This is part 2 of a series. Read part 1 here.
“We’re discovering more and more things all the time,” former Nissan CEO Carlos Ghosn told me in our latest interview, “more documents and more people starting to talk about what happened.”
And therein lies the problem for Nissan, which, having racked up nearly US$17 billion in market cap and business losses since Ghosn’s ouster, needs to focus on rebuilding its business while avoiding distractions. Lawsuits are distractions – and costly.
From multiple sources both inside and outside the company, including two who were in executive positions, we were told that Nissan spent more than $200 million in legal fees and associated costs – such as hiring investigators and a team of dozens of translators to translate literally millions of emails for the prosecutor’s office – in the six-month period after Ghosn’s November 19, 2018, arrest in Japan.
One of those sources believes the figure has grown to between $300 million and $400 million including buying the silence of former employees with nondisclosure agreements.
Nissan refused our request to set up management interviews, but there is no doubt that every dollar spent on lawyers is a dollar not spent on product development and brand.
Ghosn, with considerable justification – and, now, exculpatory evidence made public in the recent trial of his former Nissan board-member supporter Greg Kelly – continues to insist that the real crime is not the one he allegedly committed.
Rather, he says, it’s the one committed by six rogue directors and corporate officers who plotted for months in secret to remove him from Nissan’s board.
Adding up all of the money they allege he defrauded Nissan of – about $165 million, not counting perks such as use of corporate jets for non-business purposes including vacations – the total comes to 1% of the $17 billion in shareholder and business losses that have been recorded beginning the day after his arrest.
And at least $140 million of that $165 million, whether legitimately due to Ghosn or not, was never paid. That includes $94 million (9.3 billion yen) that Ghosn insists couldn’t have been paid because, contrary to what is alleged in the charges, payment always required board approval. (Note that we used average annual exchange rates, not today’s rate, to convert deferred income.)
Here’s Ghosn from our May 21 interview: “Obviously, there had been a lot of brainstorming. What was agreed by the two representative directors, Greg Kelly and Hiroto Saikawa – in fact, they signed a document, both of them – was a proposal. But this signed document was not executional.”
He explained: “To be executional it has to have my signature.” That document did not have his signature, he said. His argument is endorsed by others we have spoken to who have seen the proposal.
Secondly, the proposal would have had to go to the board – “because the two representative directors could not make a decision on behalf of the board,” Ghosn said. “They had to have the approval of the board [before] it would have been executional.”
A person directly involved with the compensation discussions, who asked not to be named, agreed.
In a moment of levity during our latest interview, in July, I reminded Ghosn of the old legal maxim that conspiring to rob a bank (in this case that would be Nissan’s bank) does not constitute bank robbery until and unless the bank is actually robbed.
Ghosn chuckled. “There was no bank robbery,” he declared, “but there is bankruptcy, of a system that worked for 18 years, followed by two years of shareholder losses and losses of profit” after his arrest. The total losses add up to about $40 billion for the three companies, Nissan, Renault and Mitsubishi Motors Corp.
Ghosn added: “This was an organized bankruptcy. And they are responsible” – they being the individuals who organized the coup and members of the board who he says covered up any wrongdoing.
Given the scale of the losses, including damage to Nissan’s reputation and brand, Ghosn argues that there is little difference between the Nissan “scandal” – removing the chairman to prevent Renault shareholders from exercising their rights to possibly absorb the Japanese automaker – and the most recent Toshiba scandal.
The latter came to a head at Toshiba’s 2020 shareholders’ meeting over that company’s apparent collusion with a government ministry to suppress the rights of foreign shareholders.
“The Toshiba scandal was due to collusion between part of Toshiba management and METI (the Ministry of Economy Trade and Industry) to defraud the shareholders. At Nissan, we have several old boys in management colluding with METI – there is no doubt – then giving Tokyo prosecutors the job of putting the plan into action,” Ghosn said.
“In the case of Nissan, who has been defrauded?” he asked. “They thought they would defraud French shareholders, which would be Renault. In the end, everybody has been defrauded because the shareholders of Nissan, Renault and Mitsubishi all lost a lot of money.”
Renault holds a 43% equity stake in Nissan. Nissan holds a 34% stake in Mitsubishi. Renault and Mitsubishi weren’t informed about the plan to remove Ghosn from Nissan management, effectively removing him from Renault and Mitsubishi management as well, until they learned about it from media reports.
Combined market cap losses of the three Alliance companies through March: $17 billion.
Losses haven’t only been financial. Nissan purged anyone close to Ghosn, clearly in an effort to justify the decision of a few to circumvent the board.
The result: a management team that has little experience in the auto industry. Only three of 12 directors have had careers in the industry, none of the three has executive experience in North America and only one, the automaker’s new COO, Ashwani Gupta, has experience in Europe.
The Nissan board comprises an American lawyer (Jenifer Rogers), a retired METI bureaucrat (Masakazu Toyoda), a retired banker (Motoo Nagai), a financial services industry executive (Pierre Fleuriot), an entertainment industry executive (Andrew House), a former energy company executive (Yasushi Kimura), a race car driver (Keiko Ihara), and two veteran tire industry executives (JeanDominique Senard and Bernard Delmas).
Ghosn is correct when he says there has been a talent drain, at least of auto industry professionals, and very little coming in.
