In the poem published in 1818, Percy Shelley (1792-1822) sounded a warning, echoing down the ages
"My name is Ozymandias, King of Kings;
Look on my Works, ye Mighty, and despair!
Nothing beside remains. Round the decay
Of that colossal Wreck, boundless and bare
The lone and level sands stretch far away.”
Carlos Ghosn was as close to automotive royalty as the industry had known since Henry Ford (at Ford - 1891-1945) and Alfred P. Sloan (at GM - 1937-1956)
His downfall, and the destruction of his legacy, have left many questions unanswered
One might conclude that they will never be
The case has been extensively covered in our notes, relying on reports by Roger Schreffler (Asia Times)
Mr. Ghosn, then Chairman of the Renault-Nissan-Mistubishi Alliance, was arrested in Japan and indicted, on Dec. 10, 2018, on allegations of underreporting his compensation over the last 5 years
As we noted at the time, and following the arrest, “with the vote of the two Renault representatives at the Nissan board in favor of Mr. Ghosn's dismissal from his chairmanship, we assume the file must be solid”
…but no, it was not
Not exactly
How not to build a case
The circumstances of Mr. Ghosn arrest, on board of his airplane by the Japanese prosecutors in December '18, have been extensively publicized
…Nissan’s actions orchestrated at the precise time of the arrest much less so
Such as
- the arrest of Mr. Ghosn’s associate and Nissan board member, Mr. Greg Kelly, American national, drawn to Japan by deceit while he was preparing to undergo a spinal operation in the US
- the access to Mr. Ghosn’s personal papers the instant Mr. Ghosn was arrested by Nissan teams pre-positioned in Beirut, Amsterdam, Paris and Rio without search warrants
These facts were by themselves strong indications that the Japanese prosecution did not have much of a case against Mr. Ghosn at the time – or possibly just a flimsy one, certainly insufficient to justify his arrest
- Mr. Kelly, who was not accused of any cash misappropriation, had been involved in the draft of contracts between Mr. Ghosn and Nissan, which the Japanese prosecution hoped to recast as 'fund misappropriation"
- ...except for the fact the contracts, prepared in agreement with Nissan top management, were never signed (nor any money exchanged)
- It can be assumed that the prosecution planned to pressure Mr. Kelly into a witness for their case
However,
Mr. Kelly never caved in three and a half years – the making of a true hero in this sorry tale
Nor did Nissan’s worldwide quest for documentations to support the case meet with much success...
- not in Paris where recently installed new locks to Mr. Ghosn's apartment blocked access, not in Rio (Brazil) where Mr. Delauter, former vice-president at Nissan North America, refused access to Mr. Ghosn’s personal safe (he was fired for his services as was Mr. Ghosn's secretary in Brazil) and not in Beirut where the team took away the hard drive of Mr. Ghosn’s late personal lawyer, without a warrant (undoubtedly an illegal seizure which could hardly be invoked during a trial)
What this fishing expedition did produce were the contract drafts prepared by Mr. Kelly with Nissan management, although Mr. Ghosn had not yet signed the documents, with the sole purpose of retaining Mr. Ghosn’s services after his retirement
Prosecution took a long, a very long time to return to Mr. Ghosn the draft copy of the contract collected from his Lebanon safe
…understandably so, since the drafts were duly prepared for Board approval by Nissan top management, Mr. Kelly and Hiroto Saikawa, at the time Nissan’s chief competitive officer and involving Hari Nada, head of the CEO’s office
Governance - the Nissan way
Failing with the heavy-handed pressure on Mr. Kelly, initially jailed under harsh conditions, doing poorly with the discovery of transactions which may – or may not – have been approved by Nissan, the company sought to regain momentum in the public eye
And to do so, management committed to an ambitious - and very formal - overhaul of the company’s governance, squarely aimed at supposed years of abuse under Mr. Ghosn’s leadership
With the right persons in charge, Ms. Christina Murray, Nissan’s Chief Compliance Officer and an American national, and British Global General Counsel Ravinder Passi, what could go wrong?
- …It turned out, quite a lot could go wrong when Ms. Murray and Mr. Passi came across the draft contract and the direct involvement of Nissan management
- …leading to internal reports which were duly squashed and their authors dismissed - Ms. Murray departing quickly under confidential terms and Mr. Passi later, after reassignment to London
Ultimately, the entire case hinged on a draft contract aimed at retaining the services of Mr. Ghosn post-retirement, as contacts made with Mr. Ghosn by American carmakers were common knowledge
The agreement would go a long way in compensating Mr. Ghosn for salaries he renounced during Nissan’s hardship years but to which he still felt entitled, perhaps a moral obligation but not a legally-binding one
And the contract was precisely what it said it was – a draft prepared by Nissan management (but not yet signed by Mr. Ghosn nor approved by the Board)
As Mr. Kelly stated repeatedly, “There was no crime, Ghosn was never paid anything, the board never decided to pay him anything and the only way he could have been paid is with board approval.”
