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c : Organizational Structure & Design

: PGCBM-17

 : Part-I

  16


 c&c'

Nikunj Dudhara 105725

Komal Gujarathi 106527

Sanjay Shedge 106213

Rajiv Bhattacharya 106935

Sidharth Vaishnav 106553

Vadan Mehta 106360

Harish More 106904

 


    
 


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 (Answers)

1. What is the name of the organization? Give a short account of the history of the company. Describe
the way it has grown & developed.

Answer: a) r 
 
: Nomura holdings / Nomura Group

b) r :

The Nomura Group has been founded in 1919 in Osaka by Tokushichi Nomura II, a wealthy Japanese
stock broking tycoon. Everything begun much earlier with TokushichiII͛s father, Tokushich Nomura. His
father created a money changer business in Osakain 1872, the Nomura Shoten. His son first helped him
in his business and then went onto start in a new business in Japan at that time, stock brokering. This led
Tokushichi Nomura II to found the nowadays called Nomura Group based on the idea that a long and
sound customer relationship is the key to a successful business. The Nomura Group is the financial
institution of a wider conglomerate named NomuraHoldings. This conglomerate is based on the
Japanese business model Keiretsu. Companies in a Keiretsu have strong and interwoven relationships
but stay independent in their management. Those business groups are usually organized around a bank
which lent to Keiretsu companies, hold equities in them and bail Keiretsu members out if needed [1].
Nomura Holding is a horizontal Keiretsu with companies present in many industries from oil and gas to
construction, chemicals and foodstuffs. The bank in this case is Nomura Group with a noteworthy group
member named Nomura Securities (NSC).NSC is Japan͛s most internationally famous stock brokerage
firm. It has been established in 1925 in Osaka, when it spun off from Nomura Group. It was first a bond
trading firm and became famous for inventing the conduit commercial mortgage. It was actually NSC,
which should acquire the European and Asian operations of LehmanBrothers.NSC has managed
throughout the 20th century to take advantage of political and economical difficult situations like the
end of the Second World War, the 1965 Japanese recession or the oil shocks. This was made possible by
the visionary company beliefs, always one step ahead of the industry competitors. The Economist once
wrote ͞What Nomura does this morning, the rest of the Japanese securities industry will do after lunch͟.
For example in 1965, guided by the belief that economics and technology would-be closely intertwined
in the future, NSC founded an independent research institute to serve Nomura͛s needs but those of
Japan as well. Today Nomura Research Institute is one of the leading research organizations in Japan
and the company͛s belief at that time has been proved to be correct. During the 1980s, a cutting edge
computer system was one of the competitive advantages Nomura had on the market.V NSC was the
first Japanese company to be listed on an American stock exchange (Boston) in 1969 and the first
Japanese company to be listed on the New York Stock Exchange in 1981. However they never really
succeeded in taking a significant part on the American securities market. They founded the very
successful European branch in the 1970s with its headquarters in Frankfurt. At the beginning of the
1990s during the Japanese economy crash, things started to get nasty. NSC faced many scandals and
market troubles. However, they managed to stay financially sound and took the crisis as an opportunity
to restructure their business and management model to become competitive again.
c) r 
: With 18,000 people working in over 30 countries, Nomura's ADR is
available on the New York Stock Exchange under the symbol (NYSE: NMR). Nomura earns revenue in a
variety of ways. As an investment bank, Nomura earns advisory fees on merger and acquisition (M&A)
deals, initial public offering (IPO) deals, as well as raising funds through issuing debt for corporations. It
also earns commission to manage money and executes trades on behalf of customers. Another large
contributor to Nomura's income is proprietary trading and investments in private equity.

The Yen/USD exchange rate also impacts the price of Nomura stock. The company records earnings and
assets in its local currency, so an appreciation of the Yen benefits the ADR price and increases the
nominal value of dividends on its ADR shares, as it earns more in terms of US dollars.

Like many Japanese banks, Nomura manages a relatively more conservative balance sheet than its
European and American competitors, in part because of its experience with past financial crises. The
extra capital provided a cushion when asset values fell, and allowed Nomura to buy stakes in oversea
competitors. In September 2008, Nomura announced it would purchase Lehman Brothers' franchise in
the Asia Pacific Region and the equities and investment banking operations in Europe and the Middle
East for $2 billion USD.

