Students bring school to book

Customers sue school as closure leaves them, staff out of pocket


It was payday, and Shawn Hannold’s bank account was empty. A phone call from a coworker alerted Hannold the paychecks hadn’t shown up in the accounts that morning.

Hannold, who needed the money for child support payments, made a beeline into his head office. There, he was told the company was going bankrupt, and that no one was getting paid. Ever.

On Jan. 25 of this year, Nippon NCB Co. Ltd., once the 10th largest English school chain in Japan in terms of student enrollment, and which operated the chain of NCB (Network of Creative Brains) language schools, NCB computer schools, ASP International (As Soon Possible, an employment dispatch service) and ICC (International Communication College, focusing on business English services), declared bankruptcy.

Now, a group of former students have decided to launch a lawsuit against their former school, claiming that the bankruptcy was premeditated, and therefore illegal.

Though many students were surprised to see the company close its doors, to many staff working there the company’s troubled situation was obvious, and many left while the going was good.

“I left in April 2004 because I knew the ship was sinking,” says former NCB foreign employee “Bob,” who had access to monthly sales figures, student numbers and internal staff meetings and spoke on condition of anonymity.

When NCB shut its doors, over 300 people lost their jobs, their last paychecks, their security and their benefits. According to Ken Worsley, Tokyo-based IT and marketing consultant and a former NCB staff member of four years, many of the Japanese sales staff hadn’t been paid in six months. Students who had enrolled for lessons at an average cost of 500,000 yen per contract lost their money and some teachers scrambled to find enough cash to cover the next month’s rent and bills.

Hannold, who had come to NCB’s head office in Shinjuku to inquire about his missing paycheck, was given 100,000 yen and told not to alert the students.

“I don’t know if it was out of pity for me or because they didn’t want the students to riot or something,” he says. “But by that afternoon I had the money deposited into my account.”

Another former employee, “Ann,” who was with NCB for eight years as both a teacher and an assistant manager adds, “I left about a year before the company went bankrupt, and at that stage, the management team, along with everybody else, knew the company was in very big trouble. The tough calls that could’ve saved the company were not made.”

“I question how seriously the management team wanted the schools to survive,” she continues. “As I understand it, the guys in head office were also the owners of the business, were nearing or at retirement age, and had done very nicely out of the whole deal. Where was the sense of urgency for them to save the company?”

In an interview with Asahi TV, ex-NCB president Mikio Koyama spoke with a reporter in his apartment. It was small; a simple 1-DK setup that for the Japanese public represented an enormous fall from grace.

The interview was intended to highlight Koyama’s difficult life after the bankruptcy. (To see the interview, go to notken.com/?p=article&id=32. ).

In it he claims that he sold his home to finance the business and dumped large amounts of his own money into the failing company, an extremely unorthodox business practice.

A former student involved in the litigation proceedings and who spoke on condition of anonymity says “the first (objective of the lawsuit) is litigation and criminal indictment. Just on the verge of bankruptcy the president was getting divorced. If, for example, all of his assets were distributed to his former wife, this would legally indicate a premeditated bankruptcy.”

Usually it would be up to the bankruptcy administrator to handle such allegations and investigative procedures, but “the bankruptcy administrator is not looking into this matter,” she continues. “We are thinking about how or if the police might be able to help us.”

“I would be very interested to see an audit done on NCB’s books,” says Ann. “If you look at the sales figures and then take away the outgoings, the numbers just don’t add up.”

According to Yano Research Institute Ltd. the market size for the language learning business in Japan for the fiscal year 2004 was 632 billion yen. The “foreign language school for adults sector,” to which NCB belonged, accounts for 40 per cent of the market. This is a big, lucrative business.

So, as Worsley asks “how could a company fail at a business that seems to be making so much money around the country?”

NCB’s sales models closely followed those of the major “eikaiwa,” — expensive, nonrefundable contracts that were the business equivalent of taking candy from babies. Once the customer bought the contract, they weren’t legally allowed a refund.

Companies focused aggressively on sales, often at the expense of the rest of the company.

In 1997, changes to the Consumer Protection Law gave consumers legal rights to refunds of the remainders of canceled contracts. The big companies like NOVA, GEOS and AEON responded by expanding their services to incorporate other markets such as offering kids lessons or lessons in other languages such as French and German.

The next thing they did was brand themselves mercilessly. Think ubiquitous pink NOVA bunny or slick black-and-white-photo GEOS ads.

In status-conscious Japan brands are everywhere, and major designers slap their labels on everything from dog collars to keitai straps. After 1997, the eikaiwa industry was forced to follow suit. NCB did none of these things.

Companies that have adapted post-Bubble and expanded their services to embrace new markets and created a successful brand image survived. The others are either consolidating or going bankrupt.

“By the time NCB died its slow, painful death,” says Tokyo-based entrepreneur and former ASP employee Albrecht Stahmer, “the company existed as an inward looking entity obsessed with its own procedures, with the students a mere afterthought.

“More time was spent debating dress codes (and) timekeeping issues than thinking of ways to build its brand in order to acquire new customers.”

“Overall, it was arguably one of the most poorly run companies imaginable,” he says. “From a business point of view it’s staggering the company was able to remain in business for 25 years. If the NCB people went into the funeral business, nobody would die.”

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Some names have been changed.
The reporter was an NCB staff member from 2002-2004 and left for reasons unrelated to the bankruptcy