To add insult to injury, Mr. Kelly did reveal – back in 2019 while confined In Tokyo – to Bungei Shunju, a respected Japanese monthly magazine, that Hiroto Saikawa and other executives had made illegal gains by moving back the execution date of their stock appreciation rights, originally set as May 14, 2013, by one week, during which Nissan shares rose 10%.
Neither Mr. Ghosn nor Mr. Kelly are known to have benefitted from the share backdating, while Mr. Saikawa, recently named CEO in replacement of Mr. Ghosn, left the company under a cloud
The trigger
It remains unclear what Nissan hoped to achieve with the firm’s assault on its CEO
With a 43% share in the Japanese firm, French-based Renault could expect to stay very much in control of Nissan’s ultimate destiny
Vindicated by the Tokyo District court which acquitted him on March 3, 2022, on seven of the eight fiscal years under consideration, Mr. Kelly – with caution and according to Asia Times’ Roger Schreffler –
- suspected the actions of Hari Nada [head of the CEO's office and key organizer of the plot to oust Mr. Ghosn] stemmed from Renault’s decision to force the integration of the two main Alliance partners, Renault and Nissan: “It came out at [my] trial that an early 2018 resolution by Renault’s board instructing Ghosn to merge Nissan and Renault triggered the coup.”
- “That resolution also made it clear that if Ghosn failed to merge the operations, he risked losing his contract as Renault CEO the following June.”
The assumption may prove to be correct and French highhandedness in building a global automotive empire does not appear improbable
In a sense, industrial tinkering was playing out with unwarranted interference by both big players, the French State and the Japanese Government
An early Pininvest note, dated Dec. '18 - L’affaire Ghosn - discusses Japanese insecurity entertained by the unfortunate consequences of French State shareholding manipulations
Mr. Ghosn’s effort, at the time, to assert Nissan’s economic weight in an equally balanced ‘Alliance Board’ putting his chairmanship at the center turned out to be 'too little, too late', setting him up as target of either the French, or the Japanese government...or as target of both
Caught between two conflicting ambitions, the center became a swirling vortex of irreconcilable demands
Mr. Ghosn was the linchpin to be disposed of to bring the Alliance between the two firms to an end
Solidly documented by Asia Times’ Roger Schreffler, the facts cannot be disputed
They also raise many questions
- Why has the merit of the case brought against Mr. Ghosn raised so few questions
- Why has media coverage focused unsparingly on supposed abuse of Mr. Ghosn's position as Chairman without reporting in equal part about the ‘disappearing’ reports on Nissan governance
- Why has the Board of Renault not been put to task for poor governance during Mr. Ghosn’s chairmanship – and for questionable decisions following his arrest
It is undisputable that an outsized personality such as Mr. Ghosn is flawed
All the more reason for a Board to stay actively involved in the complex relationship between the two firms - what of it ?
Considering Mr. Ghosn's punishment today, isolated in Lebanon where he resides, or the punishment meted out to Mr. Kelly, held in Japan for 1000 days for crimes he did not commit, the governments in both countries might have even harder questions to answer
Hubris
Tripped up by national pride skewing management preferences, the Alliance between Renault and Nissan had no operational future, and its architect, Mr. Ghosn, seems to have become an embarrassment for both firms
- The Japanese, riding high on their economic success by 2018, felt legitimate in resisting a merger putting the French in control of the firm
- The French government would not let go of statutory shareholder rights and a sense of entitlement
Mr. Ghosn's travails in keeping his team of two horses on track was going to prove vain
A merger of equals, the only sensible option, was simply not on the agenda of either government
...which is how it all came together
- Mr. Ghosn's ouster was a Japanese plot
- The French government - although no one can know for sure - may have turned a blind eye and the vote of the Renault members on Nissan's board to demote Mr. Ghosn without any proof of malfeasance may have been no more than an opportunistic move to wrest control from its all-too-powerful Chairman
However, Nissan's break-out economic performance and Renault's lag still had to be confronted, with or without Mr. Ghosn
The gap had been growing from 2010
As of 2021, both firms suffered from the upheaval following Mr. Ghosn's downfall, followed by sweeping economic headwinds, and Renault did not catch-up
Renault sold 30% less (2.7 million cars) compared to Nissan's global sales (3.9 million)
The case in favor of the Japanese firm was open-and-shut
Open-and-shut
Since the Wall Street Journal and Bloomberg broke the news in early October '22, discussions about the terms of realignment between the two firms approach their conclusion
- Nissan will get to buy a substantial share of Renault's 43% stake in Nissan's capital, ideally (for the Japanese firm) by reducing the holding to 15% in line with Nissan's 15% in Renault
- Renault may, or may not, accept a deal at Nissan's current painfully low share price but seems to grasp for a face-saving resolution all the same
Negotiations are on-going and various deadlines have been pushed back
- President Macron has declared on November18, '22 that the French government will not intervene in ongoing discussions over revamping the alliance : "we should not policize this issue" according to Nikkei Asia, quoting the French president
- Both firms voice reassuring commitments about the importance of collaboration
- Renault hopes to associate Nissan in the spin-off of its new Electrical Vehicle (EV) unit
The Alliance between the two firms may still have some life to it, or may just be "twitching"...
It remains unclear to what extent Nissan