Nissan Chairman Carlos Ghosn arrested over allegations of ‘grave’ financial misconduct

Nissan Chairman Carlos Ghosn arrested over allegations of 'grave' financial misconduct

By Kazuaki Nagata, staff writer

Carlos Ghosn, chairman of the alliance between Nissan Motor Co., Renault SA and Mitsubishi Motors Corp., was arrested Monday over the alleged underreporting of his income and misuse of company funds, in an unprecedented scandal that sent shock waves through one of the world’s top automaker groups.

Ghosn, 64, is expected to be relieved of his post Thursday at a meeting of the company’s board of directors, Nissan CEO Hiroto Saikawa told a news conference later in the evening, adding that Ghosn’s long reign had negatively impacted the firm’s governance.

The carmaker said it had initiated an internal investigation after a report by a whistleblower revealed misconduct by Ghosn and Nissan Representative Director Greg Kelly, alleging that the two executives had conspired to underreport Ghosn’s salary for a number of years.

The Tokyo District Public Prosecutor’s Office had questioned Ghosn earlier in the day and arrested him and Kelly. Together, the amount of their underreporting amounted to some ¥5 billion over five years between 2011 and 2015, sources said.

The automaker said its investigation also exposed other wrongdoings, including using the company’s assets for personal purposes.

At the hastily organized news conference, which ran late into the evening, Saikawa apologized for the trouble he said had been caused by Ghosn, who has long been seen as the public face of the automaker.

“We cannot go into details today, but we have confirmed that this matter is totally unacceptable as a company. Experts have also said this misconduct is grave enough to relieve (Ghosn and Kelly) from their posts,” Saikawa said.

“We are deeply sorry and regret the betrayal of trust of various related people, shareholders and suppliers who have supported us for many years because Ghosn was leading Nissan,” he said.

Nissan has been providing information to prosecutors and has been cooperating fully with their investigation, Saikawa added.

He said he will propose to Nissan’s board of directors that Ghosn be removed from his positions as chairman and representative director as well as Kelly from his position as representative director on Thursday.

Asked why Nissan had been unable to identify Ghosn’s alleged malfeasance earlier, Saikawa said the misdeeds had “not really come to the surface,” an indication of the chairman’s grip on power and apparent to stymie transparency within the company.

Still, Saikawa also praised Ghosn’s leadership, noting that it had made Nissan stronger.

Asked about how Ghosn’s reign had collapsed as if by a “coup d’etat,” Saikawa stressed that there was no such intent behind the internal probe.

“That is not my understanding and I am not explaining this case in that way,” he said.

Ghosn is one of the best-paid executives among Japanese companies, a fact that has often been a target of criticism. His reported salary last year fell by some 33 percent from 2016, to ¥730 million — the first time in four years that his pay had not hit at least ¥1 billion. In 2016, his salary was ¥1.09 billion and in 2015 he received ¥1.07 billion.

After the news broke, Renault shares took a nosedive on the European market, briefly dipping more than 10 percent compared with Friday’s closing.

Beyond his role as Nissan chairman, Ghosn also chairs the alliance between Nissan, Renault and Mitsubishi Motors.

Saikawa vowed that Ghosn’s arrest would not affect the alliance, adding that board members would be closely communicating on the issue.

The arrests also left the general public stunned.

Interviewed by The Japan Times on Monday evening, Toru Takahashi, a public official from Tokyo who was testing Nissan cars at the firm’s Yokohama headquarters, voiced incredulity.

“I’m worried about the company’s future,” he said. “If I were considering buying a Nissan car now, I’d probably have second thoughts.”

Ghosn, a rare foreign top executive in Japan, is well-regarded for turning Nissan around from near bankruptcy.

He came to the company in 1999 as chief operating officer to lead the carmaker’s turnaround under a capital alliance with Renault.

Becoming president of Nissan in 2000, he spearheaded a recovery with plant closures and other drastic restructuring measures, shocking the Japanese business community and cementing his reputation as a cost-cutter.