  ()


  * +,c- &./ is the largest Japanese asset manager with 23.4 trillion Japanese
Yen (JPY) in assets under management (AUM) as of March 31, 2010. It is also Japan's largest investment
bank in terms of mergers and acquisitions (M&A) volume, and Nomura manages the most investments
trusts in Japan. The 2008 Financial Crisis hurt Nomura, as revenue decreased 60.3% in FY 2009 (ended
March 31, 2009) from its 2008 levels. However, in FY 2010 Nomura rebounded, as revenues jumped
from ¥665 billion in 2009 to ¥1.4 trillion in 2010.

On September 24, 2009 Nomura announced a record $511.3 billion yen (approximately $5.7 billion USD)
sale of 800 million shares of stock, equivalent to about 30% of total outstanding shares. The markets did
not react well to this news, as the stock fell by the 16% maximum trading limit allowed by the Tokyo
Stock Exchange two consecutive days after the plan was announced. Nomura hopes to use the capital it
will raise to upgrade infrastructure in Japan as well as fund expansion in the U.S., Asia, Europe as well as
emerging market regions. Nomura has put the funds to use, as it acquired London-based corporate
financial advisory firm Tricorn Partners LLP for an undisclosed sum in December of 2009. As a further
sign of its commitment to becoming a global bank, on May 17, 2010 Nomura announced it was electing
two foreigners to its Board of Directors, the first foreigners on the board since the company shifted to a
holding company structure in 2001.

For the first quarter of 2011 (Nomura's fiscal year ends March 31 of each year), Nomura posted a net
income of ¥2.32 billion

Nomura reported a net profit of 2.32 billion yen ($26.9 million) in the period ended in June, a decline
from ¥11.42 billion for the same period one year ago.[10] The company attributed the decline in
profitability in large part to the European debt crisis.

 (In Numbers)

For the fiscal year ended March 31, 2010, Nomura had total net revenues of ¥1.14 trillion, a significant
increase from its 2009 net revenues of ¥312.6 billion. Total non interest expenses declined slightly from
¥1.09 trillion in 2009 to ¥1.05 trillion in 2010. Combined, this led Nomura's 2010 net income to increase
to ¥95.7 billion in 2010, compared to its net loss in 2009 of ¥757 billion yen.

 
 
  

2) What does the organization do? What goods & services does it produce/provide? What kind of values
does it create? If the company has an annual report, what does the report describe as the company͛s
organizational mission?

Answer a) Nomura͛s services & values created: Nomura develops and provides various products &
services related to Banking & Financial Markets. Each product & service generates high satisfaction level
to the various clients/customers. The range of products & services are depicted in the below picture:

ƒV —  
 

"Customer profits should be considered before the firm's profits." Perhaps just as unusual, the founder
practiced what he preached. The concept of linking the company's gains directly to those of the
customer was given wide exposure. This meant that Nomura and its customers could make decisions
from the same standpoint and belief that "the customer's success is the company's success."

Throughout our more than 80 years history, Founder's Principles have been handed down and still live
on today. From the principles of "putting the customer first" came Nomura͛s unwaving commitment to
"Prospering together with its clients", something that the organization still continue to build on today.
ƒV Maximizing Shareholder Value
In consideration to the drastic changes over the past year, Nomura is working to maximize and
protect shareholder value by ensuring Nomura is prepared to deal with any risks that may occur
in the future. Nomura͛s medium-term target is to achieve È500 billion in pretax income and a
return on equity of between 10 percent and 15 percent. The group will remain focused on
achieving this goal. As it is said that the best defense is a good offense, it will also continue to
move with speed and create change at Nomura to become a world-class investment bank.

Looking ahead, the financial services industry will continue to reorganize itself over the next few years
and the environment will remain in a constant state of change. This presents Nomura with an
unprecedented opportunity to capitalize on Nomura͛s position as an independent investment bank. The
group believes this unique position will allow us to play a leading role in the capital markets as Asia͛s
global investment bank.

c) m
 
—  
 The below mentioned ͞ Organizational Mission Statement͟ was coined by the
CEO of Nomura

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Chapter 3:

1.V Draw a chart of your organization͛s domain. List the organizations products and customers and the
forces in the specific and general environments that have an effect on it. Which are the most
important forces that the organization has to deal with?

