Mystery of how Ghosn got away with it

Weeks after his arrest, no one knows how one of the world’s most visible bosses hid $70m

HOW could one of the world’s most visible employees go about hiding

$70 million (R970m) 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 Motor Company’s own corporate governance rules gave unusual powers to its former chairperson, a business celebrity who was given extraordinary deference for having once rescued the automaker 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 people familiar with the prosecutors’ investigation now say the probe appears to hinge on a relatively arcane point of accounting – whether retirement payments were properly booked. Whether or not 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 says 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 Allen, head of the Hong Kong-based Asian Corporate Governance Association. “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 Ghosn almost since the moment he took over in 1999 as chief operating officer of the then-troubled Japanese automaker. 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 Motor Corp’s chairperson made.

It now appears that even those numbers were understated. 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 people familiar with the investigation.

Ghosn has denied any rules were broken around deferred compensation, people with direct knowledge of the case 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. Ghosn hasn’t had an opportunity to respond in public because he’s held in detention, where Japanese law allows people to be kept for weeks without being charged.

Prosecutors were alerted to

Ghosn’s alleged wrongdoing after a whistle-blowing tip from inside Nissan. The timing prompted some analysts to say the scandal may have been manufactured in order to block a merger that Ghosn was advocating between Nissan and its partner, Renault SA.

If Ghosn’s celebrity once helped him rally Nissan’s troops, it may have also made misbehaviour easier. Inside the company, an unquestioning cult-of-ghosn took root, according to several people familiar with the situation. By 2015, when Japan introduced its corporate governance code, it was clear even to some within the company that Nissan was an outlier in terms of how much control it gave its chairperson.

“We had governance in name only,” Nissan chief executive Hiroto Saikawa told the media after Ghosn’s arrest.

“Ghosn’s team thought that the best way to ensure governance was to concentrate power,’’ said Satoshi Egi, an expert on corporate compliance.

Japan’s corporate governance code is closer to a wish-list than a set of actual regulations. Firms aren’t forced to comply, but must give shareholders an explanation in any instance where they haven’t.

Nissan spokesperson Nicholas Maxfield declined to comment for this story. |