His management style stood out as he set numerical “commitment” targets and carried out aggressive reforms.

Under his nearly two-decade tenure, Nissan moved away from conventional practices in the Japanese auto industry. For instance, it negotiated aggressively with steel-makers to lower steel sheet purchase costs, triggering fierce competition among major steel mills.

In the first half of 2018, the Nissan, Renault and Mitsubishi Motors alliance became the world’s largest auto seller, outflanking major rival Volkswagen in a neck-and-neck race.

The alliance sold 5.54 million vehicles worldwide in the first six months of this year, up 5 percent from the same period last year, according to data from the three companies.

The figure outstripped the 5.52 million vehicles sold by the Volkswagen group, which grabbed the top spot in global sales for the second straight year in 2017.

''Staff writer Magdalena Osumi contributed to this report. Information from Kyodo added.''

Comments

 * S.J.: This story has more holes than Swiss cheese. It is extremely hard to believe that Ghosn and Kelly were able to hide a large chunk of their compensation from Japanese authorities for years without the knowledge of Nissan's compliance department, accountants and internal auditors, given the fact that these two were on Nissan's payroll. I have worked in senior positions at large companies in Japan over many years (both Japanese and multinational corporations) and this type of reporting to Japanese financial regulators and tax authorities regarding workers' compensation is always done by the company itself, not by the individual employees. All the regulatory paperwork is in Japanese and someone like Ghosn without any Japanese language skills wouldn't even know where to begin. As I have written previously, Japanese corporations are extremely hostile places for foreign workers. This is especially true for foreigners in senior positions, since having non-Japanese in such roles creates deep animosity and resentment among their Japanese peers and staff. It does not matter how much the foreign person may have contributed to the company, since their results and accomplishments do not matter. In the end, it's always like the story of The Scorpion and the Frog.  It should come as no surprise to anyone that corporate Japan is famously insular, closed, deeply nationalist and very xenophobic. It's Trump's "America First" rhetoric times a hundred - it is Trump on steroids. Foreigners working at Japanese companies are under the microscope and under constant scrutiny 24/7 by their Japanese colleagues, so it is impossible for me to believe that Ghosn could have gotten away with improper behavior for all these years as Nissan is now alleging. Yes, there have been lots of cases of corporate corruption and financial irregularities at Japanese companies in recent years, but the culprits have never been just one or two individuals. Almost all such cases involved large groups of Japanese executives who conspired together to commit and keep such fraud hidden from the authorities.  A lone non-Japanese executive like Ghosn simply does not have the Japanese language ability, wherewithal or loyal network of Japanese peers inside Nissan to have gotten away with such improper behavior, even with the allegedly help of Kelly. Furthermore, almost none of the Japanese executives behind those crimes (which were much bigger in scale than what Ghosn is accused of) spent any time in prison. The so-called investigations against them often dragged on for years before being quietly dropped. As compared to them, Ghosn's treatment by Japanese authorities seems particularly harsh, since he was thrown in prison so quickly that even his own company Nissan seems fuzzy on the exact nature of his alleged crimes.  If anything, it is likely that Ghosn was setup and this is a classic case of entrapment. He simply had no reason or even the ability to conceal his true compensation from Japanese regulators. This is not the first time a foreign executive has suffered such a fate at a Japanese company, since destroying careers of accomplished foreign executives seems to be somewhat of a favorite pastime of the Japanese. They seem to relish it and get particular enjoyment out of it. It was just ten days ago when I wrote this in the comments section of another story here in The Japan Times, "This is why many highly skilled foreign professionals consider working in Japan akin to comitting professional suicide". Even I could not have guessed how prophetic it would turn out to be.  