Reference no: EM133047288
Discuss unethical actions taken by Carlos Ghosn.
- In detail, explain the primary and secondary stakeholders impacted by Carlos Ghosn's actions.
- What actions could Renault's and Nissan's board of directors have taken to impede the unethical actions of Carlos Gohn?
- Discuss the ramifications of Carlos Gohn fleeing Japan to Lebanon in order to avoid legal charges.
Article
Case Get Paid Well but Don't Let It Show? Nissan Probe Reveals Contours of Ghosn
Nissan former chairman deferred some compensation to avoid PR fallout in a way that prosecutors say might have violated Japan's securities law
Carlos Ghosn collected IOUs for tens of millions of dollars in deferred compensation and five residences around the world while chairman at Nissan Motor Co., according to a company investigation. PHOTO: MICHEL EULER/ASSOCIATED PRESS
By Sean McLain and Phred Dvorak
TOKYO-Carlos Ghosn amassed more than $80 million in IOUs from Nissan Motor (Links to an external site.) Co. NSANY 0.44% (Links to an external site.)yet never settled on a plan for how the compensation would be paid, according to a Nissan probe and people familiar with the matter.
That revelation and others are painting a picture of an executive who, at a time of intense public scrutiny of executive pay, deferred some pay in a way that his defenders say was legal but that prosecutors say may have violated Japan's securities law.
As Mr. Ghosn's IOUs piled up, Nissan also was laying out some $18 million for residences for the jet-setting chief, a person familiar with the company's probe said.
Mr. Ghosn is spending his second week in a Tokyo jail after he was pulled off his private plane Nov. 19 and arrested on suspicion of underreporting his compensation (Links to an external site.) in Nissan's financial filings.
The arrest has shaken the world's largest automotive alliance, which links Nissan with Renault (Links to an external site.) SA RNO 0.63% (Links to an external site.)and Mitsubishi Motors (Links to an external site.) Corp., and has led to global bewilderment as to why the widely admired auto chief landed in Japan's strict justice system, where suspects can be interrogated for three weeks without charge. Mr. Ghosn has been stripped of his chairman's title at Nissan and Mitsubishi but remains chief executive of Renault, with No. 2 Thierry Bolloré acting in the post on an interim basis.
Mr. Ghosn hasn't been charged with any crime. He couldn't be reached for comment, and the office of his Japanese attorney, Motonari Otsuru, declined to comment. According to Japanese broadcaster NHK, Mr. Ghosn has denied wrongdoing.
Nissan, for its most recent fiscal year that ended March 31, reported that Mr. Ghosn earned ¥735 million, or about $6.5 million at today's exchange rates. But the company also committed on paper to pay him additional money after his retirement for total pay that year of almost $22 million, according to a person familiar with the investigations by Nissan and Japanese prosecutors.
All together, over a period of nine years, Mr. Ghosn built up about $82 million in deferred pay, the person said.
People familiar with the matter say Mr. Ghosn and a top aide, Greg Kelly, studied various ways by which he might collect that money after retirement, including via possible consulting contracts or noncompete deals. But no concrete method was determined, the people say.
That is a crucial point as prosecutors and the defense gear up for battle. A lawyer for Mr. Kelly, who also was arrested in Tokyo and remains in custody, said his client believed the future payments weren't fixed amounts and so didn't have to be reported in financial filings. Using company channels, Mr. Kelly solicited the views of outside experts and was told the unreported deferred compensation was fine, Mr. Kelly's lawyer, Yoichi Kitamura, said. Mr. Kelly hasn't been charged with a crime.
Prosecutors have declined to comment on the specific allegations, but outside lawyers said they are likely to aim to bring forward evidence, including the written IOUs, to argue that Messrs. Ghosn and Kelly knew they had to report the money as compensation and failed to do so.
The Ghosn matter has its origins in a March 2010 change in Japanese law to require that companies start disclosing salaries of executives earning more than ¥100 million, now equivalent to about $880,000.
In the previous fiscal year ended March 2009, Mr. Ghosn made around ¥1.75 billion, or a little more than $15 million, at Nissan, according to the person familiar with the investigations.
