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Nissan Motor chairman Carlos Ghosn arrested for financial misconduct

The news rattled the European equity market, with shares of Renault falling as much as 15 percent in Paris, while Nissan's global depository receipts sank more than 11 per cent

Ma Jie | Bloomberg 

Carlos Ghosn, among the most prominent auto-industry leaders globally and CEO of Renault SA, was detained over a suspected breach of Japanese financial law
Carlos Ghosn, among the most prominent auto-industry leaders globally and CEO of Renault SA, was detained over a suspected breach of Japanese financial law

will remove as chairman after he was arrested in Tokyo for violating financial law, throwing the auto industry’s largest global alliance into turmoil.

Ghosn, a towering figure who saved Nissan from collapse and brought it together with Renault SA and Mitsubishi Motors Corp., was detained on Monday in Tokyo over the suspected breach of Japanese financial laws, Nissan Chief Executive Officer Hiroto Saikawa told reporters in Yokohama, Japan. Ghosn and Director Greg Kelly have been under investigation at Nissan for several months, and the board is set to meet Thursday to remove them both.

Both Ghosn and Kelly were reporting compensation to securities regulators in Tokyo that was less than the actual amount, Nissan said, adding that they did this to reduce Ghosn’s disclosed compensation. Regarding Ghosn, “numerous other significant acts of misconduct have been uncovered -- such as personal use of company assets -- and Kelly’s deep involvement has also been confirmed,” the carmaker said in a statement.

Saikawa said the company can’t disclose further details of the suspected wrongdoing. Too much power being concentrated to one individual allowed for the misconduct, and Nissan failed to detect it because its structure wasn’t transparent enough, he said. Ghosn is suspected of understating his income by 5 billion yen ($44 million) over five years, Kyodo reported.

The bombshell allegations threaten to bring down one of the auto industry’s most powerful executives, who turned Nissan and Renault into a challenger to giants Volkswagen AG and Toyota Motor Corp.

They also cast doubt over the future of the alliance, a three-way pact that has sought to go deeper under the steady hand of Ghosn, 64. While no longer Nissan’s CEO, he’s been laying the groundwork as chairman to make the alliance permanent after his departure — including the possibility of a merger.

“Investors need to be reassured,” as Ghosn is a key driver of the collaboration, Jose M. Asumendi, an analyst with JPMorgan, said in a research note. Cooperation with Nissan “is critical to Renault’s strategy going forward.”

The news rattled the European equity market, with shares of Renault falling as much as 15 percent in Paris, while Nissan’s global depository receipts sank more than 11 per cent.

Big challenges

The crisis at Nissan is taking place amid a tectonic shift in the auto landscape.

The move toward electric and self-driving cars has forced traditional automakers to invest billions, while new competitors like Uber Technologies Inc. and Tesla Inc. invade their turf. Ghosn would be the second major auto-industry figure to leave unexpectedly before seeing through the transition. Sergio Marchionne, who led Fiat back from the brink and engineered its merger with Chrysler, died in July, leaving 54-year-old former Jeep chief Mike Manley at the helm.

Nissan said it has been providing information to Japanese prosecutors and is cooperating fully with their investigation. Ghosn went voluntarily with prosecutors, the Asahi newspaper reported earlier. A representative for the Tokyo prosecutors’ office said they don’t comment on individual cases and a spokesman for Renault also declined to comment.

ALSO READ: Nissan's Carlos Ghosn to be arrested for 'financial violations': Report

Under Japanese law, prosecutors need to make official charges before a case can be brought to court. So Ghosn’s arrest doesn’t mean he’ll be found guilty. It’s unclear where he is now and how long the legal process will take.

Ghosn said in September that he will continue to pare back his role at the three automakers he brought together, while continuing to head their alliance.

Among the best paid executives in both Japan and France for several years, Ghosn’s compensation has regularly drawn criticism. Ghosn receives numerous paychecks in his multiple roles as chairman of the Renault-Nissan-Mitsubishi alliance, CEO of Renault, and chairman of both Nissan and Mitsubishi.

At Nissan, he was paid about 1.1 billion yen ($10 million) for 2016 and about $6.5 million in the most recent fiscal year. He took home about $8.5 million at Renault and about $2 million from Mitsubishi in the latest period.

First Published: Tue, November 20 2018. 02:33 IST
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