Tokyo prosecutors arrested Carlos Ghosn, Chairman of the alliance of Nissan Motor Co., Renault SA and Mitsubishi Motors Corp., on Monday on suspicion that he failed to report $44 million USD that he had been paid between 2011 ~ 2016. The underreporting of his pay is a violation of the Financial Instruments and Exchange Act and could incur civil and criminal charges against Ghosn and penalties against Nissan.
Nissan said in a statement that a whistleblower had sent authorities and executives of the company a report on Ghosn’s declared and real income in reports submitted to the Tokyo Stock Exchange and had conducted other "significant acts of misconduct" including misusing company funds for personal purposes. This report then led to an internal probe over several months in cooperation with Tokyo prosecutors.
Hiroto Saikawa, CEO of Nissan will propose dismissing Ghosn as Chairman and Representative Director of the company as soon as possible. Greg Kelly who is a representative director of the company will also be dismissed. Kelly was arrested at the same time as Ghosn on suspicion of violation of the financial law. According to Nissan, Kelly is confirmed to have had "deep involvement" in the misconduct. Nissan will fully cooperate with the investigation, it said.
The whistleblower “report” as well as the actions of the company are seen as an internal coup by Japanese board members who resent his brash management style which focuses on specific financial and numeric goals.
French automaker Renault agreed to help Nissan turn around its money-losing business and Ghosn became the chief operating officer of Nissan in 1999, shocking the Japanese business world which said that a non-Japanese person couldn’t understand Japan’s
“unique” corporate culture and be the president of CEO of a major Japanese company.
After becoming CEO in 2001, Ghosn became known as a drastic cost cutter who closed plants, dismissed staff and restructured the company so that it could become profitable.
Under Ghosn’s leadership, Nissan moved away from “conventional practices” in the Japanese auto industry that angered many people. As one example, he negotiated directly with steelmakers to lower steel costs, which triggered fierce competition among major steel companies.
Ghosn, who is a French citizen, became the CEO of Renault in 2005 and pushed for further streamlining of the auto-industry through joint procurement and development under the Nissan-Renault alliance. In 2016, Nissan invested in Mitsubishi Motor’s and took control of the company after a scandal caused the company’s sales to drop.
The companies in the Renault-Nissan-Mitsubishi alliance each own shares in the other companies and share investments in new technologies. Renault owns 43% of Nissan, which owns 15% of Renault and 34% of Mitsubishi. In the first half of 2018, the alliance formed by the three companies became the world's largest auto seller, outselling Volkswagen.
Michael Hewson, Chief Market Analyst at CMC Markets in London said "The last thing one of the world's biggest automakers needs is the disruption caused by an investigation into the behavior of a man who has towered over the global auto sector,"
In response to the arrest of Ghosn in Tokyo, French carmaker Renault tapped its chief operating officer and a senior board member to fill in for Ghosn, but the board refrained from firing Ghosn while awaiting more detail on the allegations.
Osamu Masuko, CEO of Mistsubishi Motors told reporters in Tokyo that: "I don't think there is anyone else on Earth like Ghosn who could run Renault, Nissan and Mitsubishi. The immediate problem is that while we still have people at the top of two companies, there is no one at the third" referring to Renault.
Bruno Le Maire, France’s Finance Minister said on France Info radio on Tuesday that: “Carlos Ghosn is no longer in a position capable of leading Renault.” The French government has a 15% stake in Renault and various politicians have expressed concern over Ghosn’s arrest. Finance Minister Le Maire also said that the French government had already investigated Ghosn’s tax affairs but had found nothing wrong.
Global ratings agency S&P announced on Tuesday that Nissan faces a possible debt downgrade and that the company and its overseas subsidiaries are being placed on a "CreditWatch with negative implications" list. S&P said that Nissan’s profitability could "weaken substantially" in fiscal years 2018 and 2019 if Ghosn's alleged misconduct affected Nissan sales or hurt its alliance with Renault and Mitsubishi Motors.
S&P also said: "Although Nissan said it aims to identify its governance issues and hammer out preventive measures, we think rebuilding its management culture swiftly will not be easy."