The corporate culture at Nissan that enabled former chief Ghosn to hide his inflated salary
How could one of the world’s most visible employees go about hiding $70 million worth of salary and benefits paid to him by one of the world’s biggest companies, without the company knowing it?
Two weeks after Tokyo prosecutors arrested Carlos Ghosn for allegedly under-reporting his compensation, that question is still unanswered. What is certain is that Nissan’s own corporate governance rules gave unusual powers to its former chairman, a business celebrity who was given extraordinary deference for having once rescued the car maker from financial ruin.
Those powers included near-total say over how much – and how – he was paid, according to Nissan’s own internal rules.
Several sources now say the investigation appears to hinge on a relatively arcane point of accounting – whether retirement payments were properly booked.
Whether or not Mr Ghosn broke Japan’s securities law by feeding the wrong numbers to Nissan’s board and its accountants (at this point, the allegations are unproven), corporate governance expert Jamie Allen said the deeper question is how anyone could have gotten away with something like that.
“It all comes back to a lack of internal controls,” said Mr Allen, head of the Asian Corporate Governance Association in Hong Kong. “If the board genuinely didn’t know that the disclosure of his remuneration was inaccurate, that doesn’t say much for governance. And if they did know, they should take collective responsibility for the failure.”
Fights over pay have been a constant for Mr Ghosn almost since the moment he took over in 1999 as chief operating officer of the then-troubled Japanese car maker. Early on, he caught flak for rewarding Nissan’s senior managers for performance instead of seniority.
Later, in 2010, when Japan’s new rules on disclosure of executive compensation outed him as the country’s top-paid boss, he caught flak again.
The $10m he reportedly made that year might not have been out of line by western standards, but it rankled in Japan where the brash Franco-Brazilian executive was seen to be taking home six times what Toyota’s chairman made. It now appears that even those numbers were understated. Mr Ghosn’s salary had actually been much higher before public disclosure was required; to minimise criticism, a plan was devised to defer about half his annual pay until after retirement, keeping the numbers off the books, according to sources.
Mr Ghosn has denied any rules were broken around deferred compensation, sources have said. His defence is that the amount of such pay wasn’t certain, and therefore it was appropriate to omit it from securities filings, they said. Mr Ghosn has not had an opportunity to respond in public because he is held in detention, where Japanese law allows people to be kept for weeks without being charged.
Japan’s corporate governance code, introduced in 2015, is closer to a wish-list than a set of actual regulations, Bloomberg said. Companies are not forced to comply, but must give shareholders an explanation in any instance where they haven’t.
One guideline Nissan chose not to adopt was setting up independent advisory committees on executive pay.
The omission gave Mr Ghosn broad power to decide how much he was paid. It also allowed him to determine the compensation of the people who were supposed to keep him in check.
Nissan’s Corporate Governance Report says plainly: “The chairman of the board determines the compensation of each director’’ based on consultation with the company’s two other top top officials - one of whom was Greg Kelly, the American arrested along with Mr Ghosn.
Employees in Nissan’s finance department were not responsible for verifying the details of C-suite salary numbers disclosed in annual securities reports, according to one person familiar with company’s practices. That was the board’s job, but no one dared to ask questions, the person said.
A Nissan panel on Tuesday failed to nominate a successor to Mr Ghosn as chairman in the wake of his arrest and dismissal for alleged financial misconduct last month, a source told Reuters.
Japan’s corporate governance code, introduced in 2015, is closer to a wish-list than a set of actual regulations