The Implosion of Japan’s Super Nova

Bleak skies ahead for Nova
Nova Sagi? Bleak skies ahead for Japan’s Nova Usagi

Japan’s largest English Language conversation school, Nova is the second largest employer of foreigners in Japan (the first being the Japanese government, bless them) employing over 4,500 teachers nationwide. The company name NOVA, originates from the English word for a star that suddenly becomes thousands of times brighter and then gradually fades to its original intensity (or to nothing in this case!). It has however, been made into a now familiar acronym by its eikaiwa (英会話) senseis, who proclaim to be heavily overworked, and given little or next to NO VAcation.

Last Friday (26th October 2007), Nova filed for court protection from creditors, and also temporarily closed all of its 1000+ English conversation schools. It is hard to imagine any other event which could cause as much disrupt to the “Eigoken” foreign population in Japan, short of war or Government meltdown. On Thursday 25th, a finance deal with two foreign funds to save the company in its current form fell through, and in the wee hours of the 26th, the three remaining board members fired the founder and CEO Nozomu Sahashi (猿橋 望), who was absent from the meeting and did not even have the offer of a chance to put in a word of defense for himself.

It has been a rocket ride for Sahashi. He studied aboard in both France and Denmark when he was young, but was overcome by the sadness he felt about not being able to communicate with the locals. Upon returning to Japan, he decided that he didn’t want foreigners to have the same feelings of solitude in Japan, and so in 1990, with two Canadian and Swedish friends he created Nova. 17 years later, as of March 2007, Nova boasted over 1000 schools nationwide and over 500,000 students, which is more than half the entire English teaching market in Japan. In 1995, Nova’s sales were as high as 75 billion yen. CEO Sahashi had changed his name from Saruhashi thanks to the ribbing from diligent kanji studying foreign teachers who relentlessly called him Monkey-Bridge, or just MB. However the company had listed in 1996, he made Japan’s top 100 tax-payers list in 1997 paying over 900 million yen in tax, and Japan’s population was becoming more adept (theoretically at least) at the English language. Not bad for a shy young lad from Kishiwada, the heart of Osaka’s underworld.

Sahashi (MB) Nozomu, The (ex)CEO of Nova at a June press conference
Sahashi (MB) Nozomu, The (ex)CEO of Nova
at a June press conference

However at the beginning of 2007, it all started to come crashing down. The company’s business model had relied on selling bulk lessons to students up front, which they could then attend over time. This meant that they had lots of cash coming in, and could finance its rapid expansion, which meant opening almost one school a day during 2005 and 2006. The catalyst for the down spiral however, was a lawsuit from a student who claimed that Nova refused to refund prepayments for lessons that he no longer wanted to take. After a court battle, the Supreme court threw out an appeal by Nova, demanding the repayments to be made. After this began and in early 2007, the media was all over Nova, for all the wrong reasons. First, in January, seven Nova teachers were caught in possession of cocaine. In February, Nova was raided by METI and the police over the refund issue. And then in late March, one of their teachers, a cute Brit was murdered.

With the Japanese school year beginning in April, the first 3 months are vital to Nova sales. However with all the bad PR and the ongoing lawsuits, the number of new contracts dropped and cancellations increased dramatically. With less prepayments for lessons coming in, and more prepayment refunds going out, the cash stopped flowing in, and Nova started to become late on payments. Then in June, METI (経済産業省, Ministry of Economy, Trade and Industry) banned the company from selling any contracts longer than a one year term. After Nova became officially guilty of illegal business practices, Sahashi held a press conference and apologized, but didn’t take responsibility and resign. Also bowing in apology next to Sahashi was his Assistant CEO Shouichi Watanabe.

Here is the NHK news clip (Japanese) in full for some (mi-ni-yo-ku-tsku) revision:

http://www.stippy.com/wp/wp-content/zuploads/z_movs/200710-nova-eiwakaiwa-goes-down.flv

Article 24 of the Labor Standards Law (労働基準法24条) stipulates that companies must pay wages to employees at least once a month, on a fixed date. In July however, Nova began delaying (by weeks, and in some cases months) payments of salaries and stopped paying office rents. Since September, many schools have been shut down because the firm was unable to secure native English-language teachers, all of which lead to the events of last week.

