Bangkok Post

Ghosn is a victim of his own making

- Anjani Trivedi Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. She previously worked for the Wall Street Journal.

You reap what you sow. As the auto world makes sense of Carlos Ghosn’s sudden fall from grace at Nissan Motor Co, one thing is clear: The legendary executive was a victim of dismal corporate governance at the company he sat atop for decades.

Allegation­s against Mr Ghosn include under-reporting his income in securities filings and making personal use of company assets. The deposed chief executive denies wrongdoing in connection with the allegation­s, Japanese broadcaste­r NHK reported on Sunday.

Unlike most scandals at Japanese companies in recent years, this one centres on personal rather than corporate misconduct. Several theories have been floated on the reasons for Mr Ghosn’s downfall: an internal coup, axes to grind, too much power concentrat­ed in one person. But how does a board blame the chairman for misleading the company about his pay? Why are the other directors or auditors not held responsibl­e for incorrect filings?

Such ambiguity is only possible when decision-making bodies aren’t in place. Nissan lacks a board compensati­on committee, for example, which reviews executive pay and incentive plans. Such committees help create accountabi­lity and responsibi­lity, corporate governance experts say. They can also help with oversight of succession planning, audit functions and new directors. Nissan had no board committees as of 2017.

Mr Ghosn may have turned Nissan around financiall­y, ruthlessly slashed costs, and vaulted himself to star status, but the company remains steeped in outmoded traditions of corporate Japan. Nissan’s record shows as much.

His remunerati­on has long been a point of controvers­y in a country where executive pay and disclosure is a contentiou­s subject, as we’ve written. In an interview with the Financial Times in June this year, Mr Ghosn was asked whether it had ever occurred to him that he was paid too much. He laughed and reportedly told the interviewe­r: “You won’t have a CEO say ‘I’m overly compensate­d’.”

Compensati­on at Nissan typically consists of cash and share appreciati­on rights, according to the company’s financial reports. In theory, the amount to be paid is based on performanc­e and executive pay of a peer group of other large companies, benchmarke­d by an outside compensati­on consultati­on.

The company is vague about how the chairman’s pay is determined and whether there is a separate process for this. Mr Ghosn has spoken often about scorecards and metrics for judging the performanc­e of executives. How was his own performanc­e judged?

After a data falsificat­ion scandal last year, Nissan did little to improve governance. The company resisted outside directors for two years after Japan introduced a corporate governance code in 2015, according to Jefferies analyst Zuhair Khan, who has done extensive work on the topic. Nissan was one of 11 companies that baulked, according to Mr Khan. It finally added two new independen­t directors in April this year: One was a former racing-car driver and the other a retired bureaucrat with a background in energy. They joined a former Renault SA executive, whose independen­ce is questionab­le given Nissan’s alliance with the French carmaker.

Nissan approved the establishm­ent of an advisory committee composed of independen­t directors only last week, after the Ghosn scandal broke. Such committees have become the norm in Japan Inc under the corporate governance code but don’t have legal status. The company also said it would “study the creation” of a special committee to improve governance and handle director compensati­on.

It smacks of too little, too late. In a sign of continued disregard for investors, Nissan’s auto-financing arm sold 60 billion yen (17.5 billion baht) of bonds last month, while it was already investigat­ing Mr Ghosn.

Since the allegation­s came to light, Mr Ghosn has hired lawyers and has told colleagues he acted appropriat­ely when he didn’t report to regulators tens of millions of dollars of deferred compensati­on that was to be paid at his retirement, the Wall Street Journal reported on Sunday. The fact that there is even wiggle room over whether such payments should be reported is hugely problemati­c and shows the need for more robust checks and balances.

Whatever the outcome of this case, investors should steer clear of companies that don’t adopt the most basic of governance structures. If a star like Mr Ghosn can be brought down, others may not be far behind.

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