But disclosing such a sum could have raised a public outcry, as the world was just beginning to recover from the 2008 global financial crisis. Mr. Ghosn was admired for having rescued Nissan from near-bankruptcy a decade earlier but during the restructuring that followed many Nissan employees and suppliers had lost their jobs.
What Mr. Ghosn did for the year ended March 2010, according to the Nissan investigation, was instruct subordinates to pay him only $7.8 million and record the remaining roughly $7.5 million as an amount to be paid later. As Nissan chairman, he had the power to decide his own salary under Nissan's corporate governance rules.
Even so, the lower disclosed portion was enough to anger the left-leaning party that had recently swept to power in Japan.
"Why is Mr. Ghosn's salary so high? Because he's good at firing people," then-Prime Minister Naoto Kan said in a June 2010 speech. "If presidents who were good at firing people became respected at all companies, Japan would be full of unemployed people."
In subsequent years, Mr. Ghosn's reported pay grew only slightly, but he increased the IOU portion more rapidly without telling fellow board members, according to the Nissan investigation. In the most recent fiscal year, his total package added up to almost $22 million.
The investigation alleges that one plan Messrs. Ghosn and Kelly considered but dropped was paying out part of the IOU portion as a salary to Mr. Ghosn in his role as chairman of Renault-Nissan B.V., the joint venture that coordinates operations between the two auto makers.
Nissan is also looking into what it alleges was the misuse of company funds for private purposes by Mr. Ghosn-with much of the activity beginning shortly after the Japanese disclosure laws kicked in.
At the center of that investigation are five apartments and houses around the world that Nissan had bought or rented for Mr. Ghosn's exclusive use, according to a person familiar with the matter.
Three are in Tokyo, Paris and Amsterdam, cities where the Renault-Nissan alliance has headquarters. Two of them-an apartment on Rio de Janeiro's famed Copacabana Beach, and a mansion in an upscale neighborhood of Beirut-are in places where Mr. Ghosn, who was born in Brazil and grew up in Lebanon, has family.
In December 2010, Nissan established a company in Amsterdam called Zi-A Capital BV, with Mr. Ghosn its lead director, corporate filings show. Mr. Kelly made a pitch to fund the company to Nissan's executive committee, the person familiar with the investigations said.
Executives got the impression that the money at Zi-A Capital-ultimately some $82.8 million-was for investment in tech startups, people familiar with the situation said. Instead, it was used to buy the Rio beachfront apartment in 2011 and the Beirut mansion in 2012, one of the people said.
The Ghosn family believed the residences in Rio de Janeiro, Beirut and other locations were corporate housing, whose purchase went through the normal channels for Nissan approval, a person familiar with the family has said.
Someone at the Rio property said the Ghosn apartment was closed most of the year, and the executive and his family came about twice a year and stayed for a few days. In Beirut, neighbors of the bright pink-and-ivory house bought for Mr. Ghosn say the building had been falling apart and received major renovations that were completed recently.
Nissan has said Mr. Ghosn's personal use of company assets was one of the "significant acts of misconduct" it uncovered. Prosecutors haven't said anything publicly about the residences.
In early 2017, Mr. Ghosn said he would step down as Nissan's CEO while remaining chairman. He handed the CEO role to his longtime right-hand man, Hiroto Saikawa.
"He is such a charismatic hero," Mr. Saikawa said in an interview at the time. "To drive the company differently is not my objective."
The Ghosn legacy began to look tarnished in October 2017 when Nissan admitted to violating Japan's rules on vehicle inspections, a problem that extended back into Mr. Ghosn's reign. That led Mr. Saikawa to overhaul the company's auditing process and whistleblower system.
Early this year, Mr. Saikawa was handed a whistleblower complaint by corporate auditors, the result of the system he helped strengthen, according to the person familiar with the investigations by Nissan and prosecutors.
The content of that complaint couldn't be learned. Nissan has said the investigation that followed uncovered widespread misconduct by Mr. Ghosn. Nissan says it has fully shared its findings with prosecutors.
When Mr. Saikawa announced the outline of Nissan's results on Nov. 19, the night of the Ghosn and Kelly arrests, he said he was at a loss for words.
"Beyond being sorry-I don't know how to say this-I feel strong anger and despair," Mr. Saikawa said.