Nissan Motors has announced its former CEO and current Chairman, Carlos Ghosn, is alleged to have under-reported his compensation to Japanese authorities for years, hence committing tax and securities fraud. Subsequently he, and another Nissan board member, have been arrested by Japanese authorities, and there are allegations of similar misconduct by Ghosn at Mitsubishi and Renault. Ghosn of course has played a large (though not as well recognized) role in bringing electric vehicles to the market, via pushing both Nissan and Renault in the direction of zero emission vehicles. But as laudible as his achievement of establishing the Nissan Leaf and Renault Zoe as two of the best selling electric cars, that has not made Ghosn a saint, and he must be seen just as human as the rest of us.
We could be bringing the foibles of Elon Musk into this, but that’s an article for a different day. Musk clearly has a cult of personality following him around heaping praise on his every act, but Musk has plenty of foibles which must be recognized as well.
According to an NY Times report, a whistle-blower told Nissan executives that Ghosn had been under-reporting compensation to Japanese authorities, and that he had used company assets/resources for personal use. Another Director, Greg Kelly, was also accused of misconduct.
According to The Asahi Shimbun, Ghosn is suspected of under-reporting his salary by about 5 billion yen ($44.6 million), and he is accused of falsifying securities reports in violation of the Financial Instruments and Exchange Law. Greg Kelly is accused of conspiring with Ghosn. Finally, Nissan has said it will take immediate steps to remove Ghosn from the Board of Directors.
According to The Mainichi, the issue was an under-reporting of Ghosn’s income on securities reports. The investigation spanned several months, and determined that Ghosn’s compensation had been under-reported for several years, as well as other illicit acts.
Nissan issued the following statement:
YOKOHAMA, Japan – Based on a whistleblower report, Nissan Motor Co., Ltd. (Nissan) has been conducting an internal investigation over the past several months regarding misconduct involving the company’s Representative Director and Chairman Carlos Ghosn and Representative Director Greg Kelly.
The investigation showed that over many years both Ghosn and Kelly have been reporting compensation amounts in the Tokyo Stock Exchange securities report that were less than the actual amount, in order to reduce the disclosed amount of Carlos Ghosn’s compensation.
Also, in regards to 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.
Nissan has been providing information to the Japanese Public Prosecutors Office and has been fully cooperating with their investigation. We will continue to do so.
As the misconduct uncovered through our internal investigation constitutes clear violations of the duty of care as directors, Nissan’s Chief Executive Officer Hiroto Saikawa will propose to the Nissan Board of Directors to promptly remove Ghosn from his positions as Chairman and Representative Director.
Saikawa will also propose the removal of Greg Kelly from his position as Representative Director. Nissan deeply apologizes for causing great concern to our shareholders and stakeholders. We will continue our work to identify our governance and compliance issues, and to take appropriate measures.
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. Additionally, he was paid ¥227 million in cash and stock options by Mitsubishi Motors last year. At Renault, Ghosn insisted on a pay package of 7.5 million euros, about $8.5 million, for 2017.
Since the French government owns 15% of Renault, his compensation request was negotiated with the Government. That government has been trying to “improve the image of a divide between the nation’s wealthy executives and working people” and fought against Ghosn’s compensation package demands. Proxinvest, a shareholder advisory company based in Paris, also recommended voting against Ghosn’s compensation package because of a lack of transparency.
The NY Times article also notes that in Japan, Ghosn’s compensation demands are excessive compared to those of other Japanese automakers.
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.
This raises an issue some talk about – the gap between CEO pay and that of entry-level workers. Over recent years that gap has grown to where the CEO earns 100x or more what entry-level workers earn. This was not formerly the case even in the USA, and in some countries the ratio of CEO pay to the rest of us is much shallower.
I some news articles are predicting the Nissan-Renault-Mitsubishi alliance will fall apart if Ghosn is not there to guide the alliance. We don’t know if that will come about, but we can say the alliance does not exist on the say-so of just Carlos Ghosn. To forge the alliance Ghosn had to gain the approval of the three automakers, meaning that each Board had to agree to the terms. To further cement the alliance, Nissan and Renault both own large stakes in each other, and Nissan owns a large stake in Mitsubishi.
According to the reports linked earlier, the Alliance taken together sells more vehicles than other leaders like Toyota and Volkswagen, and also has large revenue.
Because the companies own stakes in each other, and jointly conduct R&D and parts purchasing, any unraveling of the alliance will not happen overnight.
As fans of electric vehicles we have to be worried about the fate of the electric cars produced by these three companies. For Nissan and Renault, each sells an electric car with large market-share — the Renault Zoe is the most popular EV in Europe (well, until the Model 3 arrives), and the Nissan Leaf has sold very well worldwide. For Mitsubishi, the iMiEV had mixed adoption in the market (I happen to like it very much, but recognize many don’t) and the Outlander PHEV appears to be very popular.
With Ghosn gone from the scene, will these automakers keep on with the plan? Again, the plan was not forged by this one person, but has to have involved decisions up and down the chain of command in each company. If there is a change in direction regarding ZEV’s at these companies, it will not happen overnight.
These allegations paint a picture of someone who is greedy for more money, and willing to abuse the law to get it. These are simply allegations, and it is within possibility this is a hit job based on fake evidence that is meant to derail the move to electric vehicles. Admittedly that’s not likely, but “innocent until proven guilty” means we should entertain that possibility alongside other possibilities.
Bottom line is the cause of electric vehicle adoption must move forward. But this cause must not mean losing sight of other goals such as quashing corruption at all levels.
UPDATE: Renault issued the following press release on the following day (Nov. 20, 2018)
Board of Directors communicationNovember 20, 2018
Boulogne-Billancourt, 20 November 2018 – The Board of Directors of Renault held today adopted transitional governance measures to preserve the interests of the Group and the continuity of its operations.
The Board was chaired by the lead independent director Mr. Philippe Lagayette after the opening of judicial proceedings against Mr. Carlos Ghosn in Japan. At this stage, the Board is unable to comment on the evidence seemingly gathered against Mr. Ghosn by Nissan and the Japanese judicial authorities.
Mr. Ghosn, temporarily incapacitated, remains Chairman and Chief Executive Officer. The Board of Directors resolved to appoint Mr. Thierry Bolloré on a temporary basis as Deputy Chief Executive Officer Mr. Bolloré will therefore lead the management team of the Group, having the same powers as Mr. Carlos Ghosn.
During this period, the Board will meet on a regular basis under the chairmanship of the lead independent director to protect the interests of Renault and the sustainability of the Alliance.
The Board decided to request Nissan, on the basis of the principles of transparence, trust and mutual respect set forth in the Alliance Charter, to provide all information in their possession arising from the internal investigations related to Mr. Ghosn.
The Board endorsed the support expressed by the Nissan management to the Renault Nissan Mitsubishi Alliance, which remains the priority of the Group.
About Groupe Renault
Groupe Renault has been making cars since 1898. Today it is an international, multi-brand group combining the Renault, Dacia and Renault Samsung Motors, Alpine and LADA brands. In 2017, it sold close to 3.76 million vehicles through 12,700 outlets in 134 countries. Groupe Renault employs more than 180,000 people and operates 36 manufacturing facilities worldwide. To address the major technological challenges of the future and pursue profitable growth, Renault focuses on international development. It is harnessing complementary coverage across its five brands; electric vehicles; and its unique alliance with Nissan and Mitsubishi. With its Formula 1 team, Renault is active in motorsport as a powerful force behind innovation, image and brand recognition.
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