Nissan to fire Ghosn for alleged financial misdeeds; Mitsubishi expects to do the same

YOKOHAMA, Japan -- Nissan Chairman Carlos Ghosn was arrested in Japan, and the Japanese carmaker he once saved from the brink of bankruptcy now plans to fire the high-flying executive for allegedly being the “master mind” behind “significant” financial misconduct.

CEO Hiroto Saikawa, 65, in a stunning turn of events, accused Ghosn of three financial misdeeds and said the board on Thursday would vote to dismiss his long-time colleague.

Ghosn, 64, allegedly under-reported his income in official stock market filings. He diverted corporate investment funds for personal use. And he misused company expenses, Saikawa said. Ghosn was taken into custody earlier in the day after arriving at a Tokyo airport and charged with similar violations of Japan’s financial laws, local media reported.

It was bombshell development for one of the industry’s most storied executives and a man who created its biggest automotive partnership, the Renault-Nissan-Mitsubishi Alliance. Ghosn oversees them all as chairman of the alliance, while individually chairing all three carmakers and concurrently serving as CEO of French partner Renault.

Following Nissan’s move to oust Ghosn, Mitsubishi issued a statement saying it would also recommend to its board of directors that it fire its chairman.

Ghosn’s arrest and pending dismissals cast new doubt on the future of the Renault-Nissan-Mitsubishi alliance. Ghosn had been expected to step down as alliance chairman in the coming years, and he has been working behind the scenes to formulate a structure that will keep the carmakers working together while preserving their independence and brand identity.

Ghosn is one of Japan’s highest-paid executives, a perennial point of controversy in a country where even top executives typically take home much less than international counterparts.

At a late evening press conference, Saikawa, 65, said Nissan wants to preserve the alliance but saw this as an opportunity to change its management structure. He partly blamed the financial misdeeds on having too much power concentrated in Ghosn and a lack of transparency.

“This is a negative impact of the long regime of Mr. Ghosn,” Saikawa said, noting Ghosn has been at or near the helm for 19 years. “This is a good opportunity to revise the way we work."

Nissan fingered American board member Greg Kelly, 62, as Ghosn co-conspirator. He rose through the ranks as a director of human resources and close adviser to Ghosn.

“We have confirmed these two are the masterminds,” Saikawa said of Ghosn and Kelly, noting Kelly would be dismissed as well. “This is an act that cannot be tolerated."

Mitigating the damage

Ghosn is believed by Nissan to have under-reported his income over multiple years and misused corporate assets. While Nissan did not immediately comment on the magnitude of the alleged income under-reporting, the Jiji news agency said Ghosn under-reported nearly 10 billion yen ($88.7 million) in compensation as nearly 5 billion yen.

The Kyodo news agency said it took place over five years, from 2011 to the present.

Saikawa declined to give details citing the ongoing criminal investigation.

The downfall of Ghosn won’t affect the alliance, he said.

“The alliance partnership itself will not be affected by this event.”

But Saikawa blamed the alleged abuse on the concentration of too much power in one top executive for so many years. Saikawa said he would form a committee led by independent board members to root out the causes of the wrongdoing and prevent recurrences.

They will work with alliance partners Mitsubishi and Renault, when necessary.

Saikawa said this discovery adds impetus to the need for reforming the management structure linking Renault, Nissan and Mitsubishi. In the future, it is important to avoid concentrating too much power in one person, he said. Instead, a sustainable system is needed, he said.

Saikawa said a top goal is to keep the management upheaval from affecting daily operations

“We have to make sure we minimize the impact on business partners and employees,” Saikawa said.

A representative for the Tokyo prosecutors’ office said it doesn’t comment on individual cases. Under Japanese law, prosecutors need to make official charges before a case can be brought to court. So Ghosn’s arrest doesn’t mean he will be found guilty. It’s unclear where he is now and how long the legal process will take.

Renault impact?

Renault, in a statement from its lead independent director and committee chairs, acknowledged Nissan's statement, but didn't announce any immediate action regarding Ghosn.

"Pending provision of precise information from Carlos Ghosn, Chairman and Chief Executive Officer of Renault, the above directors wish to express their dedication to the defense of Renault’s interest in the Alliance," the statement said. "The Board of Directors of Renault will be convened very shortly."

French President Emmanuel Macron, whose country holds 15 percent of Renault Group shares, said: “The government, as a shareholder, remains extremely vigilant about the stability of the alliance."

Macron and Ghosn have a contentious history; as finance minister under former president Francois Hollande, Macron had criticized the Renault CEO’s salary as excessive and pushed the state to increase its share in the automaker to the 20 percent level in 2015 from the previous 15 percent.

Ghosn has been contemplating his next career step as the companies look to change the pact’s structure, possibly through a merger. Ghosn gave up his role as CEO of Nissan last year and has said that he may step down as CEO of Renault before his four-year term ends in 2022, fueling speculation the alliance could lose its architect and main leader for the past two decades.

The carmakers have given themselves two years to decide on a possible merger between them or find an alternative mechanism to enhance their partnership, Bloomberg News reported in July. Ghosn said in September that the companies will “clarify everything” within the first half of his current term as Renault CEO.

“I am abandoning some jobs to delegate more, the more I consider the organizations are mature and capable to sustain by themselves with the new leadership,” Ghosn said in late September.