This is part 2 of a 3-part report. Read part 1 here.
The clock was ticking.
By 2013, Nissan was solidly back making money after having weathered the 2008 financial crisis followed by the hyper-inflated yen between 2009 and 2012 and the 2011 Japan earthquake and tsunami. Thus the automaker could boast three consecutive years of profits and could project a 6.0% operating profit margin in fiscal 2013.
In some ways, Carlos Ghosn was even more of a retention risk because the clock was ticking, literally, as his 60th birthday was fast approaching the following March and several of his most ardent supporters in Nissan’s management – namely, Greg Kelly, Hiroto Saikawa and Toshiyuki Shiga – feared he might use that occasion to finally make his move to leave Nissan.
In October, two seemingly unrelated developments converged. Nissan’s board stripped Shiga of his COO title when preliminary sales and earnings results for the first half of the fiscal year (April to September) came in substantially below forecast.
Shiga, who had always seemed more figurehead than hands-on operational executive, would be given the largely honorary title of vice-chairman in an attempt to minimize loss of face. But there was no way to dress up the facts that he had been demoted and that Ghosn, the CEO, had backed the move. Shiga had held the number two position since 2005.
He would be stripped of his representative director, or daihyo torishimariyaku, title the following June meaning that, in practice only two men – Hiroto Saikawa, at the time Nissan’s chief competitive officer, and Greg Kelly – would be authorized to recommend compensation packages for Ghosn and other board members.
Shiga would remain on the board until June 2019, essentially as a director without a portfolio for his final two years.
Against that backdrop, Ghosn remained dissatisfied over his substantial underpayment compared with global standards. During the financial crisis he had been offered the CEO job at General Motors, which he’d declined – a decision he would come to regret. Ford had also put out feelers. Both jobs would have paid him substantially more than his combined Nissan and Renault package.
Aware of this, but also aware that Ghosn’s 60th birthday was approaching, Kelly and Saikawa directed Hari Nada, who headed the CEO’s office, to put together a package that not only would allow Nissan to use his services after his retirement from the board, but would also prevent him from going to a competitor.
Nada enlisted the two top lawyers in the Tokyo office of Latham & Watkins LLP to help him draw up the 11-page document including cover and signature pages. Hiroki Kobayashi drew up the main text. Michael Yoshii and Nada drafted the fees section.
The proposal was intended to cover a period of 20 years with an estimated value of 9 billion yen ($70 million at today’s exchange rate). That compares with 9 billion to 10.5 billion yen ($70 million to $81 million) for the 2011 agreements, which including the “non-compete” portion would have kept Ghosn under Nissan’s control for 15 years.
Meanwhile, the 2015 agreement would have extended for 15 years with a cash value of between 5 billion and 7.5 billion yen ($39 million-$58 million).
These numbers, all of which came out at the trial, differed from the 9.3 billion yen ($94 million at average annual rates) spanning an eight-year period when Ghosn is alleged to have been overpaid. That raises further questions about the charges’ veracity.
The 2013 document was off-limits for public viewing until we revealed it in part 1 of this report. The document, for anyone who reads it, leaves no doubt that Kelly and Saikawa, the two directors the board had empowered to handle the CEO’s compensation, were not discussing past compensation.
But Ghosn knew about the initiative undertaken by Kelly and Saikawa and, more importantly, had embraced their efforts to employ him as an adviser/consultant after his retirement. Thus the charges against him on the compensation issue are specious.
He had moved on from 2010 and 2011, when he had been advised, first informally and then formally, by his former number two, then a representative director, Toshiyuki Shiga, that he could be paid for past contributions without disclosure. (See the upcoming part 3 of this report.)
Following is the fee structure prepared by Nada and Yoshii, which was then approved by Saikawa and Kelly on October 28, 2013, as reflected by their signatures (“Hiroto Saikawa” and “Gregory L. Kelly”) on the signature page. The proposal was not dated because Ghosn didn’t agree, and thus didn’t sign off.
1. Fees and other benefits
Each Contract Year, for the duration of the Non-Compete Term, a sum equivalent to fifteen percent (15%) of the Advisor’s average annual cash compensation at the Company for the two (2) best years out of the last seven (7) years that he was a Director of the Company excluding variable compensation received under any share appreciation rights program and any other long term incentive benefits, expressed in US dollars. The US dollar amount shall be calculated for each of the two best years by converting Japanese yen into US dollars at the average US dollar/Japanese yen middle exchange rate for that year using the interbank exchange rates published by www.oanda.com or any successor website.