As an American expat in Japan, I just wish Japan could see the forest for the trees. Michael Woodford's account of his horrible treatment by his Japanese colleagues while he was the CEO of another Japanese corporation Olympus in his excellent book "Exposure", showed many the dark side of corporate Japan. Japan is already considered one of the most unattractive destinations for foreign expats to work in. This was recently confirmed by a European survey based on thousands of respondents. In this global survey, Japan was ranked a dismal 51st among 63 nations worldwide in its attractiveness to highly skilled foreign professionals (according to the 2017 IMD World Talent Ranking). Japan also ranked last among 11 Asian nations for its appeal to highly skilled foreign workers, behind countries like Indonesia, Thailand and Malaysia in this global survey ("Japan ranks dead last in Asia for top foreign talent", The Japan Times, Nov 21, 2017). Such reckless treatment of global business leaders by Japan which throws them in Jail willy-nilly is not going to help the country's reputation.
 * T.J. (at S.J.): I completely agree with your assessment. It is incredibly naive to think that Ghosn would have been able to fudge with his tax return. Considering that he was residing in several countries with salaries from 3 companie,s his tax return, all in Japanese, must have been a nighmare for anybody to completely grasp in detail, never mind a foreigner who can't read it. Add to that the layers of Japanese accounting bureaucracy and we can safely assume that Ghosn's tax return was shuffled around a dozen desks.
 * 4390100: I really don't grasp the part about not selling more Nissan's. It's all inter company political infighting and tax problems, has nothing to do with automobiles. Compared to other Western Corporations of similar size, Ghosn's income from the car maker is about average among CEO's. With that in mind it sounds like somebody at Nissan was out to get the guy or it was a concerted effort, kind of like the way Ceasar got knived. OR There was a knock on Nissan's door, somebody at NIssan opened the door, and there stood someone that said, "Hi I'm from the Government and I'm here to help."
 * B.2 (at 4390100): The president of Toyota Motors is a close friend of Abe (prime minister) and they are probably both celebrating tonight.
 * 4390100 (at B.2): That's not it entirely, sure the stock dropped and Toyota should be happy, only to a superficial degree, Abe not so much. The thing pointing to a inter-company conspiracy is that Nissan itself is eagerly digging up dirt on Ghosn, highly suspicious especially because it's causing their own stock to crash downward. I would personally think that Nissan would or should keep their mouth shut as much as possible, and let their law firms disclose information, while at the same time reassuring their stock holders and customers that all is well within the company, PR 101. Perhaps some people within Nissan itself figure a little back stabbing that appears as complete honesty, can move them up the company ladder, happens in all Corporations at almost every level, usually on a much smaller scale. These particular people ( the Backstabbers I mean, ) are not the type you want running the company, Ghosen at least tried to improve Nissan and therefore the company as a whole, but these guys that are doing this within the Company now, are out for themselves and their own personal legacy, not the company, the company will eventually suffer for it. So many Corporations have followed a similar path and sometimes went extinct or almost never really heard from again, this doesn't even count hostile takeovers ( Individual or Corporate ones. ) with the intent of draining the company of their assets.
 * B.2: This appears to be motivated by both factional politics within Nissan and also by certain political figures in the government who want to exact revenge on Ghosn for the way he sidelined the government in turning around Nissan. The nail that sticks up in Japan gets hammered down. Their have been talks to merge the three companies Nissan-Renault-Mitsubishi Motors into one single corporation so I find the timing of this arrest of Mr. Ghosn to be extremely suspicious as this prevents any further steps towards a merger of the three corporations.
 * A.B. (at B.2): Who knows, and that may well be the case for the missuse of company assets (pretty grey area in so many companies, especially for such a powerfull CEO) But under reporting 5bn of income? That's a different story...