“José Muñoz left for Hyundai and Thierry Bolloré for Jaguar. Others left to take prominent positions at other OEMs or suppliers,” he said. “They left because they didn’t want to get into politics. They just wanted to manage companies.”
Various sources including Ghosn himself have named other key executives who left, in most case connected to the post-Ghosn shakeup. The list looks something like this:
Arun Bajaj, head of human resources who followed Muñoz to Hyundai Motor Corp, Muñoz becoming COO of South Korea’s largest automaker; Vincent Cobée, former head of product development and brand strategy, who left for Groupe PSA (since renamed Stellantis N.V.); and Trevor Mann, Nissan’s and Mitsubishi’s purchasing and supply chain chief.
Others include Tony Thomas, chief information officer; Joseph Peter, chief financial officer with 35 years of industry experience including 25 years at General Motors Corp; Ravinder Passi, global legal counsel with 16 years experience; and Jose Valls, president and chairman of Nissan North America, with more than 20 years of experience in Mexico and Latin America.
One of the losses with major impact was that of 34-year Nissan veteran Jun Seki, who left the company – just weeks after agreeing to become Nissan’s vice-chief operating officer – and took the CEO’s job at Nidec Corp, the world’s leading manufacturer of small precision motors. Nidec has aspirations to become a major supplier of electric cars.
In total, an estimated 40 people in senior management – from Muñoz, a member of the board and executive committee, down to senior managers at Nissan subsidiaries – left the company.
Case in point: Brian Delauter, a former vice-president at Nissan North America, Inc, who refused to follow what he considered a potentially illegal order on November 19, the day of Ghosn’s arrest, to retrieve Ghosn’s safe from his Rio de Janeiro apartment, is now embroiled in a lawsuit with Nissan over severance pay.
Ghosn added: “If you rely on 10 or 15 key people working together who had been selected very cautiously, then if half or two thirds of those people leave, you put the whole system into imbalance.”
Whatever worked before “as a well oiled machine,” he said, gives way to “gridlock.”
Then and now
Looking at the big picture of where Nissan was three years ago and where it is today, Kenneth Courtis, chairman of Starfort Investment Holdings and former top strategist at Deutsche Bank and the Goldman Sachs Group, has likened Ghosn’s ouster to the corporate industrial equivalent of Japan’s attack on Pearl Habor 80 years ago – with long-term consequences just as disastrous for the company.”
The operation “was perfectly executed,” said Courtis, who often advised Ghosn before the arrest. “But its success depended on imprisoning Ghosn, on breaking him psychologically and physically, and his not being free to defend himself. That all changed 13 months later when he managed to regain his freedom from Japan’s ‘hostage justice’ system.”
From that point, Courtis noted, Ghosn “has been able to build his defense and, in so doing, reveal the ruthless and cynical intrigue of the small group in management behind the coup, who have compromised the viability of the Alliance and put the very survival of Nissan at stake.”
While Courtis did not go so far as to argue that the damage to Nissan and the Alliance is irreversible, he observed that the nearly $40 billion in market cap and business losses to the three main Alliance partners to date is just the “starting point” of assessing the costs.
“There are six other partners in the broader alliance,” said Courtis: “AutoVaz, Dacia, Dongfeng Motors, Samsung Motors, Siam Motors, Daimler AG. All have suffered. And for all of these companies, trust in Nissan has been shaken to the core as a result of the operation of a self-serving clique acting in secret.”
It’s true that Nissan outperformed its fiscal 2021 earnings forecast during the first quarter and is now projecting a full-year profit of ¥150 billion ($1.4 billion) on revenues of 9.75 trillion yen ($88.8 billion) for a 1.5% profit margin.
That is good news for the automaker and suggests that its post-Ghosn restructuring plan (named “Nissan Next”) is making progress. But it doesn’t tell the whole story.
Nissan still ranks fifth in the Japanese market with a 10.5% share of sales. Its sales share is down more than half a percentage point from fiscal 2017 and fiscal 2018 levels. It trails Toyota Motor Corp, Suzuki Motor Corp, Daihatsu Motor Co, Ltd, and Honda Motor Corp.
In the United States, the automaker has fallen to seventh among brands and now trails, in addition to the Detroit Three, Toyota, Honda and the Hyundai Kia Automotive Group. Its market share has fallen to 6%, down nearly 2 percentage points since 2018.
Once the world’s leader in electric cars, Nissan has fallen out of the top 10, while the Leaf, the industry standard-bearer in the early years of e-cars, ranks sixth.
In the luxury segment, Infiniti, which reported record US sales of 153,415 units in 2017, is on track to barely exceed 70,000 this year.
The biggest red flag is that Nissan is now a smaller company than it was in 2017 and 2018 when it sold 5.8 million and 5.6 million cars, respectively, and held a 6% global market share. It is projecting sales of 4.4 million units in 2021 – 20% below 2017 and 2018 levels – and 5% market share.
While Nissan’s management has characterized shrinkage as “right-sizing,” others have a different opinion.
Part 3 of this series will break down the list of court cases involving Carlos Ghosn that are pending in various countries.
Roger Schreffler is a veteran correspondent for Ward’s Automotive and a former president of the Foreign Correspondents’ Club of Japan.