Nissan Motor Co. sank deeper into crisis Wednesday as it emerged the car giant could itself face charges over alleged financial misconduct that has already led to the stunning arrest of its chairman, Carlos Ghosn.
Monday’s arrest of the millionaire auto tycoon, who is credited with having turned Nissan around and formed the three-way alliance with Renault SA and Mitsubishi Motors Corp., sent shock waves through the global car sector and corporate Japan.
On Wednesday the Tokyo District Court ordered the 64-year-old Brazil-born Ghosn to be held for a further 10 days as prosecutors step up their investigation into alleged underreporting of his pay package, sources said.
Prosecutors initially had 48 hours after the arrests to either press formal charges, release him or request the 10-day custody extension.
The court also allowed prosecutors to extend the detention of Nissan Representative Director Greg Kelly, a close aide to Ghosn who was arrested the same day as the chairman, for the same period.
Ghosn is being held in a detention center in northern Tokyo in conditions far removed from his abundant lifestyle.
“In principle, he will be all alone in a cell,” said lawyer Ayano Kanezuka.
“There is everything you need — heating, a bed — but conditions are spartan,” said Kanezuka’s colleague Lionel Vincent, who added that there was likely to be an inner courtyard with bars.
Ghosn is suspected of omitting from the company’s annual securities reports more than ¥100,000,000 ($886,000) in annual remuneration from a Dutch-based subsidiary, according to the sources. Tokyo prosecutors allege the subsidiary played a pivotal role in the scandal. Although the amount is much smaller than had been indicated by sources a day earlier, Ghosn is also believed to have gained from compensation linked to stock prices.
The sources had said Tuesday that Nissan did not mention in the financial statements billions of yen Ghosn earned from stock appreciation rights — a system similar to stock options that gives bonuses to executives if the company’s share price rises above a certain level.
The amount of stock-related pay makes up much of the ¥5 billion in remuneration the prosecutors allege Ghosn understated in violation of the Financial Instruments and Exchange Law.
The stock rights were given to Nissan executives after the bonus system was approved at its shareholders meeting in June 2003.
The charismatic industry figure, who brought Nissan back from the brink of bankruptcy in the late 1990s, is also suspected of having used residences in Brazil, France, Lebanon and the Netherlands, purchased by the subsidiary and other entities, without paying rent or reporting that benefit as part of his compensation.
It is the view of the prosecutors that Ghosn’s alleged receipt of income from the subsidiary and the bonus system, as well as the housing benefits, should have been reported as part of his remuneration.
Believing that the Dutch-based subsidiary played a central role in the alleged misconduct, prosecutors are investigating how it was set up and the extent of the involvement of Kelly, according to the sources.
An executive in charge of legal affairs under Kelly was involved in the purchases of the overseas residences, according to the sources.
Nissan said Monday that Ghosn’s “significant acts of misconduct” such as “personal use of company assets” and Kelly’s “deep involvement” were uncovered following a monthslong internal probe, said to have been triggered by a whistleblower report.
In order to carry out the high-profile investigation, the prosecutors have struck a plea bargain agreement with that unnamed executive.
Kelly, 62, is believed to have instructed the executive and other officials to make false statements in the company’s securities reports.
Nissan’s board will decide on Thursday whether to remove Ghosn as chairman — a staggering reversal of fortune for the man credited with creating the three-way alliance which together sells more cars worldwide than any other automaker. Mitsubishi Motors is expected to decide next week whether to force Ghosn out.
His fate appears all but sealed after his hand-picked replacement as CEO, Hiroto Saikawa, launched an astonishing broadside at his mentor, saying “too much authority” had been placed in his hands and lamenting the “dark side of the Ghosn era.”
Saikawa pointedly refused to offer the deep “apology bow” that usually accompanies corporate scandals in Japan, and played down the role Ghosn had personally played in reviving the firm’s fortunes.
But in France, Renault said it was sticking with the fallen manager as chief executive, although it named chief operating officer Thierry Bollore as deputy CEO and handed him the “same powers” as the “temporarily incapacitated” Ghosn.
After an emergency board meeting, Renault urged its sister company Nissan to share “evidence seemingly gathered” against Ghosn from the internal investigation, saying it was unable to comment on the charges without this information.
Paris and Tokyo have been scrambling to contain the fallout from the arrest, with finance ministers of both countries declaring strong support for “one of the greatest symbols of Franco-Japanese industrial cooperation.”
On Wednesday, Japan’s top government spokesman Yoshihide Suga said “it is important that Nissan, Renault and Mitsubishi maintain a stable relationship.”
The revelations — the latest in a string of scandals to affect corporate Japan — wiped millions off the stock value of all three companies, but Nissan bounced back marginally in Tokyo trade, climbing 0.36 percent to close at ¥954.1 on Wednesday in a falling market.
Ghosn was once the darling of corporate and even popular Japan — there is a manga comic inspired by him — and has been the glue holding the auto tie-up together since 1999.
“Ghosn is likely the most successful foreign chairman in Japan,” said Kosuke Sato, a senior economist at the Japan Research Institute. “What he did was unprecedented in Japanese corporate history.”
He had a reputation as a workaholic, and won the nickname “Le Cost Cutter” in France for his slash-and-burn approach to corporate restructuring.
Under his stewardship, Nissan and Renault became deeply entwined.
Renault owns 43 percent of Nissan while in turn the Japanese firm has a 15 percent stake in Renault.
Nissan has become the alliance’s key player, however, posting sales of ¥12 trillion ($106 billion) last year compared with Renault’s €59 billion ($67 billion).
According to the Financial Times, Ghosn was working on a merger of the two carmakers that Nissan opposed because it feared the Japanese company could be relegated to a secondary role.
Jeff Kingston, director of Asian Studies at Temple University Japan, said that Ghosn was “a victim of his own hubris and success.”
“He trampled on Japanese cultural norms with his flamboyant glory-hogging ways, and his massive compensation incited jealousies and invited retaliation,” he said.
Even when his reputation was sky-high, he attracted criticism for a flashy lifestyle at odds with traditional Japanese corporate culture and over his salary — an estimated €13 million in total last year.
Media reports also spoke of a lavish Marie Antoinette-themed party in 2016 for Ghosn’s second wedding, at the grandiose palace of Versailles.
The Yomiuri Shimbun on Tuesday quoted Nissan executives slamming Ghosn as “greedy.”
“He says the right things, but in the end it’s all about money,” the daily quoted an unnamed senior employee as saying.
His arrest has also raised alarms among Renault’s French workers about what lies ahead.
“What worries us is the alliance with Nissan,” said Ghislaine, a production line worker at the Flins plant outside Paris where Nissan’s popular Micra hatchback accounts for half its output.
“I hope our future isn’t at risk.”