Recently Motoring Weekly wrote an article about the Renault-Nissan-Mitsubishi Alliance that described the history of the loose grouping of manufacturers and the marques associated with them. This was to set the scene for this article about the management crisis that has enveloped the alliance.
Back in November of last year, Carlos Ghosn, the CEO of the Alliance and the Chairman plus CEO of Renault, Nissan and Mitsubishi was arrested in Japan under a charge of financial reporting irregularities. The authorities claimed that he had under-reported his salary in the Annual Report for several years. Another Nissan executive was detained at the same time and both denied any wrongdoing. On arrest, prosecutors had 48 hours to investigate further before they could apply for a 10 day detention period and then they could go for another 10 days if required, repeating the process indefinitely.
What is strange about this allegation is that Ghosn was not the one writing the Annual Report and had he attempted to change it, surely the CFO and Board would have become suspicious years ago, not just when there was a struggle between the partners in the alliance. Here at Motoring Weekly, we have always been suspicious of why this arrest took place – the charges didn’t make sense. Clearly after getting several detention periods under their belt, the prosecutors couldn’t get the charges to stick, so they allowed Ghosn to go free, However he was promptly re-arrested on further financial irregularity charges!
It seems the first charge is a little hard to prove because Nissan had agreed to defer some of his salary in recent times until after he retired – a perfectly legal compensation option in Japan.
The new charges relate to a claim that he used $16m of Nissan’s money to hide his own derivatives losses back in 2008 – a cool ten years prior to these new charges being laid. If there was any real substance to these charges, would they not have come out before now? Nissan is a huge company with staff turn-over that would have meant new eyes on the numbers which in turn would have uncovered the irregularities – or was there a stream of employees benefitting from being paid off?
What is clear is that Nissan entered into an agreement with Ghosn as part of his package to transfer the derivatives to the car company and for them to manage them, allowing Ghosn to concentrate on the management roles he had. The reason he had the derivatives was because of exchange rates: Nissan paid him in Yen and he lived in the US Dollar world, so needed a way to protect himself from the fluctuating currencies. All was fine until the GFC in 2008 when everything went pear-shaped. Now, the company is saying they were duped by Ghosn because they believe a further $15m went to him via a Saudi businessman who was a Nissan associate, having pulled the company out of another mire in the Middle East.
Immediately after his first arrest, Nissan fired him from all roles as did Mitsubishi. In January, he resigned from his other posts at Renault with two other executives taking the Chairmanship and CEO roles separately, a governance change that appears to prevent anyone from gaining as much power as Ghosn had. Interestingly, it seems that Renault were quietly happy that Ghosn was at the top!
With Ghosn leaving Nissan, other executives started to move on, with their Chief Performance Officer, Jose Munoz, quitting his post and the Senior Vice President for HR at Nissan and the Alliance also leaving. One report suggested that Nissan was “purging” Ghosn affiliates. Munoz was a critical management figure, having helped the US division rebound dramatically.
So, there are three charges laid against Ghosn and all three relate to documents that Nissan executives (and the Board) agreed to – and signed. If they were that bad, then why are no Japanese executives being charged? The only executives under investigation are currently foreigners. Ghosn has called it a plot to get rid of him and his team. Aa an example, there were several properties that Nissan acquired for Ghosn to use, the legal team had signed all the documents yet Nissan is publicly saying that the company was not involved!
There is speculation as to why these charges and therefore management changes have suddenly come to light. As described in the earlier article, Renault had bought 40-odd percent of Nissan as part of the creation of the alliance and controlled the voting block in it. Over the years two things happened, the first was that Nissan became the dominant partner when it came to revenues and the French Government became a big shareholder in Renault. As Renault had a large voting block in both Nissan and the Alliance, that meant that the French Government could dictate what happened in Tokyo!
The French were demanding greater controls, to a point where the Government wanted Renault to fully absorb Nissan which would mean their revenues coming under the French company. It was known that the Government had met with Ghosn to discuss this plan with a new company that would have been (allegedly) owned 50/50 by the two parties. As Renault had finagled far more voting rights in the existing corporate structures, it is clear that Nissan didn’t trust the French one bit. There was a report that the French Government were unhappy that the new structure would be 50/50 – they wanted Renault to be the dominant partner.
On March 4th, Ghosn was allowed bail for $9m after the legal team negotiated a deal that keeps him in Japan until the charges are dealt with, although Nissan have also said that they have more charges they are considering to levy. Nissan’s CEO has also admitted that the internal investigation started when Ghosn raised the idea of the merger, even though he says that he knew nothing until later in the year. However, it does seem remarkably coincidental that after the merger was discussed, someone in Japan started mining for dirt and hit the motherlode by flipping signed agreements from OK to “Not OK”.
Now, if the agreements were truly “Not OK” then we must see many more executives be charged for their role in agreeing and signing the documents. If no one else gets charged, then it is clearly designed to get rid of unwanted executives. Watch this space!