Headquartered in Boulogne-Billancourt, France, the automotive manufacturer Renault was established 120 years ago in 1899, and Japanese automotive manufacturer, Nissan, was founded in 1933, headquartered in Yokohama, Japan. In 1999, these two automotive giants entered into the Renault-Nissan strategic alliance and, in 2016, Tokyo-based Mitsubishi Motors was added to the mix. In 2019, the alliance found itself at a crossroads following an ethics scandal that has rocked the group.
And it is Carlos Ghosn, the former chairman and CEO of Renault, who is at the heart of this controversy. Together with top executives at Nissan and Mitsubishi, the alliance has been embroiled in an ethical scandal that regularly made headlines throughout 2018 and 2019. Ghosn was arrested in late 2018 on charges with financial misconduct and breach of trust, following which he was ousted by both Nissan and Renault.
Nissan and Mitsubishi claim that Ghosn improperly received $9 million as compensation, while Renault claims that Ghosn’s expenses amounting to €11 million are suspicious. Following a private investigation into the scandal, Renault issued a statement that said “questionable and concealed practices and violations of the group’s ethical principles, particularly concerning relationships with third parties, management of conflicts of interest, and protection of corporate assets.” One of the biggest accusations revolves around the payments made to an Omani distributor. It is alleged that $32 million of Nissan’s money has been paid to the distributor, some of which is believed to have been used to purchase a luxury boat for Ghosn and his family.
Nissan has stated publicly that “aside from any criminal matters, Nissan’s internal investigation has uncovered substantial evidence of blatantly unethical conduct.” This alleged misconduct while at the feet of Ghosn is not limited to him alone. Gregory Raymond Kelly has also been named in the accusations. An internal investigation by Nissan found that Ghosn and Kelly had been underreporting compensation amounts in the Tokyo Stock Exchange securities reports in order to reduce the disclosed amount of Ghosn’s compensation and that there had been personal use of company assets.
Unfortunately, while such scandals are not isolated to Japan, the corporate culture within Japanese companies to said to allow such issues to go untouched, at least for some time. It is expected that employees, even those who are at a senior level, respect the strict hierarchies present in Japanese society. Employees are expected to avoid conflict with their seniors, and to avoid sowing discontent, rather than exercising their vigilance and practicing corporate oversight.
Meanwhile, Ghosn fervently denies any wrongdoing and has said that he is a casualty of a plot carried out by fellow executives at Nissan over fears that Ghosn was planning to turn the company into a subsidiary of its longstanding partner, Renault, and that executives were also trying to draw attention away from years of bad results.
What is arguably the most concerning factor is that such a scandal could ever come to fruition and reach the point that it has, the enormity of the financial misconduct and ethical violations means that the unethical activities have been underway for a while.
The alliance should now focus on analyzing and addressing the weaknesses in its corporate governance that have allowed such misconduct to happen.
DISCUSSION QUESTIONS
6-1. Are you surprised that in such large and well-known organizations like Renault, Nissan, and Mitsubishi such a scandal could happen? How do you think this could happen?
6-2. Are there structural variables that may have influenced the unethical behavior within Renault, Nissan, and Mitsubishi?
6-3. Evaluate the alleged actions of Carlos Ghosn based on the factors in Exhibit 6-4. How would you describe the issue intensity of these actions?
6-5. Moving forward, how do you think Renault and Nissan can avoid another ethical scandal from occurring?