the directors. When the company's organs are the product of the same culture that produced the misconduct, an outsider gets a statutory right to trigger the process. The 60-day clock, the fixed filing fee, the company's obligation to notify - it's all plumbing designed to make sure the accountability mechanism doesn't quietly stall out.

The real test isn't whether the shareholder's claims are well-founded. They almost certainly are, at least in part - the third-party committee has already confirmed the underlying misconduct. The test is whether Nidec's own process can bring itself to sue the people it employed, or whether the shareholder will end up filing on the company's behalf.

Either way, the company that inflated profits, hid impairment charges, and treated worthless inventory as an asset is now in the position of having to formally answer the question of whether the people who did all that should be sued for it. The shareholder has filed the request twice. The 60-day clock is running.