By Lina Saigol
Carlos Ghosn is venerated in Japan for turning around the fortunes of Nissan. There’s a manga comic-book version of his life, and you can eat bento boxes featuring rice and sushi sculptures of his face .
But a complex web of cross-shareholdings among Renault /zigman2/quotes/200919924/delayed FR:RNO -2.99% , Nissan /zigman2/quotes/208298710/delayed JP:7201 -0.06% and Mitsubishi /zigman2/quotes/202404490/delayed JP:7211 -0.25% — the three companies he oversees — always packed potential to one day become a problem for investors.
Carlos Ghosn: Legacy of Nissan and Renault Savior Takes a U-Turn
Auto executive, Carlos Ghosn, was the architect of an alliance between Nissan, Renault and Mitsubishi, a rare success story of auto makers working together. WSJ reporters analyze the impact on his legacy following his arrest over financial misconduct. Photo: Getty Images
That day may have arrived Monday. Ghosn has been arrested in Tokyo, Japanese media reported, and Nissan said it would sack him after finding “significant acts of misconduct.” The allegations against him include claims he underreported his pay package and used company assets for personal purposes.
The stunning news left investors in not one but three companies exposed.
Don’t miss: What we know so far about Carlos Ghosn’s arrest
Shares in Renault finished the day down more than 8.4% in Paris, a driving force in the Stoxx Europe 600’s /zigman2/quotes/210599654/delayed XX:SXXP -0.49% closing at its lowest level this month. The news broke in Tokyo after the market there had closed.
Ghosn became boss of Nissan in 1999, appointed after Renault acquired a controlling stake. Today, he is chairman and chief executive of Renault as well as chairman of both Mitsubishi and Nissan, where he was also chief executive until early 2017. That made him the first person ever in charge of two Fortune Global 500 companies at the same time.
But for years, shareholder groups have been complaining about the concentration of power in the hands of Ghosn and the potential conflicts of interest arising from his various roles.
Nissan owns 15% of Renault, with no voting rights, but contributes most of the sales and profit to the venture. The French government, Renault’s biggest shareholder with 15% of the stock, has double voting rights on some issues such as mergers. The French state also owns 44% of Nissan and is eligible to vote on corporate issues there. Nissan, meanwhile, also holds a stake in Mitsubishi Motors.
Ghosn’s controversial pay packet — he draws separate paychecks from Renault and Nissan — has previously drawn the ire of the French government as well as shareholder groups. In 2017, an association of French pension-fund trustees alleged that Renault had failed to properly disclose to investors the transfer of decision-making powers to its Renault-Nissan joint venture.
Then, most investors were willing to look the other way. That was mainly because they perceived Ghosn to be the only person capable of managing such a complicated structure and carrying out a massive restructuring at the Renault-Nissan-Mitsubishi alliance that would see it ultimately operate as a single company, saving €10 billion a year by 2022.
Japan’s corporate-governance code, introduced under Prime Minister Shinzo Abe in 2015 , urged companies to perform annual evaluations on the risks and returns of their cross shareholdings and then provide investors with the objective and rationale for keeping them. Ghosn’s arrest will make it much harder for Nissan to make a positive case for these complicated cross holdings from here on.