In November 2018, Nissan removed Carlos Ghosn as Chairman due to allegations of misconduct. Specifically, Ghosn was charged with:
· allegedly under-stating personal income to minimize tax liabilities: Ghosn’s actual remuneration of about 9.998BN, of which only 4.987BN was reported
· allegedly using company investment funds for private purposes: Expensive homes that Ghosn has used in such areas as Beirut and Rio de Janeiro were purchased through an overseas subsidiary of Nissan. Sources from Asahi speculated that Lebanon home was at least about $5 million (about 560 million yen). Specifically, the article on Reuters cited Ghosn’s residences were paid through a Nissan entity in the Netherlands called Zi-A Capital BV and its subsidiaries. The objective of Zi-A was to invest in emerging technologies.
Further investigations also uncovered what was deemed to be improper payments to a Middle Eastern businessman, Khaled al-Juffali between 2009 - 2012. Ghosn had defended the payments to Juffali's company citing "critical services that substantially benefited Nissan." However, Al-Juffali and Ghosn appeared to have prior personal dealings.
Prosecutors claimed that Ghosn transferred financial contracts, with marked-to-market losses of about $16 million, to Nissan in 2008 by securing bank guarantees with the businessman's help. The alleged intention of this structured transaction was to allow Ghosn to reclaim these contracts in the future.
Ghosn said that Nissan had incurred no losses from the currency contracts, and that payments to the Khaled Juffali Company were properly approved in exchange for services such as helping Nissan solicit financing and resolve problems with distributors in the Gulf that allowed the company to compete better with Toyota (TM) and other rivals.
Governance Case Study: Nissan Motors
On the surface, Nissan “checks the box” for sustainability with substantial disclosure and key performance indicators (277 pages CSR as of July 2018). Additionally, the company is part of the United Nations Global Compact.
However there were key corporate governance weaknesses that warrant further scrutiny:
1) Lack of Independent Compensation Committee
One guideline Nissan chose not to adopt was setting up independent advisory committees on executive pay. The omission gave Ghosn broad power to decide how much he was paid. It also allowed him to determine the compensation of the people who were supposed to keep him in check.
Nissan’s Corporate Governance Report states that “the Chairman of the board determines the compensation of each director’’ based on consultation with the company’s two other top officials (one of whom was Greg Kelly, who was arrested along with Ghosn).
2) Lack of Fully Independent Statutory Auditors: from Nissan’s disclosure, Statutory Auditors (3, all appointed) receive regular reports on the audit plan and the results of audits from Ernst & Young ShinNihon LLC, the Company’s independent auditors.
o Motoo Nagai - the Company has a significant business relationship
o Tetsunobu Ikeda - Company has a business relationship
3) Excessive Compensation
As we conduct further deep dive research on the Ghosn scandal at Nissan, new headlines emerge on seemingly excessive compensation payments. The Journal reported over the weekend that Ghosn had allegedly signed a contract with a Dutch entity granting him a $1.7 million signing bonus and salary of $6.7 million for the year through March 2019.(2)
(1) https://www.nissan-global.com/EN/DOCUMENT/PDF/SR/2018/SR18_E_All.pdf
(3) https://www.nissan-global.com/EN/DOCUMENT/PDF/GOVERNANCE/g_report.pdf