This business and social disaster has been coming for months, and Sahashi and his aides have been courting potential suitors to takeover the company (and all its problems), but to no avail. The most speculation was around a potential takeover by HIS (Japan’s largest travel agency). Rumour has it that Sahashi pushed too hard of a bargain, and HIS gave up in disgust.

In the end, the building list of creditors, the unknown total liability of the prepayments, and the possibility of underworld connections to the business all contributed to the result of not being able to seduce a suitor. However, with still over 50% of the English language market, some superb school locations, and the mass of students, Nova still has many attractive points. Therefore, now that the company has filed for protection from creditors, the race is on for potential acquirers . Names thrown about so far have included Rakuten, Aeon, and of course now that Sahashi is gone, HIS has come back on the scene. All will likely be revealed in the next few days.

Nova teachers rally outside the Osaka labor standards office last Tuesday
Nova teachers rally outside the Osaka labor standards office
last Tuesday – The signs read, “Sahashi, pay us our money!”

Despite Nova’s largest office being in Tokyo (Shinjuku), the 55 year old, single Sahashi has always spent most of his time in Osaka (Shinsaibashi), where its modest headquarters are located. In past months, he has been said to have been passing the lonely evenings in the local izakayas, slowly drinking his favourite shochus, and desperate for a compassionate ear and new ideas on how he could save his crumbling empire. There have been concerns voiced as to his will to save the company as he has remained mostly hidden from the public and many of his aides, communicating with the staff only through intermittent faxes. That this culminated with him not even attending his own board meeting where he was fired may not come as a surprise to some. However Sahashi has always been said to have a very good heart, and we believe that he has been doing his utmost right up until the end.

The potential fallout from Nova’s implosion cannot yet to be gauged. However it has already begun to cause huge unrest in the foreign community. Nova teachers are represented by a labor union called the General Union, whose homepage is covered with articles and “emergency advice” for its distraught members. It is not only the senseis who should be worried though, 4,500 foreigners suddenly appearing on the local job markets may have repercussions for many people already working here. As well as that for many of the teachers who are in Japan on working holidays straight out of school, without pay checks, how will they survive? The Australian and British Embassies have already begun to offer assistance to teachers who have not received salaries, but there are limits on what they can do, as it is a domestic employment issue.

QANTAS is offering discounted airfares to sacked Nova teachers for the next few days if they want to go home to Australia, as 20% of Nova teachers are Aussies. The Australian Embassy’s website posts detailed info for Nova refugees as follows:

Following discussions with the Australian Government, Qantas has advised that for a limited period it will be offering a reduced air-fare rate for Australian NOVA employees who wish to return to Australia. Enquiries (including about conditions and availability) should be directed to the Qantas Tokyo office on (03) 3593 7000.

For further ongoing information on the demise of Nova, stick with us here at Stippy. There are also a number of other sites providing ongoing coverage of this, including:

Let’s Japan, Japan Today, Japan Economy News, and of course Metropolis.

29 thoughts on “The Implosion of Japan’s Super Nova”

  1. There seems to be such a huge market for English lessons in this country, I don’t understand how a company like Nova could do something that sends them down like this. It must have just been a case of really bad timing or something. The whole thing seems like a bit of a clusterf*ck (for want of better words). Teachers get screwed by company, company gets screwed by students, and students get screwed by the company (as well as the teachers!).

    Regarding your point about how this plethora of gaijin bodies looking for jobs could affect the others working here, I don’t think there is need for concern. 4500 people extra in the market in Japan is not necessarily that many, and besides, Nova eikaiwa teachers don’t really bring any value to any other company other than speaking their own native language – it is not really a skill in itself that companies look for these days, rather a complimentary one that combined with another profession goes a long way. So unless those eikaiwa teachers have some other skills they can offer other than eikaiwa, they’d better take QANTAS up on their offer!

