Can Ujiie clean up Nomura?

On the evening of April 14, the chairman of Nomura Securities, Masashi Suzuki, summoned Junichi Ujiie to his office on the second floor of Nomura's headquarters in Nihonbashi. Out of the blue, Suzuki offered Ujiie - a relatively junior managing director, who only 10 months earlier had returned to Tokyo after seven years in the US - the position of president of the company. "You're the only one who can do this," said Suzuki.

Suzuki believed Ujiie was the only person who could rescue Nomura from the brink of disaster. A month earlier, on March 14, Nomura's then-president, Hideo Sakamaki had been forced to resign after the company admitted making illegal payments of ¥50 million to sokaiya, gangster-linked groups who threaten to upset companies' annual shareholders' meetings. Nomura had been found guilty of a similar offence in 1991.

Over the next four weeks, matters had got worse. Major clients - from Tokyo Electric to Calpers - began to cut ties with Nomura. The ministry of finance (MoF) threatened to punish Nomura by stopping it doing business for as long as six months. And more serious allegations began to emerge: for example, that Nomura had run a set of VIP accounts for senior politicians and bureaucrats, which were effectively used to pay bribes.

Ujiie was Nomura's last chance, Suzuki believed. If Nomura did not take drastic steps, it risked, at the very least, losing its position as Japan's number one broker, which it had held since the 1960s. It might even be closed down, or go bust. Ujiie had been out of the country when the offences had taken place, so he was clean. His experience in the US meant that he had an understanding of American ethics and management which could be used to sweep the dirty elements out of Nomura. And he was not associated with any of the squabbling factions that had made Nomura a hotbed of conspiracy over the previous three years.

At their April 14 meeting, Suzuki said he would help Ujiie put in place any board structure he wanted, and then resign as chairman. The next day Ujiie returned, confirmed he would accept the job, but asked Suzuki to stay on as chairman. He felt the need of Suzuki's backing to head off the inevitable fight for power that would ensue within the firm.

The two came up with a radical strategy. They quickly realized that, to establish Ujiie's credibility, any director older than Ujiie, 51, would have to go. In Japanese culture, age is important; it is hard for an executive to give an order to a subordinate who is older or who used to hold a superior position. An exception was made for the American Max Chapman, 54, head of Nomura's US subsidiary.

In the end, 20 (out of 43) of Nomura's directors departed, including everyone at the level of senior managing director and above. No Japanese company since the 1940s had carried out such a dramatic purge. The only precedent was the cull ordered by the American occupation authorities after World War Two, when many companies lost their entire board of directors. (Indeed, the precedent is auspicious for Nomura. In 1947, the top four officials of Nomura were purged, leading to the appointment of 47-year-old Tsunakatsu Okumura as president. Okumura is credited with transforming Nomura into Japan's top securities house.)

After the appointment of 12 new directors at its shareholders' meeting in June, the average age of the Nomura's board will fall from 55 to 48. The board will be leaner too, with only 35 directors, against 43 before.

Ujiie formally took over as president on May 1 and made a quirky speech to all employees over the satellite broadcast system. "This is a new departure," he began poetically. "It is as if we are refounding this company from scratch. We are rushing out into a wilderness where rough winds blow." In the speech, peppered with English words, he vowed to turn Nomura into "a company unable to act in anything other than a right-minded way in accordance with the spirit of the law".

The choice of Ujiie was popular within the firm. "I am more optimistic than I have been in 25 years here," says one senior Nomura manager. "I trust Ujiie. I appreciate his dedication." Many believe that, in a few years, the scandal could be seen as the key event that transformed Nomura from a poorly-run, mainly domestic firm, ridden with dirty practices, into a leading international investment bank. "Unless this scandal took place, the old generation at Nomura would never have disappeared," says the Nomura veteran.

Is Junichi Ujiie up to the task of cleaning out the Augean stables? His allies believe so. "In terms of philosophy and ability, he's the right person for Nomura at the moment," says one senior Nomura manager. "The impression everyone has of him is that he is half-American. I hardly hear any criticism of his appointment within Nomura."

Ujiie's actions during his first four weeks in office suggest the new president is as dynamic as his supporters claim. As right-hand men he chose Toshiaki Ito, his rival for the presidency, who will head administrative affairs, and - notably - Nobuyuki Goto to oversee domestic operations. Goto was regarded within the firm as brilliant at equity sales - and a modernizer. After the 1991 scandal, he was instrumental in getting rid of Nomura's notorious "recommended stock list" and allowing branches and individual salesman more latitude in which securities they sold. But his reforming zeal irritated then-president Sakamaki and he was pushed aside to head Nichei Securities, a small affiliated broker. By bringing Goto back to the parent company (an almost unprecedented move), Ujiie has signalled to the sales departments that reform will recommence.

Ujiie's first opportunity to make a big impact was the annual personnel rotation due to be announced on May 22. At Japanese firms, staff are revolved generally every three or four years. This was Ujiie's chance to get rid of a whole stratum of middle-managers tainted by the old ways. And this year's staff shift had to be particularly big because the heads of several important Nomura subsidiaries were due to retire and would have to be replaced. As the day approached, the sense of expectation within Nomura rose. Staff are consulted about where they would like to move, but told of the final decision only en masse on the day.