Nissan Motor Co.’s high-flying chairman Carlos Ghosn was arrested Monday and will be dismissed after he allegedly under-reported his income and engaged in other misconduct, the company said Monday.
The Japanese automaker’s CEO Hiroto Saikawa confirmed that Ghosn was arrested after being questioned by prosecutors following his arrival in Japan earlier in the day.
It was a stunning development that left employees “bewildered” and fellow executives shocked and will pose a daunting test for the Nissan-Renault-Mitsubishi alliance, one of the world’s biggest automakers.
The Yokohama-based company said the alleged violations involving millions of dollars by Ghosn, 64, and another executive were discovered during a months’ long investigation that was instigated by a whistleblower.
“Beyond being sorry I feel great disappointment, frustration, despair, indignation and resentment,” Saikawa said, apologizing for a full 7 minutes at the outset of the news conference. “I want to minimize the bewilderment and the impact on the operation and our business partners.”
Nissan said it was providing information to the prosecutors and cooperating with their investigation. The allegations also concern a Nissan representative director, Greg Kelly, who was also arrested.
Saikawa said Nissan’s board will vote Thursday on dismissing both Ghosn and Kelly, who he described as the “mastermind” of the alleged abuses.
“This is an act that cannot be tolerated by the company,” he said. “This is serious misconduct.”
Saikawa said three major types of misconduct were found, including under-reporting income, using investment funds for personal gain and illicit use of company expenses.
He promised to beef up corporate governance, adding that the problems may have happened because too much power was focused in one person.
“Nissan deeply apologizes for causing great concern to our shareholders and stakeholders. We will continue our work to identify our governance and compliance issues, and to take appropriate measures,” the company said in a statement.
Ghosn signed a contract earlier this year that would have run through 2022. His compensation, high by Japan’s moderate standards for executive pay, has been an issue over the years.
According to NHK and the Kyodo News Service, Ghosn made nearly 10 billion yen ($89 million) over five years through March 2015, including salary and other income from the company, but reported as if he only made 5 billion yen ($44 million), or half of what he had received.
Nissan’s annual securities report shows Ghosn received annual remuneration exceeding 1 billion yen ($8.9 million) until fiscal 2016, when shareholders voted against his pay package. His annual pay dropped to 735 million yen ($6.5 million) in 2017, down more than 30 percent.
Shares in Renault SA of France plunged 14 percent early Monday. The news of Ghosn’s troubles broke after Japanese markets had closed for the day.
The allegations are a serious blow at a time when Nissan and Mitsubishi Motor Co. are still overcoming scandals over their quality testing reporting.
Ghosn is credited with helping engineer a remarkable turnaround at Nissan over the past two decades, resuscitating the Japanese automaker from near bankruptcy after he was sent in by Renault.
He looms similarly large in France, where the business world saw him as a trailblazer from outside the traditional French mold who turned Renault around and made it into a global player, notably in electric vehicles. He also led the French carmaker through massive job cuts and a costly, contentious bailout amid the world financial meltdown a decade ago and what he called a “crisis of massive proportions” for the auto industry.
Ghosn has also been a nemesis for French unions and left-wing politicians, who saw him as a symbol of globalized, U.S.-driven capitalism and its excesses — and notably its executive pay packages.
Shareholders at Renault voted in 2016 against Ghosn’s pay package, seeing it as too generous — but the board ignored the vote. That prompted the ire of then-President Francois Hollande. Hollande’s socialist government imposed limits on executive pay at state-run companies and tried to do the same in the private sector but backed down amid concerns that it would scare away foreign investment.
In Japan, Ghosn’s nickname was “Le Cost Cutter.” His appointment inspired fears of social and economic upheaval amid plant closings, mass layoffs and the potential damage his reforms might inflict on Nissan’s ties with its suppliers. But his triumph in turning the company around made him something of a national hero.
At one point years ago, his name popped up on lists of people Japanese voters wanted to become prime minister even though his nationality made him ineligible.
Ghosn served as Nissan’s chief executive from 2001 until April 2017, becoming chief executive of Renault in 2005, leading the two major automakers simultaneously. In 2016, Ghosn became Mitsubishi Motors’ chairman.
For the past two decades, he has maintained an unusually high profile in a nation where foreign chief executives of major Japanese companies are still relatively rare.
Ghosn has appeared on magazine covers dressed in kimono, vowing to renew the Nissan brand. He was widely praised in Japanese industry circles for delivering sorely needed cost cuts and introducing greater efficiency at a time when Nissan needed a fresh start.
We’re here to help you navigate this changed world and economy.
Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.
In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.
Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.