  2. Is it just me or does their homepage make absolutely no reference to the fact that the CEO has resigned. What is the story with the resignation (or firing?) anyway? I could only find this page claiming that he was still daihyo.

    http://www.nova.ne.jp/corporation/05gaiyou/gaiyou.html

    Is he trying to hide from the 4,500 savage barbarians out there trying to get their beer money back from him? Anyone tried Kishiwada castle?

  3. Hey! Seems like we just found some work for the unemployed English teachers.

    it’s -> its
    who’s -> whose

  4. Thanks “A”. Yes, Nova teachers may have been a help here, but I have known many a Nova teacher to be not so on the ball as you are.. fixed now.

  5. Sorry I can’t help you with your question, Richmond, but damn there are some interesting documents on that site. I don’t think I’ve ever seen such a farce before. What about this document that Nova (apparently the CEO) submitted to Jasdaq explaining how they were gonna improve their act:

    http://www.nova.ne.jp/ir/pdf/kaizen_houkokusyo_071019.pdf

    What sort of stupid bunny do you have to be to “lose” 8 million shares. For those of you who can’t read Japanese, this pdf essentially documents how Sahashi managed to lose 8 million of his Nova shares (about 10% of the whole company!) a few months ago. He noticed they were missing in August but apparently still doesn’t know what happened to them or where they are now. How can you misplace 10% of a listed company?

    Can we hire this guy to “look after” the votes from George Bush supporters in upcoming US elections?

  6. There was nothing “lost” about his shares. He was clearly lending them out to hedge funds with whom he was trying to sign a deal with to rescue the company. I mean, come on, just around the time that he “loses” 8 million shares, isn’t it a little suspicious that a company called “BNP Paribas Arbitrage” appears on the shareholder list as owning precisely 8 million shares. If he doesn’t know what “arbitrage” means then he should sign up for his own classes. Sahashi realised that he would never be able to con a real investor into buying shares in his ponzi scheme Eikaiwa company and that the only way he’d be able to get someone to inject cash into his company was to enable them to sell the shares before they even bought them. The “two foreign investors” that Sahashi talks about in his famous faxes to staff as saviours were probably clients of BNP who were short selling Nova stock ever since August. Given that the average shareprice during August/September was over 50 yen, these guys have made a killing. They would have “borrowed” Sahashi’s shares and sold them at 50 yen and are now taking their time buying shares in the market at 15 yen in order to “return” them to him. Sketchy, sketchy people. The 1,500 stranded Nova teachers would be better off tracking down these vulture frogs if they wanna get paid.

  7. more to the point, who is going to takeover the job of keeping 4,500 housewives around the country sexually satisfied? We all know that Nova was secretly subsidized by the government in order to keep the divorce rate down.

  8. Horny: You are right. I think I’ll have to volunteer to take that one up.
    I think it would be more to the tone of 9000 housewives though. Since when did the average guy-gin have only one housewife to keep happy :)

  9. Housewives?! Lets try to have a little more serious discussion about this topic. Although some aspect of this can be funny, and humour is always welcome, these Nova teachers are real people, and real people’s lives have been affected.

  10. The assumption that there is an endless pit of students willing to sign up for bushiban classes is incorrect. This is the heart of the problem for Nova. You can try to spin it on this guy’s personality all you want but the fact is that the problem is endemic.

    The whole reason Nova changed their business model, that change in the business model being what directly precipitated this crisis, was that their numbers had been down steadily for years. since the first big market sell-off which started in 2000. At that point, interest in the US economy began to wane internationally. Simultaneously, a new computer based revision to the TOEFL test went into effect that scared away many students. Subsequently things were dramatically aggravated by 9-11 and made much worse by the creation of the Department of Homeland Security which began hassling overseas students which make up the majority of the English learning cram school population.

    In 2003, the TOEFL was once again changed and that change was surprisingly a very radical shift for the better in many ways. One thing about the new test was that it meant students had to prove their spoken ability in English. This is a good thing overall and you’d expect that this would have really lit a fire for the bushibans, but the truth is that students who were already staying away used these changes as an excuse to avoid English.

