Carlos Ghosn has been considered the hero of the Japanese automotive industry for the last 20 years. After successfully restructuring Renault through a cost-cutting plan in 1998-2000, he earned the nickname “Le Cost Killer.” His radical restructuring of the Renault – reducing workforce, revising production processes and pushing for new models – successfully contributed to the profitability of the company.
Then, after Renault and Nissan formed the Renault-Nissan Alliance in March 1999, Ghosn earned the nickname “Mr. Fix It” after architected the turnaround of Nissan from its near bankruptcy. From more than US$20 billion of debt, the Brazilian-French businessman reversed the Japanese carmaker’s sinking fortune to net profit of US$2.7 billion for fiscal year 2000.
Ghosn’s “Nissan Revival Plan” included his promise to resign if his goals to nurse Nissan back to profitability as early as fiscal year 2000 were not met. He was the fourth non-Japanese person to lead a Japanese automaker. He was so hard-working that Japanese media called him “7-Eleven”. His life story was turned into a superhero comic book series in Japan – “The True Story of Carlos Ghosn”.
Carlos Ghosn also has a Japanese Bento box named after him on the menus at some Tokyo restaurants. Due to the fact that the Japanese take their food seriously and do not welcome foreign interventions, the “Ghosn Bento” could be seen as a Japanese way of bestowing acceptance and recognition upon him as a foreigner on Japanese soil.
However, the legendary and influential executive in the global automotive industry has just been fired – by Nissan board today. Not only Ghosn is fired as Nissan’s chairman, he also has been arrested and is being held in a Tokyo detention centre, where only 30 minutes of daily exercise and two baths a week is allowed, not to mention fed basic rations of rice and “miso soup”.
On Monday (Nov 19), Nissan revealed that a whistleblower had passed information over Ghosn and Representative Director, Greg Kelly, to Nissan’s auditors who then began an investigation which would turn into a scandal. Japanese prosecutors said both men conspired to understate Ghosn’s compensation at Nissan over 5 years from 2010, only recorded half of the actual 10 billion yen (US$88 million).
Kelly, also arrested and a lawyer by training, was a close ally of Carlos Ghosn and the first American to sit on the Japanese carmaker’s board of directors. Nissan CEO Hiroto Saikawa accused Kelly of being the “mastermind” behind Ghosn’s alleged misuse of Nissan funds. And both individuals had been under-reporting compensation amounts to the Tokyo Stock Exchange securities report.
It was also revealed that Nissan Motor Co. paid about US$100,000 (about 11.3 million yen) a year to the older sister of Chairman Carlos Ghosn although she did nothing for the company. Apparently, the payments to the sister, based on a contract for advisory work, began in 2002, a year after Ghosn took on the concurrent roles of CEO (Chief Executive Officer) and president at Nissan.
In total, Ghosn’s sister was paid a total US$1.7 million. Ghosn is being questioned for 3 major misconducts – under-reporting his executive salary, using investment funds for personal expenditures and suspect spending of company expenses. The maximum punishment in Japan for filing a false financial statement is up to 10 years in prison and a fine of up to 10 million yen (US$89,000).
Japanese media NHK reported Tuesday that Ghosn had also failed to properly disclose homes provided by Nissan in four countries. Prosecutors suspect Ghosn may have pocketed money that was meant for other executives at Nissan. While Renault stopped short of removing Ghosn, Mitsubishi Motor, the third member of the Renault-Nissan-Mitsubishi Alliance venture wanted him fired promptly.
The speed and stunning fall of Carlos Ghosn is quite astonishing, triggering conspiracy theory that hits the powerful global alliance. Together Nissan, Renault and Mitsubishi make one of every nine cars sold around the world, employing more than 470,000 people in nearly 200 countries. However, the partnership has not been equal from the beginning.
Nissan, despite its bigger size – about 60% – and sells more vehicles than Renault, holds only a 15% non-voting stake in the French company, as does the French government. Renault, on the other hand, holds a much more powerful 43% shareholding in Nissan. Prior to the explosive scandal, France had been pushing for a full merger between Renault and Nissan.
Now, it appears a break-up is more possible than a merger, while other sources said a full merger was never on the table in the first place. So, the scandal has been seen by some as a bid to reset the balance of power in the Renault-Nissan-Mitsubishi alliance. Nissan executives, including CEO Hiroto Saikawa, were uncomfortable at the power wielded over the company by Renault.
Born in Brazil, Ghosn became the world’s first person to run two companies on the Fortune Global 500 simultaneously when he assumed the CEO roles at both Renault and Nissan in 2005. He stepped down as Nissan CEO in 2017. He became the chairman of Mitsubishi following Nissan’s acquisition of a controlling 34% stake in Mitsubishi Motors in October 2016.
As the dominant partner due to its 43% shareholding in Nissan, despite selling fewer vehicles, Carlos Ghosn was seen as too powerful in the alliance. This year Mr. Ghosn said he was open to a merger between Nissan and Renault, but CEO Hiroto Saikawa has opposed the move, which would result in the Japanese corporate icon coming under foreign control.
That explains why Renault, as well as the French government refused to sack Ghosn. The French company’s board of directors has appointed chief operating officer Thierry Bollore to fill in while Mr Ghosn is “temporarily incapacitated”. But Nissan has set up a committee of three independent directors to propose nominations for a new chairman – a position widely expected to go to chief executive Hiroto Saikawa.
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November 23rd, 2018 by financetwitter
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