Complex Made Simple

Nissan no stranger to scandals, now reeling from Ghosn’s misconduct

Dig a little deeper and the shiny gloss over Nissan’s cars could give way to a rotting manufacturing process, a reputation now made worse with its Chairman Carlos Ghosn having allegedly been involved in some acts of financial misconduct, according to many reports.

Brazilian-born Ghosn is head of the Mitsubishi Motors, Nissan and Renault automakers alliance which sells 1 out 9 cars globally and the latest news on those companies shares reveals Nissan’s sinking 5.5% and Mitsubishi Motors’s tumbling 6.9%.

The Alliance employs more than 470,000 people in nearly 200 countries and sold 10.6 million vehicles last year.

Ghosn is a visionary having embraced electric vehicles a lot sooner than others launching the Nissan LEAF in Japan and the US at the end of 2010, today the world’s best-selling electric car with 54,451 Nissan LEAFs in fiscal year 2017, a 15% increase from 47,423 a year earlier.

Ghosn is fluent in Portuguese, Spanish, Italian, French and English, and has picked up a good working knowledge of Japanese during his time at Nissan.

The latest arrest has left him tongue-tied.

Here’s the latest on what happened.

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CNN reported that Ghosn has been arrested by prosecutors in Japan following months investigating the Nissan Chairman and board member, Greg Kelly, after a whistleblower report.

“These two gentlemen were arrested this evening, that is what I understand,” Nissan CEO Hiroto Saikawa said at a press conference in Tokyo late on Monday.

Image courtesy of Bloomberg

The company said the two had been under-reporting Ghosn’s compensation while “Numerous other significant acts of misconduct have been uncovered, such as personal use of company assets,” it added.

Watch short video recap by the Financial Times here.

Ghosn is suspected of understating his income by $44 million over five years.

Nissan said it paid Ghosn a salary of $9.7 million in the year ended March 2017, his last as CEO.

Ghosn’s pay at the three alliance companies totaled about $17 million last year.

“At Nissan, he was paid about $10 million for 2016 and about $6.5 million in the most recent fiscal year. He took home about $8.5 million at Renault and about $2 million from Mitsubishi in the latest period,” said Bloomberg.

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BBC reports Ghosn once saying: “A boss has to have 100% freedom to act and 100% responsibility for what he does. I have never tolerated any wavering from that principle, I will never accept any interference.”

“Under-reporting how much he was paid, will be seen by many as ironic,” said BBC.

CEO Saikawa will propose to Nissan’s board of directors to “promptly remove Ghosn from his positions as chairman and representative director,” at a meeting on Thursday, the company said.

On Monday, Nissan’s announcement came after the close of trading in its stock in Tokyo. But its shares plummeted 10% on the Frankfurt stock exchange, and 15% in Paris.

How did Ghosn reach his position?

Ghosn moved to Renault in 1996. After the French carmaker established its alliance with Nissan in 1999, he became the Japanese firm’s chief operating officer, helping steer it out of financial crisis, according to CNN.

Ghosn was promoted to CEO of Nissan in 2001, and then took on the role of Renault CEO in 2005, making him the first executive to run two Fortune Global 500 companies at the same time.

After Nissan took a 34% stake in Mitsubishi Motors in 2016 for $2.2bn, Ghosn handed off the Nissan CEO role to Saikawa.

The latest scandal is “going to rock the alliance as he (Ghosn) is the keystone of the alliance,” said Satoru Takada, an analyst at Tokyo-based consultants TIW, as reported by BBC.

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Scandal alley

The Japanese transport ministry has told several Japanese car makers they will be placed under strict supervision following a series of quality inspection scandals, according to Japan Times.

The action comes amid growing concern over the quality of vehicles in Japan, after Subaru, Nissan, Suzuki Motor Corp., and Mazda Motor were found to have conducted inspections inappropriately at domestic plants last year.

Bloomberg said the Japanese auto industry is suffering from scandals involving product quality to falsification of records.

“Nissan found itself in the midst of a controversy last year when Japan’s regulators discovered uncertified inspectors were approving vehicles, leading to a recall of more than 1.2 million cars,” said Bloomberg.

According to the Nikkei Asian Review, at Nissan Motor’s Tochigi plant, the air conditioning equipment at the emission testing site dates from 1977 and Nissan failed to follow correct procedures for checking emissions as well as fuel economy.

The review said investment on talent has lagged as well.

“After Nissan was bailed out by Renault in 1999, the Japanese automaker pursued layoffs under the reign of Carlos Ghosn, currently the chairman. That deprived Nissan of needed technicians,” Nikkei Asian review said quoting a report.

“Nissan plans to spend $1.58 billion over six years on testing equipment, and to hire 670 inspectors.”

Nissan submitted a report in September to the Japanese government containing measures to prevent any further fabrication of exhaust emissions and fuel efficiency data.