 
0



.-1 2

Our Retail business offers investment consulting services to individual investors in Japan through an
integrated nationwide network, call centers, and web-based services. These services meet the
increasingly diverse needs of our customers by leveraging our superior consulting expertise and broad
lineup of financial products.

Retail investors demand investment products and services tailored to their individual needs. Nomura is
responding with higher-quality products and services as well as improved consulting services to meet
the specific requirements of each customer.
One of our long-standing strengths is face-to-face services at our branch
offices. We are a strong believer in the benefits of speaking directly to
customers and we will continue to enhance our consulting-based services
and our organizational structure to meet the changing needs of a broader
base of investors.

Since 2006, we have opened over 30 new branches, bringing our


nationwide network to 171 branches. In addition, we have further revised
our product and service offering and upgraded our employee training
initiatives to ensure we continue to understand and meet our client͛s
needs.

At the same time, we are stepping up our efforts in other channels to deliver the information that our
customers need as quickly as possible. We are also increasing services that enhance convenience for
customers, one example of which is the commencement of an online securities-backed loan service in
July 2008.


3(42-c 2-

))&5


Nomura's Global Markets operations have a proven track record in the sale
and trading of bonds, stocks, and foreign exchange, as well as derivatives
based on these financial instruments, mainly to institutional investors. In
response to the increasingly diverse and complex needs of our customers,
we are building up our trading and product origination capabilities to offer
superior products not only to institutional investors but also to Nomuras
Retail and Asset Management divisions. This cross-divisional approach also
extends to Investment Banking, where close collaboration leads to high
value-added solutions for our clients. In Asset Finance, we leverage our
broad customer base for maximum advantage and offer sophisticated
financial solutions to raise capital through real estate and other asset
securitization schemes.

By acquiring parts of Lehman Brothers' operations in Asia-Pacific, Europe,


and the Middle East, Nomura has become a world-class player in both fixed
income and equities. We have added a new international client base to our
already solid base of Japanese institutional investors and have substantially
enhanced our research and product origination capabilities. Our systems
are integrated, providing an infrastructure enabling us to generate
synergies across the business.

Global Markets will continue to be the product supply hub for Nomura. In light of the changing
environment in the financial markets, we will focus on delivering high value-added products and
solutions to our clients by enhancing our product development expertise in key areas such as
derivatives. We will also make full use of the global trading infrastructure at Instinet, a wholly owned
subsidiary of Nomura.

6 7 

We are rolling out our product lines globally and aiming to become a top-tier player in our target
markets. Our focus is on liquid businesses such as interest rates, currency and flow credit trading. We
also offer structured solutions in response to our client͛s increasingly complex needs.

-8  


We aim to become the world's leading provider of liquidity. We offer our clients the best execution
based on our cutting-edge technology and highly diverse sources of order flow. We are also enhancing
our service offering to deliver products with unrivaled value-add and create win-win solutions for our
client franchise.

6  

In asset finance areas such as real estate and acquisition financings, we continue to develop our
business in response to changing market conditions and client needs.

 9
  5 

Investment Banking provides a broad range of services such as underwriting and advisory activities to a
diverse group of corporate clients, financial institutions, sovereigns, investment funds and others. We
underwrite offerings of debt, equity and other financial instruments in Asia, Europe and other major
financial markets. We have been enhancing our M&A and financial advisory expertise to secure more
high profile cross-regional and intra-regional deals. We focus on building long-term relationships with
clients by offering them a seamless approach using our extensive resources to deliver bespoke solutions.

Business models in the investment banking business can be divided into four groups based on
geographic breadth and product range: regional leaders, boutiques, mega boutiques, and global leaders.
Nomura has traditionally been considered a regional leader. In the past, our global expansion and
international offices were designed to support our Japan-related businesses. However, with our newly
acquired business operations, we have quickly built a platform to deepen our global coverage.

We are expanding our businesses by providing high value-added, bespoke solutions such as financing
and provision of currency and derivative hedging instruments to address the individual needs of each
client in each geographic region capitalizing on our execution and industry expertise. With the
acquisition of parts of Lehman Brothers' operations in Asia-Pacific, Europe and the Middle East, we aim
to enhance our presence as a global investment bank and synchronize our established Japanese client
base with this global network to provide world-class services, while continuing to build our businesses in
Japan.