    Now those are reasons why students stayed away. Let’s call that the negative side. Now let’s look at the alternatives that simultaneously emerged. We’ll call those the positive side. Most of the positive reasons for staying away from cram schools have to do with the emergence of cheap broadband and high powered PCs and cell phones. Things like chatting with a foreigner which used to be the exclusive domain on the cram school have now become far cheaper and easier to access by simply finding a niche interest on the internet and getting involved in an on-line community of English speakers. Access to study materials used to be something that only a bookstore or cram school could offer you and was an important profit center for cram schools. Now study materials and even on-line test prep is available freely all around the internet.

    This is not an isolated coincidence caused by bad management. The market for English teaching in Japan is not what most people think it is. We are no longer in the eighties or the nineties. Things have changed.

  11. Hey, Hills, you are aware that Bush is not running for reelection, aren’t you? The person who’s running for a third term is the HillBilly.
    NOVA was simply ineptly run. Sadly, I know one person who prepaid for lessons just a few months ago, despite my warning. I hope that whoever takes over honors the prepays.

  12. 意味わからないんだよ、何が「駅前留学」なんだよ。。 ざまぁみろ、ノヴァ!

  13. I taught English in Japan for 4 years at a different company.

    Japanese people are AWFUL at English. Even the best students just don’t get it. The ones who live abroad are much better. Studying English at Nova doesn’t get you good English, none of the eikaiwa do unless the student is REALLY motivated.

    The whole industry always felt like it was a house of cards to me. Lessons are so expensive, and no matter what the teacher does, the people just can’t get it. I mean, consistent and basic grammar/vocabulary mistakes from supposedly high-level students.

    Some of the women go there to chat with the blond gaijin, but that doesn’t explain all the clientele. It’s just something for bored people to do; why they choose English over, say, pottery, I don’t know. But it’s not necessarily always going to be the case.

    One of my friends is still a Nova student, and though her English is improving, it’s been slow over the last couple years. She’ll probably sign up to a new company; I imagine a lot of students will. The fantasy will continue.

  14. the founder and CEO Nozomu Sahashi (猿橋 望), who was absent from the meeting and did not even have the offer of a chance to put in a word of defense for himself.

    Thats maybe because he run somewhere with money that strange people (who got arrested since) brought him…

    I feel really sorry for Nova teachers who have not been paid for long, with unpaid rents etc. But there was really very few REAL teachers at Nova (thats not because you’re fluent in your own language that you can teach it), so maybe the level of private english lessons will get higher ?
    Other option: level will stay the same, but english lessons will get cheaper, aligning on the low side : the golden age is over…

  15. In the last couple of days since this article was posted, there have been a number of facts come to light which are starting to change our opinions of CEO Sahashi.

    Firstly he set up an private NPO which has been funneled over JPY100 million from Nova basically into his own pockets over the last few years.

    Not only that, in the last month, his shares have dropped from 70% down to less than 20%. None of which has been reported to the markets, so he has been slowly cashing out his own stock, while teachers weren’t paid and the company was falling apart around him.

    After everything we had heard about how much of a good guy Sahashi was, and what an unlucky situation he had gotten himself into, we are starting to quickly change our minds given all this new dirt which is coming to light.

    The Yomuri has also published a very good article about the “Egotistic” Sahashi, and some insight into the final days:
    http://www.yomiuri.co.jp/dy/national/20071030TDY01302.htm

  16. I guess we’ll find out eventually but according to what I’ve read, Sahashi had basically signed out responsibility of his shares to a “consulting company”. My guess is that the consulting company realized that they could make a 4~5% interest by lending them out to hedge funds who wanted to short the stock and so they had just lent them to hedge funds. I don’t think he would have been so stupid as to sell his shares. even when you lend your shares you are supposed to file with the MOF according to the 5% rule as technically you have transferred ownership away from yourself, albeit it temporarily.
    If he is really deviant, he would have lent the shares to the hedge funds to appear as though he wasn’t doing anything wrong but invested directly in the hedge funds himself with his own cash so he benefited from their profits. wouldn’t be the first time it’s happened.

