Ghosn’s legal woes highlight governance failings

TOKYO — One of the biggest mysteries surrounding the arrest of Nissan’s former chairman Carlos Ghosn is over how he allegedly could have underreported his income by millions of dollars for years and why the company is going after the suspected wrongdoing now.

Ghosn, who headed the RenaultNissan-Mitsubishi Motors auto alliance, was arrested on Nov 19 on suspicion he underreported his income by $44 million over five years, or about half of what he was really making. Nissan Motor Co and Mitsubishi have ousted him as chairman.

Prosecutors have released very little information about the case and neither man has been officially charged. In Japan suspects can be held for weeks for questioning without any charges.

A source familiar with an internal investigation by Nissan said the hidden salary was categorized as “deferred income”, meaning it was promised for later on, such as after Ghosn’s retirement, and the documents promising the money were kept secret from auditors and others. He spoke on condition of anonymity as he was not authorized to discuss such details.

Many Japanese companies lack the sorts of systematic checks required for publicly listed US companies.

Japan needs independent oversight for executive pay, said corporate governance expert Takuji Saito, who teaches at Keio Business School.

“The problem here was that the pay was significant, in line with global standards, but the way it was decided was still so Japanese,” he said of Nissan’s lack of transparency. “Nissan deserves criticism for having allowed this to continue unchecked for so long.”

Saito believes that failing to report deferred income is still “a gray area in criminality” in Japan, but a clear problem in corporate governance.