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Nissan’s internal investigation: Act of self-cleansing or plot?

  • October 28, 2021
  • , Nikkei , p. 47
  • JMH Translation

By Sakurada Yuki


Oct. 27 saw the conclusion of the trial of a former Nissan Motor executive, who was charged with being an accomplice in underreporting the remuneration of former Nissan chairman Carlos Ghosn. This was a trial for a business crime that traces back to a confidential internal investigation. The “main figure” of the trial has been absent for more than a year. At the trial, those who were Nissan executives at the time in question discussed the circumstances leading up to “informing” prosecutors. Was it a conspiracy to overthrow their leader or an effort to straighten out the management? The verdict will be given on March 3, 2022.


Former Nissan executive Greg Kelly, who was accused of violating the Financial Instruments and Exchange Act (making false statements in a securities report), insisted on his innocence. At the Tokyo District Court (Judge Shimotsu Kenji) on Oct. 27, Kelly made the following statement: “I am not guilty of any crime.” The defense said that this was “an internal investigation aimed at expelling former chairman Ghosn and former executive Kelly from Nissan to prevent a merger (between Nissan and France’s Renault).”


A total of 66 sessions were held from September 2020, with many former Nissan executives appearing as witnesses. In addition to the details of the case in which Ghosn allegedly planned to avoid disclosure of his executive compensation and receive it after the fact, executives also spoke about Nissan’s internal investigation that lead to the prosecutors’ investigation.


In mid-March 2021, former Nissan Vice President Kawaguchi Hitoshi stated the reason to look into the irregularity: “Nissan would not be able to move forward if [the irregularity was] left unattended. I had a strong feeling that it should be corrected.”


As a public relations officer, Kawaguchi said he followed Ghosn’s instructions and played a role in approaching the Financial Services Agency and others about not introducing an individual disclosure system for executive compensation. Kawaguchi was to later cooperate in the investigation.


At the time of the internal investigation in 2018, Ghosn had mentioned a review of Nissan’s relationship with Renault, and concerns about a merger were widespread within Nissan.


“Detrimental to alliance”


Kawaguchi said, “Mr. Ghosn was a person who was detrimental to the alliance (of Nissan, Renault, and Mitsubishi Motors),” suggesting that Ghosn’s policy was unacceptable to some in top management.


On the other hand, Kawaguchi also emphasized that he “did not fabricate wrongdoing to prevent a merger.” Kawaguchi argued directly against the claim Ghosn made after he fled to Lebanon that “(the case) was a planned conspiracy.”


The court testimony of former Nissan auditor Imazu Hidetoshi revealed what triggered Nissan’s investigation. Imazu’s predecessor, who retired in 2014, told Imazu that he was “worried about ZiA.” Imazu visited the Netherlands around July 2017 to confirm the actual situation of ZiA, a subsidiary established in the Netherlands for the purpose of venture investment.


Distrust of ZiA’s accounting process increased as the audits of related parties proceeded. It was later found that ZiA was a “tool” used by Ghosn to purchase overseas properties.


About two months before the revelation [regarding ZiA], a Nissan affiliate company provided information on the travel expenses of Ghosn’s family, and a full-scale investigation began in 2018. Kawaguchi also joined the investigation, and senior vice president Hari Nada’s confession of his involvement revealed the details of the wrongdoing.


Approaching prosecutors was priority


In June 2018, Imazu attempted to approach the Tokyo District Public Prosecutors Office. The prosecutor in charge demanded strict confidentiality, saying, “Evidence may disappear if there is a leak. If that happens, we will pull out.” The series of allegations were treated as confidential items that even former Nissan president and chief executive Saikawa Hiroto did not know until October 2018.


At the trial, Kelly’s defense questioned the handling of allegations by only a limited number of internal personnel. The Companies Act requires corporate auditors to report to the board of directors if they find wrongdoing by a director.


Kawaguchi was asked, “Was it right to inform the Tokyo District Public Prosecutors Office instead of the board of directors?” Kawaguchi replied, “We had no choice but to rely on prosecutors because power was concentrated in Mr. Ghosn.” Kawaguchi also said, “It was difficult for us to judge and investigate wrongdoing on our own.”


Aoyama Gakuin University professor emeritus Hatta Shinji, an expert on corporate governance, comments: “Usually, one should first report to the board of directors. However, enlisting the help of an investigative agency may be unavoidable if top management wields great influence.” Hatta said he “is closely watching the court’s verdict.”


Hatta also noted that “the various management teams in place over the years bear heavy responsibility for continuing to allow the top management to run loose without fully making use of outside personnel and active directors.”

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