What Large Corporate Governance Failures Reveal
In 2024, it was revealed that motor giant Nidec (formerly Nidec Corporation) is suspected of approximately 1,000 quality-related irregularities. According to a report by the Nikkei, the company is overhauling its board of directors and reviewing its corporate governance (Source: Nikkei, “Nidec Renews Board Amid 1,000 Quality Irregularities, Governance Review”).
“That’s a big company issue. It doesn’t apply to us.” – Some SME owners might think this. However, I see this news as a crucial wake-up call for governance design in small and medium-sized enterprises.
Why? Because the root of quality scandals lies in a “governance distortion fueled by a growth-first mentality.” This is a problem that can occur in any company, regardless of size.
The Structural Problem Behind 1,000 Irregularities
The key takeaway from the Nidec case isn’t the sheer number of irregularities. Rather, it’s the question of *why* 1,000 such issues were overlooked within the organization.
The company once achieved rapid growth under a “charismatic leader.” However, behind that growth, excessive pressure may have been placed on the front lines, fostering a culture where deadlines and costs were prioritized over quality.
This is a common scenario for SMEs as well. A strong leadership directive of “just increase sales” can create an atmosphere where employees feel unable to speak up about difficult issues.
The Governance Blind Spots SMEs Fall Into
So, what should SME owners learn from this case? Based on my experience advising clients, I point out the following three blind spots.
Collapse of the Balance Between “Growth” and “Control”
Many SMEs tend to view governance as a “shackle on growth.” However, the Nidec case shows that a lack of governance actually erodes growth itself.
If a quality scandal comes to light, you lose customer trust. In the worst case, you face risks like contract termination or lawsuits. This is arguably the greatest risk for any company aiming for growth.
Lack of a System to Capture “Voices from the Front Line”
Irregularities often start as “small violations” at the operational level. “It’s just this once,” or “My boss approved it.” These small deviations accumulate and spread throughout the organization.
In many SMEs, not even an internal whistleblowing system is in place. Even if a system exists, the fear of retaliation prevents people from speaking up.
Confusing “Accountability for Results” with “Accountability for Process”
In the Nidec case, accountability for results (sales, profits) was likely emphasized, while accountability for the process (quality control systems, compliance) was neglected.
Similarly, in SMEs, organizations with a strong “just get results” culture tend to let process issues fester. When management sends the message that “only results matter,” the front line may stop caring about the means.
Concrete Actions You Can Take in Your Company
Here are three specific measures that SME owners can start implementing today.
Create a System Where “Difficult Things” Can Be Said
The most important thing is to create an environment where the front line can say “No.”
Specifically, the following measures are effective.
First, introduce an internal whistleblowing system. However, simply creating a system isn’t enough. You need a mechanism to ensure anonymity (so the whistleblower cannot be identified) and a clearly written policy stating that whistleblowers will not face retaliation.
Second, establish regular “listening sessions.” Instead of an annual employee satisfaction survey, set up a monthly meeting where front-line leaders and management can talk directly. Use this time to specifically ask, “Are there any quality concerns?” or “Are there situations where it’s difficult to follow the rules?”
Make “Process Audits” a Habit
Don’t just look at results. Create a system to regularly check the process that leads to those results.
For SMEs, I recommend the following three steps.
First, visualize your business processes. Create a flowchart showing who does what, when, and how.
Second, set checkpoints. On the flowchart, identify points where “irregularities are likely to occur” and clearly define the approval process for passing those points.
Third, conduct unannounced audits. Once or twice a year, have an external expert (such as a corporate lawyer or certified public accountant) perform an unannounced audit. This can help uncover “blind spots” that internal staff might miss.
Improve the Owner’s Own “Governance Literacy”
Finally, it is essential for the owner themselves to understand the importance of governance.
In one SME I advised, the owner thought of “governance as a cost.” However, they only realized its importance after a business partner terminated a contract citing “insufficient governance structure.”
Governance is not a “defensive cost”; it is an “offensive investment.” A proper governance structure is the foundation for gaining trust from business partners, securing top talent, and achieving sustainable growth.
Conclusion: Governance is the Engine of Growth
The Nidec case vividly demonstrates that even in a large corporation, distorted governance can erode the organization. And this lesson applies equally to SMEs.
“I’m still a small company,” or “Growth is the priority now.” – The more an owner thinks this way, the more likely they are to unknowingly create governance blind spots.
The greatest lesson for SME owners from this news is to reframe governance not as a “bothersome set of rules,” but as a “blueprint for long-term business growth.”
Start today in your company by implementing “a system to capture front-line voices” and “a habit of visualizing processes.” This is the first step toward preventing future trouble and achieving sustainable growth.
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