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Carlos Ghosn, Nissan’s Chairman, Is Arrested Over Financial Misconduct Nissan Chairman, Carlos Ghosn, Is Arrested Over Financial Misconduct Allegations
(about 7 hours later)
TOKYO — The Nissan chairman, Carlos Ghosn, was arrested on Monday after an internal company investigation found that he had underreported his compensation to the Japanese financial authorities for several years. TOKYO — Carlos Ghosn, who created an alliance between Nissan and Renault that made it effectively the world’s largest carmaker, was arrested by the authorities in Japan on Monday in a remarkable tumble for one of the industry’s most powerful and admired leaders.
Nissan said it was cooperating with Japanese prosecutors. It also said that it had opened its inquiry after a whistle-blower alleged that Mr. Ghosn had been misrepresenting his salary as well as using company assets for personal use. Both he and a director, Greg Kelly, who was also accused of misconduct, were taken in by authorities, the company said. Mr. Ghosn, a larger-than-life figure widely hailed for saving Nissan, reviving Renault, and rethinking how automakers could share technologies, was detained after an internal company inquiry found that he had underreported his compensation to the Japanese government for several years.
It is a remarkable tumble for Mr. Ghosn, who arrived at Nissan in 1999 after Renault, the French carmaker, bought a large stake in the Japanese company. It may prove to be an ignominious final chapter in the career of one of the most powerful and highly regarded executives in the automotive industry. The alliance, which in 2016 was broadened to include Mitsubishi, accounts for 10.6 million cars sold annually. The arrest of Mr. Ghosn, who is chairman of Nissan, chief executive of Renault and chairman of the board at Mitsubishi, stunned the industry. It comes at an uneasy time: The companies face a slowing economy, a global trade war and a shift toward electric cars.
Earlier in the day, Nissan said in a statement that Mr. Ghosn and Mr. Kelly had been involved in misconduct and recommended that both be removed from their positions. Neither Mr. Ghosn nor Mr. Kelly could be reached for comment. If the alliance were one entity, it could be considered the world’s largest automaker, on track to sell more cars than Toyota or Volkswagen this year — if it can match results in the first six months of this year, when it sold 5.5 million vehicles.
Mr. Kelly, who spent years working in Nissan’s human resources department, was appointed to the automaker’s board in 2012, the first American to hold the role. Hiroto Saikawa, Nissan’s chief executive, said he would recommend to his board, which will meet Thursday, that Mr. Ghosn be removed. “Needless to say, this is an act which cannot be tolerated by the company,” he said.
According to Nissan’s securities filings, Mr. Ghosn was paid 735 million yen, about $6.5 million, in cash in 2017, down 33 percent from the ¥1.1 billion he was paid in 2016. Mr. Saikawa, speaking at a news conference at Nissan headquarters in Yokohama, described Mr. Ghosn and Greg Kelly, a director who was also arrested Monday, as “masterminds” of a long-running scheme to mislead financial authorities. He offered few details, citing the prosecutors’ continuing investigation.
The disclosure raised questions about Mr. Ghosn’s role as chief executive of the Renault-Nissan-Mitsubishi Alliance. Although he stepped down from the top job at Nissan last year, Mr. Ghosn, 64, has remained at the top of the world’s largest automotive alliance and told reporters as recently as last month that he planned to stay in that post until 2020. Mr. Ghosn was paid ¥227 million in cash and stock options by Mitsubishi Motors last year. “I feel a big disappointment,” said Mr. Saikawa, who did not bow in deep apology before television cameras, as is customary in Japan. “And I feel frustration and despair, and indignation or resentment.”
Renault shares tumbled 10 percent on the Paris Stock Exchange, while Nissan shares in Düsseldorf, Germany, fell 9 percent. Mr. Kelly was Nissan’s first American director, appointed in 2012, but had a much lower profile than Mr. Ghosn. Neither of the men could be reached for comment.
“Nissan deeply apologizes for causing great concern to our shareholders and stakeholders,” the company said. Renault, which owns 43 percent of Nissan, said on Monday that its board of directors would meet “as soon as possible” to discuss the matter but offered no other details. Mitsubishi released a statement that it, too, would look to remove Mr. Ghosn.
After he was sent to Japan by Renault, Mr. Ghosn was credited with saving Nissan from financial collapse. He made sweeping changes at the automaker, closing five domestic factories and cutting 21,000 jobs. He was widely celebrated as a powerful change agent in Japan: His life story was even made into a manga comic, although critics noted that he earned his French nickname, “Le cost killer.” Nissan said it was cooperating with Japanese prosecutors and that its investigation into Mr. Ghosn began after a whistle-blower said he had been misrepresenting his salary and using company assets for personal purposes.
