Figure this out if you can. Japanese regulators propose to fine Nissan the yen equivalent of $22 million for misreporting fired Chairman Carlos Ghosn’s compensation – and Nissan replies that it probably will pay up with no argument.
Since firing Ghosn, the company has worked with public prosecutors who had him arrested and charged him with four crimes.
But Ghosn didn’t prepare the reporting forms himself and the argument can be made, as it was in Asia Times over the weekend, that realistically, as an outsider and particularly as a non-Japanese speaker/reader, he couldn’t have navigated on his own the approximately 8-fold obstacle course of auditors and compliance officials who would have had to sign off on any misreporting scheme.
Says a veteran foreign lawyer in Japan who asks not to be named:
There is no way the ENTIRE management did not know the circumstances of Ghosn’s alleged illegal behavior. And if they knew about it, given compliance rules now in place on a company like Nissan, there is NO way these arrangements cannot have been approved by various accounting and finance staff, compliance staff, general affairs staff and statutory auditors, not to mention the outside director’s committee that under the new rules is supposed to approve executive compensation.On the day I heard the news of Ghosn’s arrest (and I have never been either a Ghosn fan or a Ghosn detractor), I [concluded] that there simply was not any way that that kind of financial misfeasance, certainly not on that scale, could get past the gauntlets of compliance mechanisms that have been set up…. I have not changed an iota in my conclusions regarding that.
Ghosn’s lawyers likewise argue that whatever he did was duly authorized at high levels in the company. They say the charges are a frame-up by Japanese conspiring in tried and true fashion to expel the barbarian after they got wind that he’d been instructed by the French government – 15% shareholder in Renault – to undertake a management restructuring of the Nissan-Renault-Mitsubishi Motors alliance.
The foreign lawyer I’ve quoted above does not represent or speak for Ghosn. Here he translates the thought processes of typical Japanese businessmen:
“The proposed further integration with foreign companies [i.e. Renault] would bring into question the promotion of various Japanese executives within the system for want of any real talent or achievements. Yet this relatively incompetent, risk-averse but well-connected faction is a highly ubiquitous and entitled one in contemporary large Japanese companies generally. And their school connections with Japanese officialdom tend to be first rate. One sees their footprints all over most of the large corporate scandals of the last decade or two.
Does Tuesday’s Nissan response support, if inadvertently, the Ghosn argument?
Since the company has claimed for months that it got scammed by Ghosn, why take responsibility for the alleged legal offense? Why not say, echoing the 1932 complaint of heavyweight boxer Max Schmeling’s manager Joe Jacobs, “We wuz robbbed”?
Here’s how Nissan, on its global corporate website, describes the situation:
Notice on Recommendation for Administrative Monetary Penalty Payment Order by the Securities and Exchange Surveillance Commission
As announced in the “Notice Regarding Filing of Correction Reports for the Company’s Annual Securities Reports” dated May 14, 2019, Nissan Motor Co., Ltd. (the “Company”), on May 14, 2019, filed correction reports with the Kanto Local Finance Bureau to correct the Company’s prior disclosures of officers’ compensation in its Annual Securities Reports for the 107th (April 1, 2005 to March 31, 2006) through 119th (April 1, 2017 to March 31, 2018) fiscal periods.
The Company now announces that a press release was made today by the Securities and Exchange Surveillance Commission (the “SESC”). The SESC has recommended to the Prime Minister and the Commissioner of the Financial Services Agency (the “FSA”) that the FSA should issue an administrative monetary penalty payment order of 2,424,895,000 yen against the Company in relation to the disclosure documents listed below, pursuant to Article 20(1) of the Act for Establishment of the Financial Services Agency.
The Company takes seriously the fact that the SESC recommended the issuance of an administrative monetary penalty payment order and will consider its response after receiving an official notice from the FSA. Unless there are special circumstances or other reasons, the Company intends not to dispute the alleged facts and the amount of the administrative monetary penalty. The Company will disclose its response once its response has been officially determined.
Making false disclosures in annual securities reports greatly harms the integrity of public disclosures in the securities markets. The Company expresses its deepest regret to its stakeholders for any trouble caused. The Company will continue its efforts to strengthen its governance and compliance, including ensuring the accuracy of disclosures of corporate information.
Think about it. Kind of makes you scratch your head.
The veteran foreign lawyer in Japan who’s quoted above thinks about it, scratches his head and provides an off-the-cuff analysis focusing on how having a gaijin shacho – a foreign CEO – tends to grate on a Japanese organization and how Japanese have traditionally dealt with such a situation:
This is coded of course. I have seen these transactions before. Sometimes when a powerful faction wants to destroy someone internally, they confess abjectly and make it clear that it is one bad apple’s behavior that has caused the problem but they are ALL going to be very very sorry for it, pay the penalty and make sure they never let themselves be fooled again. The point for this is to make it extremely socially awkward for the accused to go against the stream and protest their innocence here.
In Nissan’s case, however it is IMHO very ineptly done. [Nissan’s former CEO and Ghosn’s handpicked successor Hiroto] Saikawa got caught and went down in flames. The dumb asses in his faction (the controlling faction) who survived that predictable flameout are ever hopeful that if they piously pull this stunt that somehow it will all work, because it always worked before, because as Japanese corporate window dressing (good school, good connections, no brains, high earned position in the company) they are entitled to it and because Japanese sheeple will buy it hook, line and sinker.
Except that the Japanese people aren’t really sheeple (any more than anyone else) and if they sin in this it is only in thinking,”No good comes from having a gaijin shacho,” and to an extent, they have a point. Experience is teaching the Japanese on the street (in their own minds, anyway) that a gaijin shacho is generally brought in to either do something politically difficult but necessary, and be disposed of, or to be made a patsy and disposed of; is an ornament that should not really exercise power – or the Japanese company was so bankrupt they could not survive without a gaijin white knight (in which case they are bought and paid for). Nissan strikes me as closest to case 1. Except Ghosn was always a step ahead until this recent business.
Bottom line, Saikawa was sacrificed…. [T]he same Japanese staff that had approved, ignored, enabled, perhaps even encouraged and expanded these schemes for their foreign mentors decided to use connections of highly questionable ethics with the prosecutor’s office to use these “transactions” to which they were formally either indifferent or enabling to unseat these foreign executives once they saw them taking steps that they feared might sideline them.
Saikawa himself had said, in his final interview before vacating his post, “There were people inside Nissan who held deeply rooted conservative views that the company should go back to before it faced its financial crisis in the late 1990s. These forces were unleashed when the Ghosn system fell.”
Oh, to have been a fly on the wall in the Nissan offices.
The closest any of us is likely to get to that will be watching the trial that, according to some reports, could begin in April, on charges of under-reporting his compensation and using company money for personal expenses.
Ghosn faces up to 15 years in prison if he’s convicted.