Nissan is set to adopt a new governance structure aimed at
preventing the pitfalls of concentrating power in the hands of a single
executive.
The shock arrest of former Nissan chair Carlos Ghosn for financial
crimes in November spurred the vehicle maker to set up an external panel
to
review its corporate governance. The committee’s seven members were
to issue their findings late on Wednesday, which coincides with the 20th
anniversary of Nissan’s alliance with Renault that brought the
automotive industry titan to Nissan.
“Nissan didn’t have any committees whatsoever, it was just Carlos
Ghosn deciding it,” said Zuhair Khan, an analyst at Jefferies in Tokyo.
“There needs to be a clear feeling that what is done is correct, and it
has to be evaluated by people who have no conflict of interest.”
As chair of Renault, Nissan and Mitsubishi, Ghosn enjoyed
unprecedented power. Prosecutors say he used his position to falsify
financial information and boost his compensation, charges he has denied.
He is on bail and preparing for a trial that may begin later this year.
Now, as tension between the partners eases, Nissan has gained more
independence.
Overshadowing the panel’s announcement was a report by the Financial
Times that Renault is seeking to merge with Nissan within a year, so
that they can bid for Fiat Chrysler Automobiles. Fiat Chrysler itself is
seeking a partnership or merger, and chair John Elkann has met other
rivals, including France’s Peugeot, to gauge the possibility of a deal,
the newspaper reported on Wednesday, citing unidentified sources.
The panel will say that Nissan’s current management should also
shoulder some of the responsibility for weak oversight that led to
Ghosn’s abuse of power, people with knowledge of the matter said on
Wednesday. Their recommendations could change if they are revised at the
last minute, said the people, asking not to be identified because the
information is not public.
Once Nissan’s board accepts the measures, it will have a governance
structure that calls for decision-making based on consensus instead of
the whim of one person. Among the panel’s proposals may be a
recommendation to create separate governance committees to oversee
nomination, audit and remuneration, with the majority of each body made
up by independent directors, a person with knowledge of the proposals
has said.
The proposals discussed on Wednesday also may include the appointment
of an external director to head Nissan’s board, the person has said.
Company shares have fallen about 9% since Ghosn’s arrest.
The vacuum in Nissan’s governance created by Ghosn’s exit was
becoming a hindrance for the world’s biggest automotive alliance, with
decision-making snarled until Nissan establishes a new structure,
S&P Global Ratings credit analyst Margaux Pery wrote in a report
last week.
Renault chair Jean-Dominique Senard also will chair the alliance board, which was reformed earlier in March.
Détente
While the biggest source of tension — the ownership imbalance —
remains, it is solvable, said Motoki Yanase, an analyst at Moody’s
Japan. Renault now has 43% in Nissan, which owns 15% of the French
company. The French government is Renault’s most powerful shareholder.
Détente is necessary because of the alliance’s value to both
companies and third partner Mitsubishi. The scale and savings it brings
outweighs the distrust that intensified with Ghosn’s arrest, especially
as the vehicle makers face huge investment requirements in electric and
self-driving vehicles, and renewed competition from Tesla and Uber
Technologies.
“Nissan and Renault kissed and made up,” said Janet Lewis, an analyst
at Macquarie Capital Securities (Japan). “More than anything, it helps
the employees stay focused on what they are doing.”
The alliance was formed in 1999 after Renault agreed to salvage
struggling Nissan, acquiring a major stake in the Japanese company in
the process. More recently, Nissan’s growth has outpaced that of
Renault, resulting in calls from within the Japanese company for a more
balanced partnership structure. Mitsubishi joined in 2016. Put together,
the alliance sold 10.8-million cars in 2018, an eighth of total global
vehicle sales.
Questions about the future of the union burst into the open after
Ghosn’s arrest four months ago for under-reporting pay and breach of
trust. The executive was preparing to push for a full merger and was
facing resistance from factions within Nissan, including from
protege-turned-accuser Hiroto Saikawa, who has been CEO since 2017.
While Nissan was swift to remove Ghosn as its chair, Renault took more
than two months to appoint a new CEO and a new chair.
Even with a more independent Nissan, the alliance will have to
integrate more to compete. Renault and Nissan co-operate on
technologies, manufacturing, supply-chain management, purchasing and
human resources. The companies have cross-production activities in
France, Spain, Portugal, Romania, Slovenia, Mexico, Brazil, Chile,
India, Russia, South Korea and Japan.
The alliance has helped Renault and Nissan share expenses, and
together the companies bring more heft to the table when negotiating
purchasing terms with suppliers. They also benefit from each others’
geographic footprint: Renault is stronger in Europe, while Nissan
provides links to China, where Renault only has a small presence, and
the US, where the French vehicle maker is absent.
“Without proper governance the alliance cannot be something stable
and sustainable,” Khan said. “The transformation that’s going to happen
in the automotive industry in the next few years is going to be a
transformation that we haven’t seen in decades.”
- Bloomberg
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