Nissan’s Carlos Ghosn – It’s About Politics And Disclosure, As We Said

As time goes on we find out more about what the charges and allegations against Carlos Ghosn are. As we said back when these public events first started what this is really about is public disclosure of how much he was being paid. On the one side a global executive expecting to be paid global sums in a global industry and on the other the rather lower norms common to Japanese companies. That’s at the heart of the entire matter.

What follows, well, that may indeed be illegal and all that but those are the details of how this mismatch was handled, the above is still the basic insight needed to understand what was going on.

Ghosn could expect as a global exec to be paid many millions of dollars a year. As a Japanese executive perhaps 10%, 20%, of that globally competitive salary. That’s the initial conflict.

Former Nissan boss Carlos Ghosn received nearly eight million euros in “improper payments” from a Netherlands-based joint venture, the Japanese car giant alleged Friday (Jan 18), threatening to sue to recover the funds. Nissan said Ghosn entered into a personal employment contract with Nissan-Mitsubishi B.V. (NMBV), a company formed “with the mission of exploring and promoting synergies within the Nissan-Mitsubishi Motors partnership”.

If he’d been paid by the parent company, Nissan, then it would have to be declared to the Tokyo Stock Exchange. That would not have been politically viable – no one earns that sort of amount for being a CEO in Japan.

That really is the charge. Not that he was stealing the money, but that it wasn’t being declared as it should have been, was hidden in the accounts:

The 64-year-old is accused of having understated his pay for eight years and of having shifted private investment losses temporarily onto Nissan.

In more detail:

Ghosn faces three formal charges. First, he is accused of under-declaring his income by five billion yen (S$62 million) between 2010 and 2015 in official documents to shareholders, apparently to fend off criticism he was overpaid. Second, he stands accused of continuing this practice for three more years, understating his pay by a further four billion yen. A third, more complex, charge relates to allegations he sought to transfer personal investment losses to the firm and paid a Saudi intermediary from company funds to stump up collateral for him.

Those first two are exactly as we called it back in November when this all first came to the surface:

Now I must move off into the world of pure speculation. This is from a universe which isn’t exactly ours in fact. Entirely made up even. But Japanese executives are, by international standards, remarkably low paid. Indeed people do remark on it, why should those Anglo execs get paid so much when the Japanese don’t pay captains of industry 300 times what the average worker gets? The answer being that Nippon execs get paid in something else, social approbation. The grand fromage of a Japanese firm is royalty. Compensation for his position is, within that society, just as high as for similar talent elsewhere, it’s just distributed differently.

But if you’re a foreigner running a Japanese company then that cultural approbation inside Japanese society isn’t of all that much value to you. So, we can imagine some foreigner coming in and expecting something like those Anglo rewards – the weighting toward pure cash. That then runs smack into that cultural problem. The company’s listed on the Japanese exchange. Yes, cultural expectations do matter. Paying that 300 x multiple simply won’t go down well. Paying 10x what other CEOs get won’t. So, what to do, how to balance these expectations?

Pay the cash and publicly report something more culturally appropriate.

That is what is going on. The next question is how it will play out….

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