2. Consulting fee
Each Contract Year, for the duration of the Term, a sum equivalent to fifteen percent (15%) of the Advisor’s average annual cash compensation at the Company for the two (2) best years out of the last seven (7) years that he was a Director of the Company excluding variable compensation received under any share appreciation tights program and any other long term incentive benefits, expressed in US dollars. The US dollar amount shall be calculated for each of the two best years by converting Japanese yen into US dollars at the average US dollar/Japanese yen middle exchange rate for that year using the interbank exchange rates published by www.oanda.com or any successor website.
3. Fee adjustment and exchange rate.
The Non-Compete Fee and the Consulting Fee shall be adjusted for each Contract Year from the anniversary of the Effective Date by the percentage change in the United States Consumer Price Index published by the US Bureau of Labor Statistics as CPI-U, US City Average, All Items Less Food and Energy between the most recently published level existing as of the Effective Date and the most recently published level existing as of such anniversary date.
More important even than the details of the proposal was the section setting out when the agreement would become effective: “This Agreement will only become legally binding when one or more counterparts hereof, individually or taken together, will bear the signatures of all the other Parties reflected hereon as signatories.” (That would have had to be followed by board approval.)
“Ghosn knew this, Saikawa-san knew it, the head of human resources, Arun Bajaj, knew it,” Kelly told Asia Times.
“Nissan’s former general legal counsels in North America and Japan, Scott Becker and Ravinder Passi, knew it. Nada knew it. And both of Latham & Watkins lawyers knew it because they drew up two of the key post-retirement employment documents,” Kelly added, referring to lawyers Yoshii and Kobayashi.
“We all wanted the same thing,” Kelly said, “to retain a very talented executive. It was no more complicated than that. And, lest we forget, Ghosn was never paid anything” as a result of the proposals. “The board, again, never decided to pay him anything, and the only way he could have been paid is with board approval.”
And Nada would admit six years later – during what at the time was a secret interview with Latham lawyers, including both Yoshii and Kobayashi – that Kelly hadn’t broken any laws.
Fees “had always been designed to compensate [Ghosn] for post-retirement services,” he said on July 3, 2019. “Kelly explained that reimbursing Ghosn [for lost wages following his 2010 pay cut] was a ‘debt of gratitude’ or ‘moral obligation’ owed by Nissan for his services [but] not a legal obligation.”
Not a legal obligation.
Note that the July 3 document was never turned over to Kelly’s legal team by either Nissan or the Tokyo prosecutors’ office. The interview was conducted before Yoshii circulated two memorandums to Christina Murray’s team in which he discussed ways to “withhold” “bad” documents from the “CG/GK” – Carlos Ghosn/Greg Kelly – legal teams.
Second Saikawa-Kelly proposal
On September 9, 2019, Michael Yoshii, at the time a partner in the Tokyo office of Latham (he’s since moved to Singapore), made a presentation to Nissan’s board about the findings of Christina Murray’s year-long investigation into the Carlos Ghosn and Greg Kelly cases.
Murray had resigned 10 days earlier, reportedly pushed out by Tomoo Nagai, the retired Japanese banker on Nissan’s board and head of the influential audit committee. Nagai was also, although this was not known at the time, a member of the coup that ousted Ghosn to avoid a takeover of Nissan by Renault.
The report delivered, according to a member of Murray’s team, was a whitewash with key facts omitted. Among the omissions: that Hari Nada and Toshiaki Ohnuma had confessed to violating Japan’s financial laws 10 months earlier for being “accomplices” to whatever charges were being considered for Ghosn and, as such, were working with the prosecutors under a plea agreement.
The Tokyo prosecutors’ office takes issue with assertions that Nada and Ohnuma had been granted immunity from prosecution in exchange for their cooperation. But then the prosecutors’ office won’t say why they didn’t prosecute them.
We’ve chosen to use common sense and posit such a deal anyway, based in part on the timeline – including Nada’s organizing a raid on Ghosn’s Beirut office and residence 19 days after receiving immunity from the prosecutors and timed to coincide with Ghosn’s and Kelly’s arrests in Tokyo.
Ghosn’s personal effects, upon being returned to the “war room,” a converted conference room on the 21st floor of Nissan’s headquarters building, were taken straight to the prosecutors.
Yoshii showed that he knew about Nada’s and Ohnuma’s criminality when he forwarded an advisory to Nada that had been sent to him and Kobayashi by a criminal lawyer, Takeshi Ohki, who had been retained by Nissan’s coup planners during the secret “Kali-10” investigation into Ghosn’s alleged misconduct in summer 2018.
