Editorials

Nissan's challenges post-Saikawa

Nissan Motor Co. President and Chief Executive Officer Hiroto Saikawa has stepped down over an excess pay scandal of his own — less than a year after he declared the automaker’s departure from a regime led by former Chairman Carlos Ghosn, who was arrested and charged with underreporting his compensation and misappropriating the company’s money.

Since the exit of Ghosn, a charismatic leader who led the automaker for two decades after turning it around from the brink of collapse, Nissan has been hurt by sharply plunging profits and faces a host of challenges, including reviewing its relations with its top shareholder, Renault SA of France. Saikawa’s successor, who is to be chosen by the end of October, needs to take further steps to reform the company’s governance and create a new management regime that can deal with the challenges and rebuild the automaker.

When he took over following Ghosn’s arrest last November, there was criticism that Saikawa, who as a close aide to Ghosn played a key role as co-CEO since 2016 and CEO and president since 2017, would be the top executive taking charge of restructuring the company’s management, especially since he had overlooked for years the suspected financial wrongdoing by the former chairman.

Saikawa was reappointed as CEO and president at a general shareholders meeting in June. However, he won only 78 percent of the investors’ votes — the worst rate among the Nissan board members whose reappointment was approved. Nippon Life Insurance Co., one of Nissan’s institutional investors, reportedly opposed Saikawa’s reappointment. Doubts over his continued leadership grew as the decline in the automaker’s earnings grew steep.

Saikawa’s exit was triggered by the revelation that he had received excess compensation via stock appreciation rights, in which the firm’s directors receive a bonus payment if its share prices perform above a target. When the date his rights were to be exercised was pushed back in 2013, Saikawa received ¥47 million more in after-tax pay due to share price gains in the subsequent period.

He denied involvement in ordering the date change and claimed that the excess pay was not the outcome of deliberate wrongdoing, and said he would return the extra compensation. But it would be unnatural for the date to be changed for Saikawa without anybody giving such an order. Yasushi Kimura, chairman of Nissan’s board of directors, said the excess compensation was not illegal but constituted a serious governance problem.

Another problem is that other Nissan executives may have been paid too much via stock appreciation rights — a further indication of possible irregular practices involving executive pay in a firm already reeling from Ghosn’s arrest over suspected underreporting of his compensation. The scheme linking executive pay and performance of a company’s share prices, thereby incentivizing the executives to improve the firm’s earnings, is not a bad thing, but it can cause problems when managed in a discretionary way. The automaker said it plans to abolish the system next year.

The same day the Nissan board announced Saikawa’s resignation, the automaker disclosed a probe’s findings that the financial damage from the alleged wrongdoing by Ghosn and Greg Kelly, a former Nissan director arrested along with the former chairman, amounted to ¥35 billion. In declaring Nissan’s break from the Ghosn regime last year, Saikawa blamed the issue on a governance structure that concentrated too much power in the hands of the top leader.

As a result of its governance reform since Ghosn’s ouster, a majority of Nissan’s board seats are now occupied by outside directors, and the board is chaired by Kimura, one of the outside directors. The board is said to have taken the initiative to effectively force Saikawa into resigning. In that sense, the governance reform introduced to rebuild the automaker for the post-Ghosn era may have served its intended function.

Due to slumping sales in the North American and European markets, Nissan’s consolidated operating profit for the April-June quarter plummeted 98.5 percent from a year earlier. The strategy pursued under Ghosn to expand the automaker’s market share, including a sharp discount campaign in the United States, is deemed to be the wrong way to respond to the changes in the global markets. In its bid to shift the focus on profit, Nissan has announced manpower cuts of 12,500 jobs worldwide and trimming global output capacity to 6.6 million vehicles by 2022. Whoever takes over from Saikawa faces the tough challenge of normalizing Nissan’s management as quickly as possible to allow the automaker to chart a path for its revival and start pouring its resources into crucial technologies such as autonomous driving.