 * S.J. (at B.2): This certainly appears to be the case. Bloomberg nailed it in their piece, "Nissan’s Drama Looks a Lot Like a Palace Coup" (David Fickling, Nov 20, 2018). Among the highlights of the piece: "As of writing, (Ghosn's) been arrested by Japan’s police over alleged misconduct, he’s on his way to being removed from his positions at Nissan, and his hand-picked successor has just spent an hour trashing his legacy. Barely 18 months into his reign as Nissan’s CEO, Hiroto Saikawa had little good to say about his predecessor at an evening press conference in Yokohama. While he had plenty to offer about the seriousness of the allegations against Ghosn and his fellow director Greg Kelly, he mentioned little in mitigation...  Given (Ghosn's) nearly two-decade involvement with Nissan, you’d expect even the most scrupulous director to take a more-in-sorrow-than-anger tone in announcing his departure. That’s not how things went down: Blame was apportioned to “the concentration of power in one individual” and Saikawa focused on “eliminating the negative aspects” of the “long regime of Mr. Ghosn.”  After grudgingly admitting some good came from Ghosn’s early years with Nissan, in recent years he’d been having a negative impact on the day-to-day operations of the company, Saikawa said. Given an opportunity to make a compliment when asked whether Ghosn was a “tyrant” or a “charismatic leader,” he demurred.  Saikawa denied that the revelation of the conduct by an internal whistleblower was a “coup d’etat,” but that he had to do so is a clue to how much it looks like one. In this extraordinary performance, the tensions bubbling under the surface of the Renault-Nissan-Mitsubishi alliance in recent years have finally burst to the surface in brutal fashion."
 * B.2 (at S.J.): The arrest of Mr. Ghosn and subsequent negative public lynching campaign has been carefully choreographed well in advance complete with an official from Nissan paying a courtesy (performance ?) visit to the prime minister to assure him this will not harm relations with France. Too well planned and choreographed for my taste.
 * V. (at B.2): That may very well be true, but (supposing these allegations are confirmed), this kind of behavior from executives getting high 7 figures salaries is neither smart nor laudable (note that I'm not implying this is your opinion). They should be accountable and pay the price for any improper behavior no matter how successful they might be.
 * D.S. (at V.): I don't think anyone here will seriously entertain an argument in favor of the ultra-rich concealing income. However, the context of the arrest, the prefect choregraphy of its execution, the identity and context of the arrested person, and the sneaking suspicion that he is not the only one in Japan doing this, but he sure as hell is he only one being treated like he was, all of this contributes to the arrest looking very much like a Modern-day Japanese retelling of the Ides of March and the assassination of Ceasar
 * GM: anyone else think this could be a set-up based on racism?
 * B.2 (at GM): Yes and No for ordinary working poor Japanese people. It would be unfair to tar brush an entire country and population due to the actions of a few. I have seen plenty of Japanese bully, harass, and conduct negative workplace campaigns against other Japanese so this is not limited to one`s race and is rather a negative part of human behavior.
 * J.M. (at GM): Gaijin must go!
 * B.2 (at GM): No.
 * S.J. (at B.2): Your response defies logic. The following is a partial list of large Japanese corporations and the cases of fraud, financial irregularities and data falsification which their Japanese management were directly involved in over the last couple of decades. Can you tell me how many of the Japanese management responsible for these illegal acts were treated like Carlos Ghosn and Greg Kelly by being thrown in jail? - KYB and Kawakin Holdings: The two Japanese makers of shock absorbers for buildings seperately disclosed in one week that they had falsified data on the quality of their shock absorbers since at least 2003 (2018)  - Toray Industries Inc: The company admitted to falsifying quality test data in a 149 cases between 2008-2016 (2017)  - Mitsubishi Materials: Company admitted to product data falsification at three subsidiaries for products used in crucial parts of aircraft and cars (2017)  - Kobe Steel: Falsified strength and durability data for its products at 23 domestic and overseas plants going back years (2017)  - Nissan Motor: Recalled more than a million vehicles because of falsified quality control checks (2017)  - Subaru: Falsified quality control data (2017)  - Mitsubishi Motors: Caught yet again for falsifying fuel economy tests (2016)  - Suzuki Motors: Admitted to