&  5 

Nomura Principal Finance has been active in the field of buy-outs and corporate revitalization in Japan,
targeting investment opportunities that offer scope for capital appreciation and attractive returns. Our
Japanese private equity business has also been developed through investments in funds managed by
Nomura Research & Advisory.

In recent years, private equity funds have served an important role by


providing financial support to companies trying to build their operations. In
today͛s difficult business environment, our clients are increasingly looking
for new financial solutions, such as restructuring their business portfolios or
even delisting their shares through management buyouts.

We take a comprehensive approach that goes far beyond simply lending


funds to investee companies. We make a commitment to partner with our
clients and collaborate with them to boost the value of the company. We
can provide talent for hands-on management, an extensive network, and
industry-leading expertise in addition to supplying the necessary capital. In
short, our main strength lies in being able to mobilize Nomuras full
resources at all stages in the business restructuring process.

Our long-term approach also takes into account the needs of all
stakeholders from employees to the local community. These strengths have
helped us build a solid track record in a diverse range of industry sectors
and become a trusted partner to a broad base of clients.

In our search for new investment opportunities, we will continue to utilize


Nomuras entire network with an even more rigorous focus on profitability
when considering new investments. For existing investments, we will
leverage all of Nomuras available resources to increase the value of our
investee companies and consider the best means to recoup our
investments.
&     : 
 +&4/
Company acquisitions led by
management teams and/or employees

c  ')


Strategic delistings to eliminate the


threat of hostile takeover and the impact
of short-term earnings on corporate
value




 c 


Changing shareholder composition as a
part of business succession

 )  




Capital increases of large, mature


corporations to support additional
business expansion

;   9
 
Collaborative-type M&A by carried out
jointly by business and financial investors

1    c

 
Provide management, financial and
operational support for corporate
turnarounds

ãV The results that can be expected from a scheme may greatly differ due to differences in the
scheme depending on individual cases.

cc-1&  -&-1

Our Asset Management business consists of development and management of investment trusts that
are distributed by Nomura Securities, other brokers, banks, Japan Post Bank and Japan Post Network.
We also provide investment advisory services for pension funds and other institutional clients.

In the investment trust business, we take a multiproduct, multichannel approach to offer products and
services tailored to our clients requirements. We have an extensive product offering and continue to
innovate to meet the changing needs of our clients. We offer wide support to our distribution channels,
and to improve our products and services we are creating more opportunities for direct client contact
through seminars and informative sessions.

In the investment advisory business, institutional investors are reviewing their portfolio allocations after
the recent financial turmoil and reconsidering their choices of asset managers. We are capitalizing on
this trend to increase our investment advisory assets by leveraging our expertise in Japanese and Asian
equities as well as Japanese and foreign bonds. We are also developing new products, such as equity
funds that are based on the RAFI(R) (Research Affiliates Fundamentals Index) strategy and sharia-
compliant equities and bonds in the Islamic finance space. These developments represent our constant
commitment to pursue new fields and new methodologies to deliver the latest products to our clients.

):

<<
 
 <    ) 9   

We use a SWOT analysis to base our strategic analysis and assess with qualitative arguments whether
buying part of Lehman was a good move for Nomura.

In order to do the SWOT analysis, we have to first define the main goal of this acquisition. This goal was
defined by Nomura as ͞becoming a world class investment bank͟ by ͞maximizing synergies using
competitive resources͟ and having a ͞vertically integrated international wholesale business͟. Once this
goal is defined, we first assess what are the present strengths and weaknesses of Lehman. Then from
this assessment, we evaluate what are the potential future opportunities and threats this deal would
create for Nomura.

Nomura Group works to prevent behavior that may give rise to suspicion of violations of legal
regulations. Should such issues arise, all related information is promptly transmitted to management
without exception, and systems have been put into place to deal with these appropriately. In addition,
in accord with the Regulations of Nomura Group Management Structure, all Group companies comply
with laws and regulations that have been enacted for the industries where they engage in business
activities and supervise compliance based on their internal regulations. In addition, improvements have
been made to unify Group companies' compliance systems, for example with the appointment of
Compliance Officers and the creation of Compliance Hotline.
To further strengthen the system for internal controls at the Group's companies both in Japan and
overseas, on April 1, 2007, the Group created the position of Group Compliance Officer, fostering
cooperation within the Group by holding regular Nomura Group compliance meetings and global
compliance meetings which will help to ensure an effective system of controls.