In insular Japan, where foreign leadership of Japanese companies is rare, Mr. Ghosn’s downfall could be taken as a referendum on the perils of working with outsiders. “He’s always the go-to when people say foreigners can never succeed in Japan,” said Pernille Rudlin, managing director of Rudlin Consulting, which specializes in intercultural consulting with Japanese companies. “Now there are no good examples left.” Born in Brazil to Lebanese parents and educated at elite universities in France, Mr. Ghosn made his reputation after joining Nissan in 1999. Renault, where Mr. Ghosn was an executive vice president, had bought a large stake in the Japanese company, which was on the verge of collapse at the time.
Nissan had already stumbled of late. Last October, the company suspended production at all of its Japanese factories after discovering that uncertified technicians had conducted vehicle inspections. In July, the company admitted to falsifying emissions and fuel economy tests. Mr. Ghosn made sweeping changes at Nissan, closing five domestic factories and cutting 21,000 jobs. Later, he engineered an arrangement between Renault and Nissan that allowed them to operate like a single carmaker. Short of a full merger, the alliance enabled them to share the cost of developing new models and to negotiate better deals with suppliers by buying components together.
The disclosures about Mr. Ghosn’s misconduct is of another order, analysts said. “For Nissan, Mr. Ghosn is a big hero,” said Shin Ushijima, a lawyer who specializes in corporate governance. “This news is so embarrassing.” As chairman and chief executive of the partnership, Mr. Ghosn was celebrated in Japan: His life story was made into a manga comic, although critics on the left noted he had earned his French nickname, “Le cost killer.” Still, he had enough political savvy to retain the support of the French government, which owns 15 percent of Renault, despite some bitter pay disputes.
Mr. Ushijima said that Mr. Ghosn had been treated as untouchable at Nissan and that the revelations suggested serious problems with the corporate culture and oversight by the board of directors. In 2016 and 2017, Mr. Ghosn’s salary at Renault was questioned publicly, by French government officials and a shareholder group; this year he agreed to a 30 percent pay cut in return for another four-year term as chief executive.
“Such misconduct cannot be done by Mr. Ghosn alone,” said Mr. Ushijima. “His subordinates must have been involved. And I really wonder how well the outside independent board members watched Nissan.” Under Mr. Ghosn, the alliance overcame the kinds of differences in corporate and national cultures that have often doomed megamergers like the ill-fated marriage between Daimler and Chrysler, which was dissolved in 2007.
Mr. Ghosn is given credit for overcoming differences in corporate and national cultures that have often doomed megamergers of car companies, such as the ill-fated marriage between Daimler and Chrysler, which was dissolved in 2007. Mr. Ghosn, the epitome of the globe-trotting, multitasking manager, was chief executive of both Nissan and Renault from 2005 to 2017, flying between Paris and Tokyo every few weeks. He was also something of a media star, holding forth on panels at the World Economic Forum in Davos and celebrating his 2016 marriage at Versailles with actors dressed in 18th-century costume.
The alliance of Renault, Nissan and Mitsubishi sold 10.6 million cars last year, more than Volkswagen, Toyota or General Motors. Based on sales in the first half of 2018, the alliance could sell 11 million cars this year. He earned a reputation as a hard-nosed manager who drew up rigorous business plans and kept close track of their progress.
Nissan and Renault own substantial stakes in each other, while Nissan owns 34 percent of Mitsubishi. Under Mr. Ghosn’s supervision, the companies retain their independence while sharing costs of developing new models and technologies, and purchasing components together. “His world is the world of efficiency,” said Ferdinand Dudenhöffer, a professor at the University of Duisburg-Essen who follows the auto industry. “It’s the American style of management: clear plans, clear goals and permanently monitored.”
Executive compensation has been a sticking point for Mr. Ghosn in France. He has been in a bitter fight over his salary with the Renault board and the French government, which owns a 15 percent stake in Renault. Mr. Dudenhöffer said it was questionable whether Nissan or Renault would have survived in the brutally competitive market for mid-price autos without Mr. Ghosn. In a measure of investors’ regard for him, Renault shares slid 10 percent on the Paris stock exchange Monday; Nissan shares fell nine percent in trading in Düsseldorf, Germany.