  17. This article:

    http://mainichi.jp/select/biz/news/20071031k0000m040102000c.html

    has some great pictures of Sahashi’s Osaka “president’s” office, on the 20th floor, 330 square metres, which cost 70 million yen to refurnish, and 2.4 million a month in rent, all paid for by the company. It has a bathrrom with a sauna, and an eight tatami-mat Japanese-style room complete with a bar counter sporting expensive champagne and whiskies. Over the last two years, Sahashi has made 309 million and 159 million yen respectively, even though the company was in the red for those two years. Whoever takes over Nova will have one helluva sweet pad to hang out in when they head down to Kansai!

  18. Bone, it seems to be more than just 100 million that he funneled off from the company. Have you heard about his scam with the video phones? Apparently he funneled 8 billion to a family company called Ginganet (it was a subsidiary of Nova Kikaku). It was set up as a transaction where Ginganet would buy video phones for Nova’s online lessons cheaply from NEC and then sell them to Nova at 5-10 times the market price.

    http://www.nova.ne.jp/ginganet/index.html

    Now I see how this guy got onto the top 10 tax payers list…

  19. One interesting thing about all of this publicity–it fails to mention that Nova is not just an English school. For example, yes, they had nearly half a million students, but 125,000 thousand of those students were studying Mandarin Chinese, and there were about 5 other languages taught as well. As usual, the English-speaking foreigners of Japan (a tiny minority of the total non-Japanese in Japan–most of whom are Asian or Latin American) are so incredibly self-absorbed that they are managing to remain totally oblivious to the existence of other foreigners in Japan.

  20. (sigh)…

    Nice ‘editorial’ there Bone. Except that it’s riddled with inaccuracies. Just where the **** do you get your ‘facts’, and who is ‘we’?

    First of all, Sahashi is on record as saying the name of the company comes from the Latin word for ‘new’, although your cosmic explosion analogy is apropos, if exaggerated.

    There were never “1000+” NOVA branches… that was Sahashi’s stated goal, but they he only got about 900, which disintegrated by the end of September to 600 or less, and the closures were continuing right up to October 26th.

    I’ve been disgusted by the pathetic 可哀相外国人講師 (poor, poor gaijin senseis) stories all over the news for the past two weeks, but your ‘poor Sahashi’ crap just takes the cake! The Japanese staff haven’t been paid anything for over two months, and never received their summer bonus (actually, a percentage of their monthly salary held ransom) at all. Your “good heart”-guy Sahashi promised staff that their summer bonus would be paid in October. The late salary payments beginning in July that you mention were staff salaries only. Actually, staff salaries were delayed to preserve funds for the instructors’ paydays. The poor ‘senseis’ have only been waiting 2 weeks for their missing pay.

    Of course, the students (NOVA’s customers… remember them?) are the main victims in this whole debacle… their money is long gone. At the moment, some of the companies interested in ‘sponsoring’ NOVA’s recovery are attracted by the chance to buy NOVA students’ debt.

    The school closures were never about a shortage of instructors. That idea is laughable.

    The intensive two-new-branches-per-day expansion that Sahashi inaugurated last year relied on a hiring freeze for its subsidization. NOVA stopped hiring instructors and froze scheduled overtime while simultaneously attempting a huge expansion! Does that sound like a person with a ‘good heart’ who’s interested in providing prepaid lessons to students? At least when Starbuck’s puts shops across the street from each other, they hire enough baristas for both locations. NOVA just spread their already low numbers thinner and thinner, while continuing to sell more and more lessons that it never intended to provide. THAT was Sahashi’s business model.

    The branch closures were due to one reason, and one reason only: NOVA couldn’t pay the rent anymore on most, if not all, of its 駅前 locations. Anywhere you go in Japan, the highest real estate and rental prices are in or around train stations, yet NOVA, under the dictatorial rule of Sahashi, despite two consecutive years of huge losses, continued to open and maintain ekimae KIDS branches that were only open two days per week, while paying (or not) rent by the month. The branches that were closed were not the non-performers. The branches that closed in September conveniently had leases that ran out in September. The silly two-day/week branches stayed open to the bitter end, even while established, busy branches with large numbers of students, instructors, and staff shut down.

