Shares of Japan's second-largest car manufacturer as well as France's Renault plunged following a report that Carlos Ghosn, Nissan chairman and chief executive of the Renault-Nissan-Mitsubishi alliance, was arrested on allegations of financial trading misconduct. Nissan's board of directors plan to dismiss him on Thursday.
Mr Ghosn was arrested on Monday on suspicion of under-reporting his corporate salary. A Brazilian-French citizen of Lebanese descent who has been with Nissan since 1999, Mr Ghosn heads the world's largest automaker alliance. He voluntarily went with Tokyo prosecutors, who arrested him after questioning, according to Japanese newspaper Asahi.
Nissan will propose dismissing Mr Ghosn and board member Greg Kelly, who was also arrested for financial misconduct, according to a statement from the company, which said a whistleblower set off a months-long investigation of the two men.
"The investigation showed that over many years both Ghosn and Kelly have been reporting compensation amounts in the Tokyo Stock Exchange securities report that were less than the actual amount, in order to reduce the disclosed amount of Carlos Ghosn’s compensation," Nissan said in a statement on Monday.
“In regards to Ghosn, numerous other significant acts of misconduct have been uncovered, such as personal use of company assets, and Kelly’s deep involvement has also been confirmed.”
Mr Ghosn under-reported his income by as much as $44 million (Dh161m) over the course of five years, according to Kyodo news agency.
Renault shares fell as much as 15 per cent in Paris on Monday, the lowest in almost four years in the wake of the scandal, while Nissan global depository receipts dropped more than 11 per cent.
Nissan will appoint third party investigators made up of external directors to get to the bottom of the misconduct, Hiroto Saikawa, Nissan's chief executive said at a press conference on Monday. He said the revelations of criminal activity are the dark side of Mr Ghosn's long reign at the automaker and that "overly concentrated power in one individual led to distortion".
"“Nissan cannot accept this conduct," Mr Saikawa said.
“With Carlos Ghosn also Renault CEO, the two groups are reliant on one big hitter to solve their lopsided partnership,” wrote Liam Proud, a columnist for Reuters’ Breakingviews. “That’s a big problem if he’s no longer there.”
The leadership crisis underscores the importance of sound corporate governance, said Khalid Howladar, managing director and founder at Acreditus, a risk advisory firm in Dubai, and provides a cautionary tale to the Middle East that is still solidifying its corporate governance policies.
“The precipitous drop in the share price underscores both the importance of corporate governance for investors and the obviously key role of the CEO in the company’s value,” Mr Howladar said.
Sent to Japan by Renault in 1999 following the formation of the Renault-Nissan-Mitsubishi Alliance, Mr Ghosn burnished his name as an industry maverick as the architect of Nissan’s turnaround.
He is credited with transforming the company from near-bankruptcy to profitability within two years and steering the car maker into an expansion in China, one of Nissan's key markets by volume.
He joined Nissan as chief operating officer in June 1999 and served as chief executive from June 2001 until April 2017, when he was succeeded by Hiroto Saikawa.
Mr Ghosn was named chief executive of Groupe Renault in May 2005, becoming the first person to run two global Fortune 500 companies simultaneously. In 2009, he was also appointed chairman of the board. He is Chairman and chief executive of the Renault-Nissan Alliance, one of the world's largest automotive groups. Renault, Nissan, Mitsubishi Motors and AVTOVAZ together sold 9.96 million vehicles in 2016 – more than one in nine cars worldwide.
With the arrest, Mr Ghosn’s role as chief executive of the Renault-Nissan-Mitsubishi Alliance hangs in the balance. He said as recently as last month that he planned to stay on until 2020, although he stepped down from the top job at Nissan last year, amid reports that the companies plan to change the alliance’s structure, possibly through a merger.
France's President Emmanuel Macron said on Monday it was too early to comment.The French government is a 15 per cent stakeholder in Renault.
Nissan forecast a flat year in 2018 for the Middle East car market, as still-slow economic growth and the introduction of VAT has taken a toll on consumption, the company’s regional director said in June.
Total auto sales across the Middle East dropped 9 per cent year-on-year in 2017, and by 11 per cent in the GCC, according to Nissan’s financial report for the first half of 2018.
The National was unable to reach Nissan's spokesman Nicholas Maxfield for comment.
Tokyo stocks opened lower on Tuesday with shares in Nissan diving more than six percent and Mitsubishi also plunging after chairman Carlos Ghosn was arrested over allegations of financial misconduct.