Carlos Ghosn's fall ripples from Tokyo to Paris as allegations grow

Carlos Ghosn
The downfall of Nissan Motor Chairman Carlos Ghosn reverberated for a second day as politicians and executives scrambled to fill the vacuum at the top of the world’s largest car alliance amid fresh reports about his alleged financial improprieties.

Renault’s board is convening for a crisis meeting late Tuesday night in Paris to discuss the future of the Renault-Nissan car alliance. While the French government, which owns 15 per cent of Renault, isn’t demanding Ghosn’s formal dismissal, he is no longer in a position to run the automaker, Finance Minister Bruno Le Maire told French radio. Back in Japan, where Ghosn has remained in custody since his arrest on Monday, more details of his alleged transgressions began trickling out in local media. Combined, they painted a picture of an executive who dip­ped into company funds to bankroll a lavish lifestyle, from luxury residences dotted aro­und the globe to money fun­n­­eled into investment funds and family vacations. He hasn’t responded to the charges.

Alliance future

The revelations, which followed a months-long internal probe, put key stakeholders in a bind because there’s no obvious successor. While all sides rushed to assure that the alliance was solid, Ghosn was the linchpin holding the partnership together. The French government, in particular, signaled it will protect Renault, which has benefited hugely from its participation in the French-Japanese pact.

Le Maire said he would meet with management of Renault and state representatives on the board of the company to put in place interim governance. Already on Monday, President Emma­nuel Macron said he would remain “extremely vigilant” regarding the stability of the Renault-Nissan alliance. One immediate step will be to fill the post of Renault CEO, which might fall to Chief Operating Officer Thierry Bollore, whom Ghosn himself had called a “good candidate” to eventually repl­ace him at the French carmaker. Bollore will be proposed at the Tuesday meeting  as Renault’s interim leader, with Philippe Lagayette, an independent board member, as non-executive chairman, acc­o­r­ding to people familiar with the plan. 

Le Maire said the government would seek evidence from Japanese authorities, after the French side was all but blindsided by the probe and arrest on Monday. The Renault board and the Macron government were caught una­ware by the charges, according to people familiar with the matter. A Renault spokes­woman declined to comment.

In a memo to employees sent on Monday, Bollore expressed “full support for our chairman and CEO,” calling the alliance an “industrial gem that must be protected and nurtured.” Renault confirmed the content of the letter, which was cited in full by the Financial Times. While there’s little doubt that Ghosn’s ride atop the global car industry has come to a rapid halt, there’s less clarity on the nature of his transgressions. 

Japanese broadcaster NHK said Tuesday that Nissan paid “huge sums” toward Ghosn’s residences sprinkled across the globe. The real estate in Rio de Janeiro, Beirut, Paris and Amsterdam, had “no legitimate business reason” and Ghosn wasn’t paying at least some of the rent, the report said.

At a late-night press conference in Tokyo on Monday, Nissan Chief Executive Officer Hiroto Saikawa declined to give details on the charges, only saying that had both understated his income and misused company funds, including expenses and investment funds.

Real estate, investments

All told, Ghosn failed to declare some 5 billion yen ($44 million) in his income on Nissan’s official securities reports submitted over five years starting from 2011, prosecutors in Tokyo said on Monday. According to Japanese law, Ghosn can be held in custody for up to 23 days without being charged.

The sudden downfall of the larger-than-life executive has spooked investors. Nissan dropped as much as 6.5 per cent in Tokyo Tuesday, while Renault continued its slide, falling as much as 4.8 per cent in Paris. On Monday, the French stock fell to the lowest since January 2015.

Nissan’s credit rating is also at risk as a result. Standard & Poor’s put its long-term A rating placed on watch for a possible downgrade, saying profitability might weaken substantially in coming years if the alleged misconduct damages the brand image enough to seriously depress unit sales or hurt the alliance.

Over the course of almost two decades, Nissan has grown into the larger of the two main partners by deliveries and sales — but it has less say. Renault owns just over 43 per cent of Nissan, compared with the Japanese company’s 15 per cent stake in the French partner. It also boasts full voting rights in the alliance, while Nissan has none. That lopsided structure was always a point of contention between the French and the Japanese side, and Ghosn was in no small part responsible for preserving the peace between both sides.

“The issue is who’s going to control the alliance, and Saikawa has clearly put his cards on the table,” said Kenneth Courtis, chairman of Starfort Investment Holdings, an investment, private equity and commodity group.