Nissan CEO takes steps to reform governance

TOKYO — Nissan CEO Hiroto Saikawa outlined his first steps toward governance reform at the Japanese carmaker, following allegations that ousted Chairman Carlos Ghosn abused his power for nearly a decade to misappropriate millions of dollars.

The message: Rooting out the rot is too important to rush.

Saikawa said a new Special Committee for Improving Governance will make recommendations for improving oversight by the end of the company's fiscal year March 31 so that Nissan Motor Co. can begin the new fiscal year with a clean slate.

Saikawa began rolling out his reforms at a news conference lat week, saying the board will take its time appointing a new chairman. Nissan has been without one since Nov. 22, when the board dismissed Ghosn.

"I'm not going to set a deadline. I want people to take enough time to discuss," Saikawa said.

The decisions came during a Nissan board meeting earlier in the day. Three external directors — Masakazu Toyoda, Keiko Ihara and Jean-Baptiste Duzan — had been tasked with forming a committee to review corporate governance and with nominating a new chairman.

They set up a seven-person committee made up of themselves and four third-party members. It will examine everything from director compensation to overall governing structure.

"We will identify the root causes and ask this committee to make recommendations not only in decision-making on compensation but on all of governance," Saikawa said.

"The governance scheme, which may have resulted in misconduct, is where I expect the special committee to apply a scalpel," he said. "There was a concentration of authority in a single individual."

The committee did not, however, reach agreement about a new chairman.

At the press conference, Saikawa declined to rule himself out of the running for chairman, saying he would be open to whatever recommendations the three directors make.

Duzan is a former Renault executive and is thought to reflect the French carmaker's interests. Toyoda is a former Japanese government bureaucrat and Ihara is a race car driver.

Even before the special committee comes back with recommendations, Saikawa has addressed one sore point of corporate governance.

Nissan's internal rules previously allowed the chairman sole discretion in determining compensation of directors, including the chairman's.

Many other companies, by contrast, have a committee that determines such pay.

Nissan has now rewritten its corporate rules to give that power to the board of directors.

Separately, Saikawa rebuffed a request to Renault, Nissan's biggest shareholder, to quickly call an extraordinary shareholders' meeting so that the management crisis can be debated in the open. Saikawa said the special committee should be allowed to make its recommendations before the company holds the shareholders' meeting.

That means it could take several more months before one is convened.

Saikawa said a Nissan representative gave a full briefing about allegations of misconduct by Ghosn to the board of Mitsubishi Motors Corp. on Dec. 17. He said Nissan also is willing to make a similar presentation directly to the board at Renault. But Renault has asked Nissan instead to direct such communication through Renault's legal department, Saikawa said.

A growing list of allegations against Ghosn has raised red flags about Nissan's corporate governance and questions about why its auditors didn't raise questions for so long.

Saikawa has blamed the problems partly on Ghosn having concentrated power as the chairman of all three automakers in the Renault-Nissan-Mitsubishi alliance.

Nissan accuses Ghosn of underreporting his compensation by about $81 million over the 2010-17 fiscal years. The company also accuses him of other financial misconduct, including diverting millions of dollars of Nissan money into housing for his personal use and appointing his sister to a bogus advisory job that paid her some $100,000 a year. He also stands accused of failing to report about $41.5 million in remuneration from share appreciation rights.

Nissan also says he inappropriately claimed $265,000 in family travel expenses and used $1 million in company funds to make a personal donation to a university in Lebanon, his ancestral homeland.

The alleged schemes only began to unravel early this year after incessant questioning by Nissan's corporate auditors, Ernst & Young ShinNihon, about suspicious operations, people familiar with the matter said. They spurred Nissan to take a closer look toward the end of May, triggering a monthslong investigation that culminated in the Nov. 19 arrest of Ghosn and director Greg Kelly.

Prosecutors indicted both men Dec. 10, accusing them of not reporting ¥4.9 billion ($43.5 million) in compensation over the 2010-14 fiscal years. Ghosn and Kelly were rearrested at the same time, as prosecutors investigated further accusations against them. But on Thursday, Dec. 20, a Japanese court denied the extension of detention, opening the possibility they might be freed on bail.

Kelly was freed on bail late on Christmas Day. 

On Dec. 21 Ghosn was rearrested again, this time on fresh suspicions he transferred personal trading losses to Nissan in an alleged breach of trust case. 

Prosecutors claim Ghosn temporarily shifted some ¥1.85 billion ($16.3 million) in swap contract losses to Nissan in October 2008, during the height of the financial crisis. He later transferred some $14.7 million back from Nissan to the account of an associate, prosecutors claim. The new allegations will keep Ghosn behind bars for another 10 days, with the possibility of an extension to 20 days.

The new allegations did not include Kelly. 

Until Kelly's release on Christmas Day, both men were still locked in a Tokyo detention center. They had been there since their arrests, with limited opportunity to defend themselves publicly. Ghosn has denied wrongdoing, Japanese public broadcaster NHK has said. Kelly's lawyers have said Kelly maintains his innocence.

If found guilty, each could face up to 10 years in prison.