Drama that looks like palace coup

Tokyo. Nissan Motors ended the reign of chairman Carlos Ghosn on Thursday, the board voting to remove him as chairman three days after his shock arrest for financial misconduct.

Ghosn was the architect of Nissan’s 19-year alliance with Renault and helped turn both companies around during troubled times for the industry.

Renault has not removed Ghosn as chairman and CEO despite the accusations, and the arrest has laid bare strains within the alliance. Ghosn had been pushing for a closer tie-up, possibly even a full merger, of Nissan and Renault, partly at the urging of the French government which holds a 15 percent stake in the French automaker, but Nissan’s management had serious doubts about the idea.

Tensions within Nissan were also exposed Monday when CEO Hiroto Saikawa launched an astonishing attack on his former mentor at a dramatic news conference, lamenting “the dark side of the Ghosn era,” and the concentration of power and authority in one individual during his long “regime.” Japan’s Industry Minister Hiroshige Seko and French Finance Minister Bruno Le Maire have already spoken by telephone and stressed their desire to maintain an alliance they called “one of the greatest symbols of Franco-Japanese industrial cooperation.”

Underreporting earnings

Nissan announced on Monday that it had conducted a months-long investigation of Ghosn after a tip-off from a whistleblower, finding that he had significantly underreported his earnings for years and spent company money for personal use. It said it had shared information with public prosecutors who had conducted their own investigation.

Ghosn and Representative Director Greg Kelly were taken into custody Monday, and Japanese media reported that prosecutors were given permission by a Tokyo court on Wednesday to extend their detention for a further 10 days.

Ghosn, a Brazilian-born French citizen of Lebanese descent, is being held at Tokyo Detention House, in a spartan cell far removed from his luxurious lifestyle, the Nikkei newspaper reported.

Under Japanese law, Ghosn could face a maximum prison sentence of 10 years, and a fine of up to 10 million yen ($89,000).

The French ambassador to Japan, Laurent Pic, visited Ghosn in detention Tuesday, while Lebanon’s government has expressed its concern that he receive a fair trial.

Japanese prosecutors have said little publicly, but Japanese media have been full of anonymously sourced stories this week about Ghosn’s alleged crimes. According to those leaks, Ghosn used Nissan’s money to secretly buy and maintain a series of luxury homes in Rio de Janeiro, Beirut, Paris and Amsterdam. The Yomiuri newspaper also cited unnamed sources as alleging that Ghosn had instructed that the equivalent of around $100,000 a year be paid to his elder sister for a nonexistent advisory role.

Ghosn’s record in turning around both car companies is widely acknowledged, but his fat pay-packet had long been a source of controversy: it is possible Ghosn was concealing his true remuneration to avoid the ire of shareholders, including the French government, experts say. Making cars is always an intensely political business, one that brings good local jobs and global prestige.

This applies to France as much as anywhere else; the country places the same importance on its carmakers as it does on playing host to Airbus SE.

Facing biggest test

The French have been happy to pursue international partnerships for its companies - the Germans and Spanish on Airbus, the Dutch at Air France-KLM - just so long as the state is able to retain a large degree of control. This applies to cars too. But today its approach to industrial capitalism is facing its biggest test after the shocking arrest in Japan of Carlos Ghosn, head of the Renault-Nissan-Mitsubishi Alliance.

The way in which the driving force of the Franco-Japanese autos tie-up was carted off to prison, and told he would be fired by Nissan Motor Co Ltd’s CEO Hiroto Saikawa, went beyond mere legal and corporate procedure and squarely into the political realm, in the view of Paris. (His firing as Nissan’s chairman was confirmed by the board on Thursday.) Renault SA owns a 43 per cent stake in Nissan and, for the French, their country’s interests are at stake. Attack Ghosn, and you attack the alliance.

But, if this is a palace coup by the Japanese executives at Nissan, as colleague David Fickling has suggested, France and its president Emmanuel Macron are hardly blameless. Ghosn himself has regularly tussled with his government about the need to reduce the French state’s 15 percent stake in Renault to clear the way for deeper ties with the Japanese.

Instead, Macron enraged Ghosn in 2015 when, as economy minister, he temporarily increased the government’s holding.

That didn’t go down too well in Tokyo, which naturally worries about too much French influence over Japan’s carmakers. In hindsight, even an interventionist like Macron must recognize now that France’s pursuit of an ever closer union between Renault and Nissan, while Paris keeps hold of such a large stake, has made the alliance more fragile. The French government endorsed Ghosn as Renault CEO for another four years in February, even as the executive made way for Saikawa at Nissan. Given the rancor that’s emerged this week, maybe that would have been the time for a bigger change.

And it’s true that the alliance has started to seem lopsided. While Renault owns that 43 per cent of Nissan, Nissan holds only 15 per cent of Renault and yet contributes most of the alliance profits. Reports that Ghosn had started work this year on a full merger of the two companies won’t have helped soothe Japanese anxieties.

It may well have been a catalyst for this week’s events. Paris’s business and political elite are closing ranks behind Renault and stopping short of condemning Ghosn, who has been accused of alleged financial violations related to his compensation. Japan and France both strongly backed the Renault-Nissan alliance on Thursday. But the drama around Ghosn, and Saikawa’s unusually dismissive summary of his achievements at Nissan, are also a message that Japan can go its own way.

Macron’s administration could do a few things to repair relations. (The Washington Post)