A panel tasked by Nissan Motor Co. to strengthen the major automaker’s governance in the wake of the scandal centering on ex-Chairman Carlos Ghosn has called for separation of the execution and supervision of its business, blaming the alleged wrongdoing on the concentration of too much power in the hands of the former charismatic leader. While only Ghosn and a close aide have been criminally charged with offenses such as underreporting his executive pay and aggravated breach of trust, the automaker itself bears the blame for its failure to prevent the misconduct over an extended period. Nissan needs to ensure that the proposed changes to its governance structure will not end in nominal reforms but effectively revamp the way the company is run.

In the report released this week, the seven-member panel, comprising experts such as lawyers and business leaders as well as Nissan’s three outside directors, concluded that Ghosn, who led the major Japanese automaker for nearly two decades while also heading the Nissan-Renault-Mitsubishi Motors alliance, allegedly engaged in the suspected offenses — underreporting his pay by billions of yen for years in the company’s financial reports and shifting his personal investment losses to the firm — in his pursuit of private gain. The root cause that allowed the alleged wrongdoing to take place for years was the excessive concentration of authority in Ghosn’s hands, including on matters of personnel and executive pay decisions, according to the panel, which also blamed the former chairman for allegedly diverting company funds and expenses for private use.

It went on to propose a set of changes to Nissan’s governance structure to prevent such a concentration of authority with a single individual, separating the execution of the automaker’s business and its supervision — with the president and CEO taking charge of the business execution and chair of the board of directors responsible for supervision of management. The proposed measures include the following: abolishing the post of chairman, which has been vacant since Ghosn was ousted following his arrest in November; the board of directors, which used to be headed by the chairman himself, should now be led by one of the independent, outside directors; and such outside directors should constitute a majority of the board members. Concluding that Ghosn wielded too much power as the top executive of not just Nissan but also of Renault and Mitsubishi Motors, the panel said that Nissan’s representative director should not double as a board member of the other group firms.

A spokesman for Ghosn released a statement rebutting the panel’s report, charging that it is “part of an unsubstantiated smear campaign” against the former Nissan chief, who was released on bail in early March, “to prevent the integration of the (Nissan-Renault-Mitsubishi) alliance and conceal Nissan’s deteriorating performance.” The charges against Ghosn will be contested in court when his trial begins later this year, possibly in September. It seems undeniable, however, that Ghosn’s extended leadership of Nissan — he took the helm two decades ago — bred what the panel called a corporate culture in which nobody could voice dissent against him.

Nissan says it will promptly put the panel’s proposal into practice to reform its governance — which it should. But even though the panel’s report found fault with the governance system that failed to stop the alleged wrongdoing by Ghosn, it did not touch on the responsibility of Nissan’s current top management, including President and CEO Hiroto Saikawa, who did not act to prevent the alleged offenses. The panel said its report highlighted the company’s governance problems but did not examine the responsibility of individual executives. While the Nissan management has struck a plea bargain with the prosecutors to cooperate with the criminal probe into Ghosn and his aide, Greg Kelley, a former Nissan representative director, they still have a duty to explain to Nissan’s stakeholders their own responsibility.

The same problem lingers with the roles of outside directors. The panel called for boosting up the roles of independent outside directors on Nissan’s board in its management, but it does not appear to have scrutinized whether the current three outside directors at Nissan, who also were members of the governance panel, played their expected roles of providing third-party oversight of the Nissan management under Ghosn. The scandal at Nissan was the latest example of how the sheer presence of outside directors on a Japanese company’s board, or simply increasing their numbers, may not result in improving the governance of the firm. Nissan will face the challenge of ensuring that the proposed new structure of its board, in which outside directors will constitute a majority of the members, will fulfill the expected functions.

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