A lesson for Nova Corp.

The Ministry of Economy, Trade and Industry has decided that Nova Corp., the nation’s largest English-language school chain, violated the Specified Commercial Transaction Law and ordered it to partially suspend business. Saying that Nova committed 18 types of violations, the ministry imposed a six-month ban on new contracts of more than one year or more than 70 hours of lessons with customers. It is of grave concern that the school chain as a whole was involved in the irregularities. Top management must seriously reflect on what the firm did and change its business method.

The following are examples of Nova’s illegal business practices. It distributed pamphlets saying that students could book lessons at any time and at any Nova school, and had students sign contracts, when in fact it was difficult to keep the promise due to a shortage of teachers. It ran ads stating that the admission fee was exempted “only for now” when the fee had always been exempted. When students canceled contracts, Nova refunded smaller than promised amounts or deducted an amount equivalent to the admission fee, despite the fact that the fee had been exempted.

Nova also misled some people to believe that their contract “cooling-off” period had expired and prevented them from canceling their contracts. The Nova headquarters distributed manuals on how to deal with complaints about contracts to Nova offices across the country. But the manuals taught illegal ways of dealing with such complaints.

Behind the illegal business practices seems to be Nova’s aggressive policy to expand the number of its schools to 1,000. It now has just over 900 schools. Nova has about 450,000 students, more than 60 percent of the nation’s English-language school students. Its sales are expected to account for about half the industry’s total sales. Suffering a loss in two consecutive years, Nova had a consolidate loss of 2.4 billion yen in the business year that ended in March. The punishment meted out by METI may frustrate Nova’s plan to go into the black in the current business year. If so, it would only be reaping what it sowed.