TOKYO -- The dramatic arrest of Carlos Ghosn nearly two weeks ago has shaken one of the auto industry’s most innovative partnerships. Allegations of financial misconduct against the man who held together the alliance of Japan’s Nissan Motor and France’s Renault, and more recently Mitsubishi Motors, have laid bare tensions that have long simmered just beneath the surface.
In Tokyo the crisis has become a rallying point for those who have resented the influence of Renault’s 15% government shareholder over a Japanese national industrial giant. Meanwhile, in France, conspiracy theories abound about why the investigation remained top secret even to Renault. Ghosn's detention has become an issue of national interest in both Japan and France -- and potentially a point of conflict as each side angles to maintain influence over the partnership that has become the world’s second biggest car producer.
In the days and weeks to come, as Ghosn awaits his fate in a Tokyo detention center, the focus will shift to the debate over who will be the next leader of the alliance. Before that happens it is helpful to look back at how the crisis developed, and what might happen next.
Tokyo prosecutors were waiting for Ghosn when his private jet landed at Haneda Airport on Nov. 19. The chairman of the Renault-Nissan-Mitsubishi alliance was arrested and sent to a detention center after extensive questioning. Investigators allege he and former representative director Greg Kelly, Ghosn’s right-hand man who was also arrested with his boss, had understated the chairman’s annual compensation of about 2 billion yen ($18 million) by not listing a deferred payment of 1 billion yen a year. With the total of 5 billion yen for five years through March 2015, they are accused of violating the Financial Instruments and Exchange Act.
Ghosn is accused of having Nissan’s subsidiary in the Netherlands purchase or rent luxury houses for his use, including ones in Rio de Janeiro and Beirut where he spent his childhood, as well as in Paris and Amsterdam. Ghosn allegedly used the subsidiary to make multiple payments to his older sister for consulting, but Nissan found no concrete evidence of the work she did. Ghosn did not report either his share-price-linked incentive compensation, or stock appreciation rights (SAR), worth 4 billion yen, while other Nissan directors did report their own such rights.
Nissan’s CEO Hiroto Saikawa launched a blistering attack on his boss the night of his arrest, claiming that a secret investigation -- launched after a whistleblower’s tipoff -- had found evidence of "significant acts of misconduct." He said the structure which put Ghosn at the head of Nissan and Renault had caused "too much concentration of power." Formerly considered one of "Ghosn’s children," loyal to the powerful tycoon who controlled everything, Saikawa finally oversaw his downfall. On Nov. 22, the Nissan board unanimously fired Ghosn as chairman. Saikawa insisted that "this should not be seen as a coup d’Etat." But Nissan has long been unhappy with the powers wielded by Renault which once saved the Japanese carmaker from collapse but is now significantly smaller. Nissan owns 15% of Renault, without voting rights, while its French counterpart has 43.4% of the Japanese automaker. Renault also has the right to name Nissan's chairman.
Three days after Ghosn’s arrest the governments step in. French Economy and Finance Minister Bruno Le Maire revealed that Paris had not yet seen the evidence behind the allegations. On Nov. 22 he met his Japanese counterpart Hiroshige Seko in Paris to discuss the future of the alliance between Renault, Nissan and Mitsubishi. While both sides "confirmed the importance of the alliance continuing in a stable manner," differences over what that meant began to emerge. Le Maire said he had "agreed with Seko not to change the rules of governance [of Renault-Nissan alliance]," but Seko insisted there had been no such promise. Later Le Maire indicated in a television interview that Paris wanted a Renault executive to head the alliance. On Nov. 22 Mitsubishi also dismisses Ghosn as chairman, but Renault refuses to do the same as Paris says there is not enough information to justify removing him.
Nissan’s Saikawa, Renault’s interim leader Thierry Bollore and Mitsubishi’s CEO Osamu Masuko held talks on Nov. 29 for the first time since Ghosn was held. After barely two hours the three agreed to manage the alliance by committee, instead of the previous one-man rule of Ghosn who also held the top job in each of the three companies. They issue a joint statement pledging their commitment to the alliance. However, more difficult discussions about changes to their capital partnership -- which involves a series of cross-shareholdings -- or on who would lead the partnership were postponed. Alliance rules dictate that the leader should be Renault CEO. Many Nissan executives believe this allows the French company to make decisions in its own favor. Nissan now wants to restructure the partnership on more equal terms, including potentially increasing its 15% stake in Renault.
Ghosn and Kelly will be held at the Tokyo Detention House for questioning by prosecutors until at least Dec. 10. Both deny any wrongdoing. Kelly, who worked as an attorney in the U.S., is said to have assured Ghosn that the reporting procedures were entirely legal. Kelly has claimed that, as the money Ghosn is accused of failing to report was to be paid after his retirement, it was not executive compensation, and did not need to be disclosed in financial reports. Experts are also divided over whether an offense was committed. Meanwhile, Ghosn and Kelly wait it out in a detention cell measuring around 5 sq. meters, are woken up at 7 a.m. with lights out at 9 p.m. Their meals consist largely of rice and barley. The two suspects are allowed to meet only with their defense lawyers and consular officials.
Nissan's board meets on Dec. 17, where directors are likely to appoint Ghosn's successor as chairman. Renault reportedly sought to name the new chairman, but the Japanese carmaker insisted that a candidate would be selected by its outside directors. The clashes between Nissan and Renault intensify as the two sides jostle for primacy in choosing the next leader of the alliance. France’s President Emmanuel Macron met with Japan’s Prime Minister Shinzo Abe at this weekend’s G-20 summit in Buenos Aires where they discussed the crisis. With the politicians now fully engaged, and the voting public holding them to account for the jobs these national champions deliver, there may be little chance of a rapid solution.