Mr. Ghosn insisted on a pay package of 7.4 million euros, about $8.5 million, for 2017, stoking controversy among shareholders and Renault board members. The French government, which has been trying to improve the image of a divide between the nation’s wealthy executives and working people, had insisted that Mr. Ghosn’s compensation be more limited. According to Nissan’s securities filings, Mr. Ghosn was paid 735 million yen, about $6.5 million, in cash in 2017. That is a drop of 33 percent from the ¥1.1 billion he received in 2016.
At a news conference with the Belgian prime minister on Monday, President Emmanuel Macron of France said it was too early to comment. But he added that the French state, as a major Renault shareholder, would be “extremely vigilant about the stability of the alliance” between Renault and Nissan. He stepped down from the top job at Nissan last year but remained at the top of the alliance. Just last month he told reporters that he planned to stay in that post until 2020. Mr. Ghosn was paid ¥227 million in cash and stock options by Mitsubishi Motors last year.
As the company’s share price tumbled, Mr. Macron added that the French government would also seek to maintain stability and “full support” for Renault’s workers. The company employs more than 47,000 people in France. In insular Japan, where foreign leadership of domestic companies is rare, Mr. Ghosn’s downfall could be taken as a referendum on the perils of working with outsiders.
Proxinvest, a Paris-based shareholder advisory firm, had also recommended voting against Mr. Ghosn’s 2017 salary, citing what it said was a lack of transparency over how the compensation was calculated as well as high bonuses. “He’s always the go-to when people say foreigners can never succeed in Japan,” said Pernille Rudlin, managing director of Rudlin Consulting, which specializes in intercultural consulting with Japanese companies. “Now there are no good examples left.”
Renault shareholders ultimately approved his 2017 payout. But Mr. Ghosn reluctantly agreed to cut his 2018 salary by 30 percent to secure the French government’s backing for another four-year term as chief executive. Nissan has had stumbles recently. In October 2017, the company suspended production at all of its Japanese factories after discovering that uncertified technicians had conducted vehicle inspections. In July, the company admitted to falsifying emissions and fuel economy tests.
A similar fight over Mr. Ghosn’s pay broke out in 2016, when Mr. Macron, who was France’s finance minister at the time, pressured Renault to rein in the chief executive’s pay. Shareholders ultimately voted against giving Mr. Ghosn a €7.2 million pay package for the previous year. The misconduct allegations about Mr. Ghosn are of another order, analysts said.
In Japan, Mr. Ghosn’s pay made him an outlier. Japanese executives typically earn far less than their American or European counterparts. Takeshi Uchiyamada, chairman of Toyota, for example, was paid ¥181 million in 2017, compared to Mr. Ghosn’s reported ¥735 million. “For Nissan, Mr. Ghosn is a big hero,” said Shin Ushijima, a lawyer who specializes in corporate governance. “This news is so embarrassing.”
At a news conference with the Belgian prime minister on Monday, President Emmanuel Macron of France said it was too early to comment. But the French state, as a major Renault shareholder, would be “extremely vigilant about the stability of the alliance” between Renault and Nissan, he said.
Mr. Macron added that the French government would seek to maintain stability and “full support” for Renault’s workers. The company employs more than 47,000 workers in France.
Mr. Ghosn’s pay was long debated there. In 2016, Renault was pressured by Mr. Macron, the finance minister at the time, to reduce his compensation. In 2017, he insisted on a package of 7.4 million euros, about $8.5 million. The French government balked but Renault shareholders ultimately approved that payout.
In Japan, Mr. Ghosn’s compensation made him an outlier. Japanese executives typically earn far less than their American or European counterparts. Takeshi Uchiyamada, chairman of Toyota, for example, was paid ¥181 million in 2017, compared to Mr. Ghosn’s reported ¥735 million.
Foreign investors tend to criticize Japanese companies as not paying executives enough. “For the Japanese market, the main concern from foreign institutional investors is the question of whether compensation will be less incentive driven,” said Hideaki Miyajima, professor of commerce at Waseda University in Tokyo. “The criticism of Japanese firms is that compensation is not related to performance, and Japanese leaders are less likely to take risks.”Foreign investors tend to criticize Japanese companies as not paying executives enough. “For the Japanese market, the main concern from foreign institutional investors is the question of whether compensation will be less incentive driven,” said Hideaki Miyajima, professor of commerce at Waseda University in Tokyo. “The criticism of Japanese firms is that compensation is not related to performance, and Japanese leaders are less likely to take risks.”