Carlos Ghosn, who reigned over Nissan Motor Co. for nearly two decades after reviving the major automaker and led the Nissan-Renault-Mitsubishi Motors global automobile alliance, has been arrested on suspicion that he underreported his executive income by roughly ¥5 billion over five years. If true, the alleged misconduct — reportedly exposed by a whistleblower — is unjustifiable despite his achievements in Nissan’s turnaround. Nissan called the suspected wrongdoing a “negative aspect” of the prolonged concentration of power within the automaker in Ghosn. But if so, it represents a corporate governance failure on the part of Nissan to have allowed it to happen for so long.

The law on financial instruments and exchange requires companies to disclose their financial state in annual reports to help investors make rational judgments, and since fiscal 2009 listed companies have been obliged to disclose the amount of compensation for each of their executives who earn ¥100 million or more. The fact that any violation of the law is punishable by a prison term of up to 10 years and/or a fine of up to ¥10 million indicates the gravity of the offense.

Ghosn is alleged to have colluded with another Nissan executive to file reports saying he earned a total of some ¥4.98 billion at the automaker over the five years to March 2015 — even though he in fact received ¥9.98 billion from the company over the period. Nissan, which said it is cooperating with the prosecutors’ investigation and is reported to have reached a plea bargain with the investigators, will hold a board meeting later this week to remove Ghosn as chairman. Nissan President Hiroto Saikawa said an in-house probe has also unearthed other misconduct by Ghosn, including the private misuse of company funds, indicating the firm will consider criminal complaints or a damage suit against him.

In 1999, Ghosn was sent from France’s Renault SA, with which Nissan was in a capital alliance, to the troubled Japanese automaker as chief operating officer and he became its president the following year. He defied Japan’s conventional business practices to introduce drastic streamlining measures, including plant closures, manpower cuts and reviewing the firm’s ties with parts suppliers, and the firm achieved a quick comeback. He has also been credited for quick management decisions — including the move to pour resources into electric vehicles in the competition for next-generation automobiles, as well as investments in self-driving technology.

Ghosn later served also as top executive of Renault, and became chairman of Mitsubishi Motors Corp. when it came under Nissan’s wing following a management crisis over falsification of vehicle fuel efficiency data. The Nissan-Renault-Mitsubishi alliance sold the largest number of vehicles in the world in the first half of this year.

While his achievements at Nissan earned him a reputation as a charismatic business leader and influence over Japan’s business community, his executive pay of around ¥1 billion at Nissan — far higher than what top executives at many other leading Japanese firms earn — has often been a source of criticism, although Ghosn himself has said his compensation is not too high compared with the pay of top leaders at leading companies in the West. Setting aside the appropriateness of Ghosn’s officially disclosed pay, what may need to be scrutinized is whether the process in which his pay at Nissan was decided was sufficiently transparent.

Saikawa, who took over from Ghosn as Nissan president last year, expressed his “strong indignation and disappointment” over the alleged misconduct. Although he denied that the arrest was the result of a coup against Ghosn’s dominant leadership at the firm, he acknowledged that the event will provide a good opportunity for the automaker to pull out of the regime “that relied extremely on a specific individual.” While hailing Ghosn for his contributions to Nissan’s revival, Saikawa said the suspected wrongdoing is a “negative aspect” of the regime in which all power at Nissan concentrated in the hands of Ghosn for an extended period.

If that is the case, it is Nissan itself that allowed such opaque ways of management at the company for nearly 20 years, and the automaker will not escape blame for its poor governance, which could result in damaging the interests of its stakeholders.

Nissan is reported to have reached a plea bargain with the prosecution authorities — under a scheme introduced in June under the revised law on criminal proceedings — in which the firm would provide relevant information and otherwise cooperate with the investigation in exchange for leniency for others involved. Cooperating with the investigation on the alleged misconduct by Ghosn will be necessary to expose the full extent of the wrongdoing. What’s also important is for Nissan to promptly rebuild its own ways of governance.

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