Ghosn's arrest brings Nissan-Renault tensions to the surface

Tensions between Nissan and Renault SA over the future of their car-making partnership have exploded into the open as the downfall of Chairman Carlos Ghosn roils the automotive industry and his top lieutenant, Hiroto Saikawa, moves to consolidate power in his absence.

The two companies, connected via a complex structure of cross-shareholdings and joint manufacturing, have drastically differed in their reactions to Ghosn’s arrest in Japan on suspicion of financial offenses.

Tuesday night in Paris, Renault’s board stopped short of firing the French-Brazilian executive, and asked Nissan to hand over details of his alleged misdeeds. Nissan, by contrast, said after he was detained on Monday that it intends to dismiss Ghosn, 64, as chairman - acting with a haste that’s fueled open speculation that he was the victim of a coup by Saikawa, who serves as Nissan’s chief executive officer, and others opposed to deeper integration between the two companies.

Nissan’s board will meet on Thursday to make a formal decision on Ghosn’s future.

For its part, Renault’s board indicated that it was in the dark about the nature of the allegations against Ghosn. "At this stage, the board is unable to comment on the evidence seemingly gathered against Mr Ghosn by Nissan and the Japanese judicial authorities," it said in a statement.

No bail

Ghosn, who was among the best-paid executives in both France and Japan, stands accused of under-reporting income of about $44m and misusing company funds at Nissan. According to NHK, Nissan paid "huge sums" toward Ghosn’s residences in four global cities, payments that the broadcaster said lacked a business justification, and also covered the cost of vacations for his family. Ghosn hasn’t commented on any of the allegations, or been seen in public since his arrest.

• READ: Fate of world's biggest car alliance hangs on one word: Ghosn

"Japan will not tolerate executive greed. And enriching for your own personal wealth - and this superstar mentality where the CEO gets paid 20, 25 times what the average worker gets paid-- Japan does not want to tolerate," Jesper Koll, the CEO of fund manager WisdomTree Investments, said in an interview with Bloomberg Television. "There’s no question Carlos Ghosn is being used as a symbol to ensure that corporate leadership in Japan will stay close to its workers."

Japan’s legal system is opaque even to locals, and basic details of Ghosn’s location and immediate future are unknown, although he’s likely at a detention facility in northern Tokyo. Bail cannot be granted until prosecutors decide whether to proceed with an indictment, a process that could take weeks, and Ghosn won’t necessarily be joined by an attorney when he’s questioned during that time.

Partnership tensions

More than Ghosn’s personal future is at stake.

The charismatic executive led both Nissan and Renault as well as their wider alliance, which unites the iconic French and Japanese companies with the smaller Mitsubishi Motors. He had worked toward a merger of Nissan and Renault to solidify their two-decade-old relationship, a union that would create a direct rival to Volkswagen AG and Toyota Motor for the title of the world’s largest automaker.

But Saikawa publicly played down that prospect earlier this year, prompting a private rebuke from Ghosn, his one-time mentor, who warned his Japanese colleague that his comments risked undermining Nissan’s credibility, according to a person with knowledge of the exchange.

• READ: Renault shares tumble as company sees pressures rising

Saikawa has so far been the face of Nissan’s reaction to Ghosn’s arrest, appearing alone at a press conference late on Monday where he announced Nissan’s plan to fire him. He had harsh words for the detained boss. “This is an act that cannot be tolerated by our company,” Saikawa said, arguing that an excessive concentration of power in Ghosn’s hands created an environment ripe for misconduct.

Saikawa’s influence at Nissan will grow in Ghosn’s absence. Nissan’s board on Thursday probably won’t name immediate replacements for Ghosn and Greg Kelly, an American director also accused of wrongdoing, according to a person familiar with the matter. That would reduce the board to seven members, including Saikawa, and take the number of non-Japanese directors from four to two.

French support

For now, Renault has named Chief Operating Officer Thierry Bollore as interim CEO, with the same powers as Ghosn. In a letter to Renault employees, he pledged “full support” for Ghosn and to protect the Nissan partnership.

The full scope of potential allegations against Ghosn and others is unclear. Nissan has told Renault board members that the company is looking into potential wrongdoing at the alliance’s Amsterdam-based joint venture, RNBV, according to three people familiar with the matter.

So far the French government, which is Renault’s largest shareholder, is reserving judgment on Ghosn. On Tuesday, Economy Minister Bruno Le Maire told France Info radio that "we will not demand he be removed" from the company because "we have no proof". France has examined Ghosn’s local tax records and found "nothing particular," Le Maire added.

While both Le Maire and his Japanese counterpart, Hiroshige Seko, reaffirmed their support for the alliance, the structure of the partnership between the two companies has been increasingly controversial in Japan as Nissan outgrows Renault in sales and profits. Renault owns a 43% voting stake in Nissan, which owns just 15% of Renault - without voting rights.

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