November 19, 2018 / 12:24 PM / 6 months ago

Breakingviews - Renault-Nissan pays price for Ghosn key-man risk

Carlos Ghosn, Chairman and CEO of the Renault-Nissan Alliance, attends an interview with Reuters at Nissan's global headquarters in Yokohama, Japan, February 23, 2017. REUTERS/Toru Hanai

LONDON (Reuters Breakingviews) - Nissan and Renault are paying the price for underestimating key-man risk. The Japanese carmaker’s Chairman Carlos Ghosn – also chief executive of its French partner – understated his compensation in official filings, Nissan said on Monday. His probable exit makes resolving the lopsided partnership harder.

Ghosn is familiar with pay scandals. Reuters reported in 2017 that Renault-Nissan bankers had drawn up plans to channel undisclosed bonuses to him and other managers. Earlier this year his 7.4 million euro Renault pay packet for 2017 just about squeaked through a shareholder vote despite opposition from France’s government, a 15 percent shareholder.

This time is worse still. Nissan has been investigating Ghosn’s conduct for several months following a whistleblower tipoff. The investigation found that he and fellow board member Greg Kelly had for years underreported Ghosn’s salary in Tokyo Stock Exchange filings. Ghosn also used company assets for personal use, Nissan said. CEO Hiroto Saikawa wants Ghosn removed, while Japan’s Yomiuri newspaper reported that he had been arrested. It’s hard to imagine the French state continuing to back him at Renault, even if Ghosn escapes punishment in Japan.

Neither board is short of people who know how to run a car company. Ghosn handed over as Nissan CEO to Saikawa last year. At Renault, Thierry Bolloré was recently promoted to chief operating officer and is Ghosn’s obvious heir.

The problem is Renault-Nissan’s lopsided alliance, under which the Japanese group is 43 percent owned by Renault but controls just 15 percent of its partner’s shares. Investors apply a hefty discount to those stakes, since it’s unclear whether the two sides will realise value either by fully merging or selling their holdings. Renault’s Nissan shares, using closing prices before the Ghosn news, were worth about three-quarters of the French group’s 18.6 billion euro market capitalisation, which fell 11 percent to 16.8 billion euros on Monday.

As chairman and CEO of the Renault-Nissan-Mitsubishi alliance, Ghosn’s job was to resolve the cross-shareholding mess – he’s also chair of Mitsubishi Motors, which Nissan part-owns. When re-appointed at Renault this year, the company said a priority was to “take decisive steps to make the alliance irreversible”. One option would be for Nissan to buy out the French state as a prelude to a full merger. That’s less likely if the main bridge between the two companies is out of the picture.


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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