November 20, 2018 / 9:31 AM / 7 months ago

Breakingviews - Nissan puts Japan's governance drive into reverse

Carlos Ghosn, Chairman and CEO of the Renault-Nissan Alliance, reacts during a news conference in Paris, France, September 15, 2017. REUTERS/Philippe Wojazer

HONG KONG (Reuters Breakingviews) - The Carlos Ghosn fiasco at Nissan hints at all the hallmarks of the bad old days of Japan Inc, starting with derisory oversight by a board whose few independent directors include a race-car driver. Auditors, Ernst & Young ShinNihon, who also looked after the books at scandal-tainted Olympus and Toshiba, may have missed something here too. Prime Minister Shinzo Abe’s campaign to bolster faith in Japan Inc has hit a major speed-bump.   

Nissan Chairman Ghosn, who also helms Renault and Mitsubishi Motors, stands accused of financial improprieties alongside director Greg Kelly, and is set to be fired this week. Both are foreigners, which has lent itself to casual conspiracy theories about an internal coup d’etat. But if the chairman systematically under-stated his compensation for five years by half, as Nissan alleges, it would be an unquestionable sacking offence.

Still, shareholders have cause to be as angry at the board and auditors for missing such a crass violation. There were plenty of warning signs of less-than-robust controls. Like some peers, Nissan has had repeated problems with test tampering and product recalls this year. Business has been rickety; earnings fell by a fifth last quarter. Neither the composition of Nissan’s board nor the history of its auditor should have inspired much confidence either.

The company lists three directors as independent in its corporate governance report. The first is Jean-Baptiste Duzan, who as a former executive at Nissan’s French partner Renault is of dubious independence. The second is Keiko Ihara, a race driver who is there, per Nissan, for her knowledge of motor sports and her “female perspective.” The third, Masakazu Toyoda of Japan’s Institute of Energy Economics, looks like a policy wonk.

As for the auditor, Ernst & Young’s Japanese affiliate was fined $18 million in 2015 for poor auditing of Toshiba, which resulted in Japan’s worst accounting scandal up to that point, and before that worked on Olympus, although it was cleared of blame for the $1.7 billion accounting fraud at that firm. Two of the three independent statutory auditors named by Nissan had prior business relationships with the carmaker.

Many Japanese companies have made progress adding more independent directors with diverse views to their boards. But this reputational car wreck, involving a household name, suggests Tokyo needs to put the pedal to the metal.


Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

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