The efficiency was astonishing.
In less than a week, the PricewaterhouseCoopers team had ferreted out several unsettling details from a stack of seemingly perfect reports.
"Managing Director, look at this one," Richard said, walking into Takuya's office and handing him a comparison list. "This is a channel subsidy for the Jupiter console in the Kansai region from last year. It's recorded in the books as a marketing promotion expense," corresponding to several large home appliance chains. "But by tracing the flow of funds, we discovered that the money ultimately ended up in a shell company called 'Daiwa Consulting,' and the legal representative of this company turns out to be a distant relative of a senior deputy manager in the Sales Department."
Takuya Nakayama looked at the list, his eyes devoid of surprise, showing only an expected coldness.
"What's the amount?"
"Ten million yen. The amount isn't huge, but it's a serious procedural violation," Richard replied. "More importantly, this kind of operation isn't an isolated case. Over the past three years, similar fund flows have shown a regular pattern."
Takuya Nakayama leaned back in his chair, his fingers unconsciously rubbing against his fountain pen.
"This is the reason I established the Audit Committee. Such petty theft may seem harmless, but it corrodes the entire corporate culture. When employees at lower levels discover that they can easily profit through such means without being detected, who will still have the heart to do their jobs properly?"
Takuya Nakayama paused for a moment before continuing, "Of course, this situation is unavoidable in Japanese society, and Sega cannot change the customs of the entire society. We can only minimize the negative impact of these situations while simultaneously using them to generate some positive utility. For example, I want to know whether the money spent was used specifically for marketing activities or for personal connections. And if it was used for personal connections, which people can generate how much actual value. This way, even when I need to calculate the value of an employee's or a client's network or personal relationships, there will be a trail to follow. These are the solid foundations needed for decision-making."
He picked up the phone and dialed Director Hoshino's extension.
"Hoshino-san, please notify all members of the Audit Committee that we will have an ad-hoc meeting tomorrow morning. PricewaterhouseCoopers has some interesting 'teaching cases' to share with everyone. Also, please have Department Head Yoshimura attend as well."
After hanging up the phone, Takuya Nakayama looked at Richard.
"Mr. Richard, for tomorrow's meeting, I need you to break down these 'technical handling' methods in the most intuitive way possible. Do not spare anyone's feelings. I want the Board of Directors to see for themselves just how riddled with loopholes their so-called 'steady and prudent' approach is in the face of a professional audit."
Richard nodded. "No problem. However, are you sure you want to open this can of worms now? It could cause quite a stir internally."
"A tremor is better than an explosion," Takuya Nakayama said, standing up and walking to the floor-to-ceiling window.
Outside, the night had quietly descended upon Tokyo.
Neon lights flickered, and traffic flowed like a weave.
"The great ship that is Sega has sailed into deep waters. When the seas are calm, the barnacles on the hull might just add a little drag; but when the storm hits, those same barnacles become fatal liabilities. My task right now is to clear away this filth while the weather is still fair."
He turned around, his gaze piercing.
"We are not building a police station, but an immune system capable of self-evolution. Only in this way can Sega remain invincible in future global competition."
The next morning, at the Sega headquarters' small conference room.
The air conditioner vent emitted a steady stream of cool air.
People filled both sides of the long conference table.
The audit committee members leafed through the bound materials in front of them.
Department Head Yoshimura sat near the door, holding a ballpoint pen in his hand, its tip moving unconsciously across the paper.
Richard Cohen stood beside the projector screen.
On the screen, a complex diagram of fund flows was displayed.
"Ladies and gentlemen, today we will look at a few specific business flow models," Richard said, switching the slide.
A path of fund flow appeared on the screen.
All company names and handling personnel names had been replaced by the letters A, B, C, and D.
Takuya Nakayama sat at the head of the table, picking up his teacup to take a sip of barley tea.
He had instructed Richard the day before to remove all sensitive information.
What he wanted was to establish rules, not a massive purge.
Punishing without prior instruction was a poor management strategy.
Pushing people into a corner would only increase internal friction with no benefits.
Those Japanese employees who were accustomed to "reading the air" would be able to identify themselves as soon as they saw these codenames.
"This ten-million-yen channel subsidy was disbursed from Sega's public account," Richard said, pointing to the nodes on the screen with a laser pointer. "Nominally, it was marketing expenses for an appliance chain in the Kansai region. After flowing through three layers of accounts, it finally landed in a consulting firm actually controlled by Mr. B. It is worth noting that Mr. B is a relative of a manager at Company A, which is the entity that applied for this expense."
Yoshimura's pen stopped in his hand.
He stared at "Company A" on the screen, his Adam's apple bobbing.
The meeting room was eerily quiet.
Everyone present was a seasoned veteran who had been grinding in the business world for years; who hadn't seen this kind of trick before?
In the past, everyone kept these things hidden beneath the surface, relying on the tacit understanding of local audit firms to gloss over them.
Today, that layer of window paper had been pierced in public by an American.
Takuya Nakayama set down his teacup and surveyed the room.
"The cases Mr. Richard has presented are highly educational," he said, breaking the silence. "There is no need for anyone to guess who Company A or Company B might be. Today, we are only discussing business logic; we are not pursuing specific accountability."
Yoshimura's tense shoulders slumped half an inch.
"Doing business in Japan, some things are unavoidable," Nakayama said, leaning back in his chair and crossing his hands on the table. "Building relationships, pulling strings, wining and dining, and even giving channel partners a little sweetener. 'Water too clear has no fish'—I understand this principle, and everyone here does too."
A few of the senior directors nodded slightly.
They had been worried that this young Executive Managing Director would seize upon these loose ends to make a big issue out of them, throwing the whole company into chaos.
Several of the old directors nodded slightly.
They had been worried that this young Operations Managing Director would seize upon these loose ends to make a big fuss, throwing the whole company into chaos.
"But the problem is whether this money was spent clearly and transparently," Takuya Nakayama raised his voice slightly. "Ten million yen was spent, but what did it get us? Did sales in the region double, or did we secure an exclusive sales agreement? If this money is just a messy account in our internal ledgers, then the company is acting like a fool."
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