    Oh, and by the way:

    Sahashi was given ample opportunity to meet with his board of directors, but after months of enduring his stalling and secret maneuvering, and with the avalanche of resignations by top managers of all sections (sorry… Quality Controls Groups), and the resignations of many of the top gaijin managers, they were forced to mutiny just to cover their own rear-ends, which Sahashi would have gleefully burned to save his own.

    Sahashi established NOVA in 1981.

    He is married.

    He only changed the 読み (pronunciation) of his surname, not the 漢字 (kanji characters), which remain unchanged, and still translate as ‘monkey’ and ‘bridge’. This change apparently had nothing to do with the “ribbing from diligent kanji studying foreign teachers who relentlessly called him Monkey-Bridge, or just MB”; it’s doubtful that he’s even aware of it.
    Sahashi has nearly ZERO contact with the branch employees of NOVA, aside from posing for the Japanese recruits’ training graduation photos, and the managers’ meetings that are held several times yearly (for which he is habitually hours late), and the year-end ‘party’ which branch staff must attend after cleaning the school on the day after the last lesson day in December. The word is that a fortune-teller recommended the change in pronunciation as being more fortuitous.

    Hmmm… Sahashi seems to be just as inept at picking good fortune-tellers as he is at choosing legal representation, financial advisors, corporate investors, and interior decorators.

    The only link that gives truly factual, up-to-date information about what’s happening with NOVA now is the front page of the company’s own website, nova.ne.jp which the government-appointed trustees who are in control of NOVA are using to make their progress public. Please note that this information is not coming from NOVA executives or employees, but from lawyers who are responsible for NOVA’s government-controlled corporate restructuring and/or bankruptcy.

    You do no service to your readers by contributing to the pile of misinformation that is already redundant on the internet, both in English and 日本語.

  21. Hi Max, good comments.

    But, regarding the name of the company however, you seem to be misunderstood. Nova is one of the entries in the book 『誰かに教えたくなる社名の由来』

    On page 189 you will find the origin of the company name Nova, as was quoted by the MB man himself. Of course, we all know that Nova means new in Latin, but the star is called a Nova because they used to be considered new stars, because they suddenly appeared in the night sky. Only later was it found that they were stars at the end of their life, flaring for one last dying breath – like Sahashi.

  22. FG, I don’t have that book, so I’ll take your word for it.

    I was going by what Sahashi said in this interview on NNN:

    http://tinyurl.com/yrxqwb

    … in which he explains that ‘nova’ is Latin for ‘new’…

    … and then goes on to explain that it’s English for ‘新星’ (new star).

    The first time I watched this video, I was having buffering problems with the download, so I guess the ‘shinsei’ bit got chopped off. I had a better connection just now when I watched gain.

    My apologies to Bone for the mistaken contradiction on the origin of NOVA’s name.

    Interestingly, if you watch that video, which is copyrighted 2006, you’ll see that Sahashi’s penthouse office (but not the bedroom, bath, sauna, or お茶の間) was shown to the public by Sahashi himself well before the court-appointed trustees decided to humiliate him by inviting the media to see it on Tuesday. I guess nobody was paying attention.

  23. Max, interestingly according to that Nittele video you gave us the link to, Nova has (had) 1,000 branches. Which is right???

  24. I honestly feel bad for all the NOVA teachers that took the job seriously. That’s probably only 10 of them, but my heart still goes out.

    On the bright side, now that NOVA is no more, millions of trees have been spared stupid notes and drawings in lessons.

  25. Unless any of you have suffered asshole NOVA management/company structures. day in – day out, week in – week out, for years (to support a family), then I suppose you don’t have any real personal argument.

    PLETHORA – top posting here needs his fucking cunt kicked off. To state, without knowing shit about the quality of interested tutors in Japan that we have nothing to offer except our native language only shows this person’s level of intelligence up. I think we can all imagine that this individual would step over a blood spattered student and fuck off down the pub to meet his equally ignorant friends: or maybe would change tune if to discover that NOVA (learning something) was advised to the unbalanced! We welcome a full investigation – and if we can ward off ignorant comments like this which are likely to fuck up my job prospects, then we will.

    How about giving me your address? (And description). Think before you comment upon peoples energies about which you know Jack Shit!

    Call.

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