Auto magnate Carlos Ghosn arrested in Japan and ousted as Nissan’s CEO. What now?

By Elton Gomes

After Nissan chairman Carlos Ghosn (pronounced “Goan”) was arrested on November 19, the Japanese carmaker’s board has voted to oust him. Ghosn’s arrest certainly raised eyebrows across the Japanese automotive sector.

The former Nissan boss was credited with creating what was effectively the world’s largest carmaker, and his arrest is seen as a remarkable fall from grace for someone regarded as a powerful executive in the auto industry.

Here’s what happened

Carlos Ghosn, the chairman of Nissan and one of the world’s most powerful automotive executives, was arrested by Japanese prosecutors, media reports said on November 19. It has been alleged that Ghosn understated his income on financial statements and was exposed by a whistleblower.

However, recent reports on Saturday mentioned that Ghosn was not in the wrong. Greg Kelly, a former Nissan executive, who was also arrested along with Ghosn has defended Ghosn’s compensation, saying it was discussed with other officials and paid out appropriately, Japanese public broadcaster NHK said on Saturday, as per a Reuters report.

Japanese prosecutors, on the other hand, said that say Ghosn and Kelly conspired to understate Ghosn’s salary by about half the 10 billion yen ($88 million) he earned at Nissan over five years – from 2010 to 2015.

Nissan said in a statement that “over many years” Ghosn and Kelly had 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”.

Nissan said further, “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.”

Who is Carlos Ghosn, and what has he been accused of?

A 40-year auto industry veteran, Ghosn has been credited for bringing together three big carmakers — Renault of France and Japan’s Nissan and Mitsubishi Motors — with the aim of competing against top players like Volkswagen, Toyota, and General Motors.

Ghosn’s Renault-Nissan-Mitsubishi alliance makes one out of every nine cars sold around the world. In addition to being Nissan’s president, Ghosn is chief executive and chairman of Renault and chairman of Mitsubishi.

Ghosn was detained by Tokyo prosecutors on Monday, November 19, when he reportedly stepped off a flight from Beirut, which is his hometown. Ghosn’s arrest followed an internal investigation at Nissan, where the company said that it found “significant acts of misconduct” over many years, including understating his income in financial reports and misusing company assets.

Nissan was said to have cooperated with prosecutors in the probe. The Japanese carmaker said Ghosn declared only half of about $88 million that he was paid between 2011 and 2015.

A whistle-blower, who accused Ghosn of misrepresenting his salary and using company assets for personal purposes, prompted the probe, Nissan said.

Greg Kelly, Nissan’s first American director and its former head of human resources, was also arrested. Both Ghosn and Kelly are suspected of masterminding a long-running scheme to mislead financial authorities. Neither of them have yet been charged.

Nissan board ousts Ghosn

Media reports from November 22 stated that Nissan’s board of directors voted unanimously to remove Ghosn as its chairman. Ghosn’s ouster comes three days after he was arrested in Japan.

Ghosn’s, close aide, Kelly was also dismissed as representative director after Nissan’s probe uncovered what it describes as his “deep involvement” in the “significant acts of misconduct” by Ghosn. CEO Hiroto Saikawa could double as Nissan’s interim chairman, company sources said on Thursday.

Nissan further said that it would be forming an advisory committee to propose nominations from the board of directors for Ghosn’s replacement. Additionally, a separate committee to review Nissan’s governance and executive pay is also likely to be created.

In a statement, Nissan said that its board has “confirmed that the long-standing Alliance partnership with Renault remains unchanged and that the mission is to minimize the potential impact and confusion on the day-to-day cooperation among the Alliance partners.”

A “planned hatchet job”?

Ghosn’s arrest has been seen by some as a ploy to reset the power balance in the Nissan-Renault-Mitsubishi alliance.

The Financial Times reported that there were advanced plans for a complete merger between Renault and Nissan. However, the BBC cited sources who insisted that a full merger “was never on the cards”.

Although Ghosn was credited with rescuing Nissan from bankruptcy almost 20 years ago, his hero status has not augured well with some Nissan executives, including CEO Hiroto Saikawa. Saikawa refused to answer when he was asked whether Ghosn had become a “dictator”.

Renault says Ghosn will continue as CEO

France’s Renault said it will be retaining its CEO Carlos Ghosn despite his arrest in Japan. Renault’s board of directors announced late Tuesday that Chief Operating Officer Thierry Bollore would temporarily fill in Ghosn’s position.

“Mr Ghosn, temporarily incapacitated, remains chairman and chief executive officer,” a statement from Renault’s board said. Renault’s board added that its decision was made in order to keep the company on a steady course “to preserve the interests of the group and the continuity of its operations.”

What next?

Ghosn’s sudden downfall could lead to a power struggle between Renault and Nissan over the alliance he oversaw for two decades.

Though both sides say they are committed to the alliance, it seems that they’re already preparing to gain control of the world’s biggest car alliance, people familiar with discussions said.

Keeping in mind that the French and Japanese governments would also look to defend their own interests, Ghosn’s ouster could set the tone for one of the toughest corporate battles.

---

Elton Gomes is a staff writer at Qrius