You may report to us your concerns regarding our accounting, internal accounting controls or auditing
matters via feedback.

  < )  4<< 

To create a substantially stronger system for internal supervision activities at all Nomura Group
companies in Japan and internationally, a Group Compliance Officer was appointed on April 1, 2007,
with overall responsibility for Group compliance.

)  4<< 




Each domestic Nomura Group company in Japan has a Compliance Officer charged with ensuring that
compliance is a strong part of the corporate culture and that business operations adhere to all laws and
regulations.
Matching each company's system, some Group companies appoint Compliance Officers for each
department, while others appoint one or several Compliance Officers for each division or for the entire
company. Compliance Officers are responsible not only for monitoring adherence to laws and
regulations, but also for ensuring that activities conform to social standards from the standpoint of
corporate ethics. Nomura Group Compliance Officers attend annual training seminars. These events
reinforce awareness of their responsibilities and raise awareness within Nomura Group of the need to
observe a unified compliance policy and set of regulations.

)  () 

Nomura Group employees in Japan who have become aware of actions that may violate laws and
regulations are able to report their concerns directly to NHI management through a Compliance Hotline.
This hotline also allows such reports to go directly to an outside director as well as a legal supervisor (an
independent legal attorney), in addition to the designated executive officer at NHI, information may be
given anonymously, and employees have been informed that measures are in place to ensure that
individuals who give their name when reporting violations do not suffer any negative consequences
from their actions.



2 ).
5))):

Because Nomura Group conducts business on a global scale, adequate measures are taken with regard
to legal risks associated with overseas compliance and cross-border transactions.
Nomura Group is heightening its professional expertise concerning the regulatory environment for its
international activities. We are also refining skills in the development of cross-border products and
services that take into account the requirements of laws and regulations of various regulatory regimes.
Overseas legal risk is managed primarily on a regional basis. As part of the management of legal risk
associated with global business activities, Nomura Group periodically holds a global legal conference and
a global compliance conference. These provide a forum for examining problems involved with cross-
border and other business activities.

 c   
)  c  

Nomura Securities Co., Ltd. has established a Compliance Program, which is a detailed action plan for
compliance, and developed its compliance structure based on this program. In addition to initiatives for
the overall Group, a Compliance Committee is also in charge of establishing the internal controls system
and discussing important matters involving internal controls, in order to enhance the compliance
system. As measures aimed at enhancing compliance awareness, Compliance Officers have been
appointed in all branch offices and departments, and training and study sessions are provided for all
employees.
Branch offices and departments hold monthly compliance awareness sessions concerning compliance-
related topics provided by the head office. Training is provided using materials prepared for each branch
office in a format for easy comprehension by employees, with Q&A sessions also used to clarify topics.
Charged with making employees more aware of compliance and communicating compliance-related
information, Compliance Officers are also required to participate in annual Compliance Officer training,
and strive to respond to the continuously evolving social environment and ever-changing needs.

)   

ãV The Compliance Committee is made up of 11 officers including the CEO, the Internal
Administration Supervisor, and two outside lawyers acting as legal advisors.
)  &   ' 
  4<< 


ãV In accordance with Japan Securities Dealers Association regulations, Internal Controls Officers
are assigned within front-office departments and Compliance Officers are assigned at each
department and branch office.
)  () 

ãV The Nomura Securities Compliance Hotline provides another means, separate from the Nomura
Holdings channels, for Nomura Securities employees to submit information directly to the
Internal Administration Supervisor and external lawyers.
These lawyers are the legal supervisors of Nomura Securities' Compliance Committee.
Employees who report violations to the Compliance Hotline can choose to remain anonymous.
Employees are also informed that measures are in place to ensure they are completely
protected from any negative consequences should they use their real names.



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)  () 

)  1 

ãV Compliance manuals designed to ensure a clear understanding of laws and regulations are made
available via Nomura Securities' intranet, providing a compliance education framework for all
directors, officers, and employees.
ãV Training programs are conducted in accordance with the duties of employees, and training
materials are used for monthly training sessions at branch offices. Reports on the
implementation of these sessions are submitted to administrators.

2.V Analyze the effect of the forces on the complexity, dynamism, and richness of the environment.
From this analysis, how would you characterize the level of uncertainty in your organization͛s
environment?