Yoshii informed Nada that he was likely to be indicted, forwarding Ohki’s advisory to Nada’s personal email address but not to the newly formed Ghosn-investigating task force, successor to the Kali 10 investigation, which was headed by Christina Murray, Nissan’s compliance chief. Yoshii would be tasked with “assisting” Murray, but the records show he was running interference for Nada.
On the advice of Nada’s private attorney, Hiroto Saikawa, Nissan’s CEO, would fire Ohki several days later after Ohki delivered his warning, and then Yoshii would keep the secret from Murray’s team until July of the following year.
Although Yoshii and Kobayashi did eventually inform Murray’s team about their July 3 interview with Nada, in which Nada informed them that Kelly was innocent, they never informed the board.
Yoshii was the lead presenter at the September 9 board meeting – replacing Murray, who, after board audit committee chair Tomoo Nagai ordered her to stop investigating Nada, suddenly submitted her resignation.
At that board meeting, Yoshii failed to mention the July 3 interview and both the October 2013 and June 2015 documents, which he had helped draft. More importantly, he didn’t mention that he and Kobayashi (who was present at the meeting) had been retained to provide legal advice to Kelly and Saikawa, both by that time representative directors along with Ghosn.
Kelly and Saikawa signed the agreement on June 23 after the general shareholders meeting earlier in the day. Ghosn didn’t sign the agreement. Apparently, he was still negotiating for more favorable terms – which is not illegal.
As with the 2011 and 2013 agreements, there was nothing in the proposal about compensation for past work. And as with the 2013 agreement, Nada and Yoshii inserted the following wording: “This Agreement will only become legally binding when one or more counterparts hereof, individually or taken together, will bear the signatures of all the other Parties reflected hereon as signatories.”
But clearly the main focus of the 2015 proposal was to offer Ghosn employment as an “adviser” after his retirement from Nissan management. Again keep in mind that this is the first time the full document has been shown to the public. Ghosn’s proposed duties as an advisor are enumerated in the “services section” on pages 2 to 4:
Section 3. Services.
3.1 During the Term, the Advisor agrees to provide the following services to the Company Group.
3.1.1 Advice on sales and market development;
3.1.2 Advice on developing the business of the Company Group including –
(a) Identifying new business opportunities,
(b) Identifying new products to target for development; and
(c) Identifying new markets to exploit;
3.1.3 Advice in how to improve the margins and the return on invested capital of the Company Group;
3.1.4 Attending high profile events involving the media as an advisor of the Company Group;
3.1.5 Acting as an “Ambassador” for the Company Group;
3.1.6 Giving media interviews as requested by the Company Group …
3.1.9 Advising the Company Group in its relationships with other businesses and companies including;
(a) Assisting the Company Group to identify and recruit top level Executive candidates …
(c) Providing mentoring and coaching to selected Executives.
And there’s more.
Pulling back more curtain
We may never know why the chief judge in the Kelly trial ignored more than eight years of evidence that proves Kelly’s innocence, in total more than two dozen documents including the two we’ve released plus one (the July 3, 2019 interview with Nada) that was concealed from Ghosn’s and Kelly’s legal teams during pre-trial discovery.
Yet he allowed evidence to be introduced into the record that by any fair standard should have been disqualified.
The verdict was based on one 10-minute conversation during one 10-minute meeting between an individual who doesn’t speak English (Ohnuma) and another who doesn’t speak Japanese (Kelly) – at which there was no interpreter present and of which no written record (minutes) of the conversation exists. The meeting involved one document Kelly claims never to have seen. It didn’t have his name on it and he wasn’t involved with its preparation.
There was only Ohnuma’s claim that he had shown Kelly a document – a running tally of eight years of lost income for Ghosn – that Ohnuma began compiling eight years earlier and that was completely at odds with everything Kelly, Saikawa, Becker and others were doing.
The court record shows – and the facts are indisputable – that this 10-minute meeting among Kelly, Ohnuma and Nada (who under cross-examination said he couldn’t confirm Ohnuma’s account) took place on June 27, 2018, the day after Nissan’s general shareholders’ meeting and one month after Nada had finished developing his plan to remove Ghosn and Ghosn allies from Nissan’s management.
Next: In part 3 of this report: Shiga confesses. Veteran automotive correspondent Roger Schreffler is a former president of the Foreign Correspondents’ Club of Japan. Follow him on Twitter: @RogerSchreffler