A giant of the car industry is accused of financial misconduct

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RUNNING A VAST global company, with offices and factories spread across the planet, means that jumping on and off a corporate jet is an everyday occurrence. But the welcome committee that greeted Carlos Ghosn at Tokyo’s Haneda Airport on November 19th was anything but normal. The chairman of Nissan and Mitsubishi, and chief executive and chairman of Renault (as well as of the alliance that ties the three carmakers together), was met by a troop of dark-suited prosecutors. They had come to arrest the man who had rescued Nissan from bankruptcy in 1999 and in so doing become a superstar of Japanese business.

The extent and suddenness of Mr Ghosn’s fall from grace is astonishing. The French-Lebanese-Brazilian businessman once came seventh in a poll that asked Japanese people who should run the country, and was the hero of a series of manga comics. But after an internal investigation at Nissan, prompted by a whistleblower, the company said that it had uncovered evidence of “significant misconduct”. Such was its seriousness, insisted Nissan, that Mr Ghosn was immediately sacked along with Greg Kelly, another executive—a decision that will be rubber-stamped by the company’s board when it meets on November 22nd.

Renault’s executives expressed support for Mr Ghosn but its board suspended him from his positions at the French carmaker while the investigation continues, and appointed Thierry Bolloré, a Ghosn loyalist, as its interim boss and Philippe Lagayette, an independent director, as stand-in chairman. Mitsubishi is expected to follow suit.

Mr Ghosn, who has not been heard from since his arrest, is accused of under-reporting his pay to regulators and in stockmarket filings by around ¥5bn ($44.4m) over a five-year period beginning in 2011. Another accusation is that he broke the law by failing to declare his use of properties owned by Nissan in several cities, including Beirut, as a perk. Shortly after his arrest the firm’s chief executive, Hiroto Saikawa, who took over when Mr Ghosn relinquished that role in 2017, used a press conference to attack his erstwhile chairman. He dismissed much of Mr Ghosn’s role in Nissan’s revival and called his “concentrated power” a “negative aspect of the long regime”.

Mr Ghosn had indeed accumulated huge power in his multiple roles, and used it to build a group that had become the world’s biggest carmaker—it is set to make 11m vehicles this year. If he did abuse that power to overstep the mark, questions will be asked about Nissan’s governance, and about the oversight provided by its board. There has been no word from Mr Ghosn since his arrest.

But several analysts have suggested another interpretation for this week’s events—that activities which were known about and once attracted a blind eye have now been used against Mr Ghosn. Japan has never indulged in the stratospheric executive pay common in the West. A ruse by Mr Ghosn to downplay his true total pay might have been considered politic. In Japan lower pay is often compensated for by plenty of fringe benefits that customarily go unreported.

Why might Nissan have wished to use these transgressions against Mr Ghosn now? One explanation may be that the company wanted to take advantage of a new Japanese law that encourages companies to expose wrongdoing in return for more lenient treatment. Another is that an anti-Ghosn faction at Nissan, increasingly angered at his autocratic management style and his loyalty to Renault, tipped off the authorities about internal matters.

This hypothesis—that Mr Ghosn was downed by a corporate coup—rests on resentment within Nissan of the French carmaker. The Renault-Nissan-Mitsubishi alliance is composed of a series of cross-shareholdings, whereby Renault owns a controlling 43.4% of Nissan, and Nissan has merely a non-voting 15% stake in Renault (Mitsubishi is controlled by Nissan through a 34% stake). Renault, 15% owned by the French state, has the upper hand even though most of the revenues, volumes and profits come from Japan. Nissan’s role as Renault’s cash-cow is a matter of considerable bitterness.

Worse still for Nissan was the looming prospect of a French takeover. While other carmakers have, sometimes disastrously, attempted full mergers with rivals, the alliance has allowed Nissan and Renault to share some functions, such as purchasing, while remaining independent. But this has not brought the full rewards of the cost-cutting allowed by a merger. Mr Ghosn wanted to make the alliance “irreversible”. He planned far more co-operation and probably had the backing of the French government to pursue a merger. That prospect horrified senior people in Nissan, who had become disillusioned with Mr Ghosn, and also the Japanese government, which faced the prospect of a huge domestic firm being run from Paris. Mr Ghosn’s exit could signal the re-Japanisation of Nissan.

What will become of the world’s biggest carmaking group? Both the French and Japanese have pledged fealty to the alliance but the plunging share prices of both Renault and Nissan is testament to Mr Ghosn’s energy and force of character, which kept the complex structure on track. Finding a suitable replacement at the alliance will be tough. Another aspect of Mr Ghosn’s entrenched power was a lack of succession planning.

If the alliance breaks down, it will leave two separate car firms with weak mass-market brands and insufficient scale for the huge investments in electrification and autonomy that all carmakers need to make. Even if it drifts on in its present form, without the advantages of a full-scale merger it will not be as competitive as the other giants of carmaking—Volkswagen, resurgent after the diesel crisis, and a buoyant Toyota. Mr Ghosn’s departure may well be shown to be justified. But it leaves the alliance in a state of huge uncertainty at a time of seismic change in the car industry.

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