Nissan Motor Co’s stock fell more than 6 percent after the arrest of chairman Carlos Ghosn sent shockwaves through the auto industry and cast fresh doubt on the future of the Renault-Nissan-Mitsubishi alliance.
Nissan said on Monday that an internal probe, launched after a whistleblower tip-off, found allegations that Ghosn had engaged in wrongdoing that included personal use of company money and years of under-reporting his earnings. The company said he had been arrested and would be removed from Nissan’s board this week.
Ghosn also serves as chairman and chief executive of Renault, Nissan’s French partner, and as chairman of Mitsubishi Motors Corp, the third member of the alliance. His removal raises immediate questions about a structure he helped shape and later promised to deepen before stepping back from day-to-day leadership.
The fallout comes at a difficult moment for Nissan, the largest company in the alliance. The automaker has been under pressure from falling profits, weak sales in the United States and intensifying competition from rivals investing heavily in connected-car technology and self-driving vehicles.
The allegations have also put governance at the centre of the debate, especially because the boards of all three alliance partners are chaired by one executive. Speaking at a late-night news conference on Monday, Nissan chief executive Hiroto Saikawa said too much power had been concentrated in Ghosn’s hands and that the implications of his leadership over both Renault and Nissan had gone unchallenged since 2005.
Prosecutors said Ghosn and Representative Director Greg Kelly conspired to understate Ghosn’s compensation over five years starting in fiscal 2010, reporting about half of the actual 9.998 billion yen ($88.9 million). Ghosn joined Nissan in 1999 and became chief executive in 2001. He held that role until last year and received 9.2 million euros ($10.53 million) in pay for his final year as CEO.
UBS Securities Japan executive director of wealth management Toru Ibayashi said the allegations mattered because shareholders were denied the chance to judge whether Ghosn’s salary was appropriate. “By under-reporting his corporate salary, he basically deprived Nissan’s shareholders of opportunities to judge if the amount of his salary was appropriate,” he said.
Questions also emerged over possible luxury spending. NHK reported that Nissan paid billions of yen to buy and renovate homes for Ghosn in Rio de Janeiro, Beirut, Paris and Amsterdam, citing unnamed sources. The broadcaster said the properties had no business purpose and were not disclosed as benefits in filings to the Tokyo bourse. Saikawa declined to discuss the details of Ghosn’s alleged personal use of company money.
The Nikkei newspaper separately reported, also citing unnamed sources, that Nissan spent 2 billion yen on homes for Ghosn in Rio and Beirut through a Dutch subsidiary, with Kelly overseeing the transaction. There has been no comment from Ghosn or Kelly on the allegations, and Reuters said it could not reach them for comment.
The scandal has also had diplomatic overtones. On Tuesday, Nissan senior vice president Hitoshi Kawaguchi, who handles government relations, met Japan’s top government spokesman and told media he had asked that relations between Japan and France remain strong.
Japan’s Asahi newspaper reported, citing unnamed sources, that a company employee supplied prosecutors with information on Ghosn in exchange for lighter treatment. It said the arrangement marked the second instance of a plea deal in Japan since the system was introduced in June.
Markets reacted quickly. Nissan shares dropped to a two-year low of 940 yen before later trading 5 percent lower at 955 yen. Mitsubishi shares fell about 6 percent after the company also said on Monday it would remove Ghosn as chairman. Renault shares lost 8.4 percent on Monday.
Despite the shock, analysts said the scandal was unlikely to trigger an immediate collapse in sales. Fujio Ando, an adviser at Chibagin Securities, said the downside for Nissan shares may be limited because the case came to light through a whistleblower. “The fact that the case came to light because of a whistleblower is also positive on the whole, in terms of corporate governance. If this had been revealed by outsiders, that would have been a different story,” he said.