falsifying records (2016)  - Asahi Kasei: Admitted to falsifying construction records for scores of large buildings which resulted in these building tilting over (2015)  - Toshiba: Serious accounting irregularities over the course of seven years discovered (2015)  - Lixil: Significant accounting irregularities uncovered (2015)  - Toyo Tire and Rubber: Company caught falsifying data on its products, leading to resignations of senior management (2015)  - Bridgestone: Indicted by the U.S. Justice Department, resulting in a $425 million criminal fine (2015)  - Hitachi: The company agreed to pay $19 million to The Securities and Exchange Commission (U.S.), which had charged Hitachi, Ltd. with violating the Foreign Corrupt Practices Act (2015)  - Novartis: Top Japanese executives at the Japanese unit quit after they admitted to falsifying data on the company' drugs (2014)  - Riken: Admitted to one of the world's worst scientific frauds, when it was disclosed that it had falsified research results (2014)  - Takata: Company found to have been hiding information about its defective airbags for tens of millions of cars, resulting in the largest auto recall in history (2014)  - TOKYU HOTELS and Takashimaya Co: The two companies admitted to food fraud and false labeling of food products (2013)  - Daio Paper: Financial irregularities discovered (2011)  - Olympus: Huge accounting irregularities going back years found by new British CEO Michael Woodford (2011)  - Nikko Cordial Corp: Significant financial irregularities uncovered (2006)  - Kanebo: Ceased operating as an independent company after discovery of falsified financial reporting (2005)  - Seibu Railways: Delisted from the Tokyo Stock Exchange after discovery of financial irregularities (2004)  - TEPCO: Company found to have filed at least 29 falsified reports with nuclear safety regulators since the 1980s leading up to the Fukushima disaster (2002)  - TOKYU CORPORATION, Snow Brand and Nippon Meat: These three large companies were caught intentionally mislabeling food products sold at Tokyu Store supermarkets and other places (2002)  - Bridgestone: Forced to recall millions of tires after the U.S. National Highway Traffic Safety Administration linked hundreds of accidents and at least 46 deaths to problems with the tread on its tires (2000)  - Mitsubishi Motors: Company revealed that it had covered up safety defects and customer complaints about its vehicles (2000). Four years later, it made further admissions of a broader cover-up going back decades.  - Long Term Credit Bank of Japan: Nationalized after it was found that the bank had been falsifying financial statements (1998)  - Yamaichi Securities: Filed for bankruptcy after accounting irregularities discovered (1997)  - Daiwa Bank: U.S. Federal Reserve ordered the bank's branches closed after finding that Daiwa, in collaboration with the Ministry of Finance, had hidden more than a billion dollars of losses (1995)
 * 4390100 (at S.J.): That was a very good rundown, and I'm absolutely positive you left out a lot, because this happens all the time, and it will go on in the future. Man, you even listed some of the most recent scandals in the news, the shock absorber one has been off and on for a month or so now in Japan. Some of them you listed are repeat offenders as in over and over, again and again. ( Tepco as an example. ) Kind of reminds me of American Banks, fined again and again for the same exact offense and never taken to court and never under any circumstances do any big boys go to jail.
 * P. (at S.J.): Useful list, indeed. You left out lawmakers :-) Have you considered an intrigue as a result of envy? Xenophobia would be a bit too easy. Anyway, seems like Abe will have to import one more foreign worker.  One Japanese company I used to work for once hired an American manager. He had tangible success. That was a thorn in the flesh of the Japanese top. The American was fired after a year. Not because he is a gaijin, but because he was better than the rest.  It is too early for a final conclusion.
 * D.S. (at P.): The same xenophobia almost certainly factors in the envy you describe. Can't have someone with too much success force the athritis-riddled hand of the old ones at the top, and we sure as hell can't have a *gaijin* being too good, of all things.
 * S.J. (at GM): Yes, most certainly based on Japanese nationalism and xenophobia. Read my other comment here on why I think this.

Source

 * https://www.japantimes.co.jp/news/2018/11/20/business/corporate-business/nissan-motor-co-president-carlos-ghosn-facing-arrest-charge-not-reporting-full-salary-report/#.XbOQkLJE2hA