NSANY Nissan Motor Company Ltd (PK)

By Sean McLain in Tokyo and Nick Kostov in Paris 

Lawyers inside Nissan Motor Co. have raised concerns that the company's internal investigation into former Chairman Carlos Ghosn is marred by conflicts of interest involving a Nissan executive and the company's outside law firm, U.S. legal giant Latham & Watkins LLP, according to people familiar with their concerns.

General counsel Ravinder Passi brought the conflict-of-interest issues to Nissan directors by handing them a letter when they gathered Sept. 9 to review the investigation's results, say people who attended the meeting. The objections by Mr. Passi and others within Nissan lay bare the continuing turmoil at the car maker over corporate governance nearly a year after Mr. Ghosn's arrest and following the resignation this month of Chief Executive Hiroto Saikawa.

"I believe that these matters create substantive concerns, and that these issues will come to a head in due course and create exposure and risk for the company," Mr. Passi wrote in the letter, which was read to The Wall Street Journal.

On Monday, Nissan agreed to pay $15 million to settle a dispute with the Securities and Exchange Commission for failing to report more than $140 million in compensation that was to be paid to Mr. Ghosn after retirement. Mr. Ghosn agreed to pay $1 million to settle the dispute.

The concerns highlighted by Mr. Passi and other Nissan employees center on Hari Nada, a Nissan senior vice president who oversees its legal department, and Latham & Watkins, the law firm that conducted Nissan's internal investigation into alleged wrongdoing by Mr. Ghosn and others.

Mr. Nada is one of a group of Nissan executives who brought forward allegations against Mr. Ghosn last year, leading to the former Nissan chairman's arrest and indictment on charges of financial misconduct, according to Nissan people familiar with the investigation. Mr. Ghosn says he is innocent.

Mr. Nada assisted Mr. Ghosn in some of the actions under scrutiny by investigators and signed a deal with prosecutors under which Mr. Nada wasn't charged in exchange for his cooperation, according to people familiar with the investigations by Nissan and prosecutors. As a result, some within Nissan believed Mr. Nada should have been excluded from having any role in Nissan's legal affairs after agreeing to cooperate with prosecutors, said people familiar with the internal concerns.

"Nissan executives and employees, including Mr. Passi, were mindful of the risk of potential conflicts of interest throughout the investigation process," Nissan said in an emailed statement. "We believe that the investigation was conducted rigorously and appropriately."

Latham has had a long relationship with Nissan, and it advised the company on some of the issues currently under scrutiny by Nissan investigators and Japanese prosecutors, including on executive pay disclosure, said the people familiar with the internal concerns. Nissan should have hired a law firm with no prior relationship to the company to conduct the investigation in order to protect against even the appearance of a conflict of interest, these people said.

"From the outset and throughout the engagement, Latham regularly discussed the firm's engagement on the internal investigation with several Nissan executives, including Mr. Passi, and the company chose to continue with the engagement," a spokesperson for Latham said.

The general counsel's letter revives the question of responsibility for what Nissan has described as poor governance and improper compensation under Mr. Ghosn. Nissan says Mr. Ghosn was to blame and made his subordinates comply, while Mr. Passi's letter suggests the problems went beyond a single person. Mr. Ghosn has said others at the company approved his actions.

Mr. Passi in early July asked two additional outside law firms, one U.S.-based and the other in Japan, to review conflict-of-interest risks connected to Mr. Nada and Latham. In his Sept. 9 letter, Mr. Passi wrote that his concerns grew after a memorandum from those two firms wasn't handed to board members.

The memorandum was sent to Motoo Nagai, the board director in charge of audit affairs, on July 25, and Mr. Passi requested that it be shared with other board members, he said in his letter. "I have chased on a number of occasions to ascertain whether the memorandum was shared, although I have received no positive confirmation of this," Mr. Passi wrote. The memorandum was attached to his letter to the board.

The four-page memorandum concluded that people with knowledge of the potential wrongdoing under investigation as well as any outside advisers that had prior knowledge of the issues should be kept separate from discussion and decision making on relevant legal matters. The memorandum said that was the best way to ensure "the greatest degree of credibility, objectivity, impartiality and independence in the company's decision-making process."

One of the people who saw Mr. Passi's letter dismissed the memorandum's findings as overly simplistic. "It's right that it says we need to be mindful of conflicts of interest, but we already were," this person said. Mr. Nada was recused from the investigation as of April and hasn't been involved since then, this person said. Latham isn't examining any advice it provided to Nissan, and a majority of the Latham lawyers who conducted the investigation had no connection to Nissan, this person said.

Others said Mr. Nada continued to have influence on legal matters after his recusal. This included the ability to see that Nissan hired employment lawyers to review possible penalties for Nissan employees who assisted Mr. Ghosn's alleged wrongdoing, said one of the people.

Nissan directors have received anonymous letters from Nissan employees that echo many of the concerns raised by Mr. Passi, according to people who have seen the letters. Many of the letters object to the continued role of Mr. Nada at the company, these people said.

In one letter sent Sept. 19, a Nissan employee wrote that Mr. Nada's role in the investigation had been reduced in April but that didn't reduce his influence within the company. "He has been directly involved in the board's processes and activities (although acting through subordinates)," this person wrote.

Some Nissan employees worry about what they see as a stalled governance overhaul, according to complaint letters seen by the Journal. Nissan employees were encouraged to speak up about internal problems following the arrest of Mr. Ghosn, but employees are worried internal complaints aren't making it to the board through the company's whistleblower system, according to people familiar with the complaints.

Mr. Passi said in his letter to the board that copies of a complaint filed to directors through Nissan's internal whistleblower system were collected by the human resources department from the desks of secretaries before they could be read by directors. When Mr. Passi asked why the complaint letters weren't delivered to directors, he was told that it was to allow a human resources executive to prepare a response to the complaint before passing them on, according to his letter.

"As of 30th August, almost two months after the letters were first sent to directors, I understand that this correspondence has still not made its way to the relevant directors," Mr. Passi wrote. A person familiar with the complaint said it dealt with a Nissan executive whose prior legal issues had already been addressed by the company.

The final issue raised by Mr. Passi in his letter to the board dealt with the sudden departure in late August of Christina Murray, who had led the investigation as Nissan's head of audit and compliance. Ms. Murray was among the Nissan lawyers who had expressed concerns about potential conflicts involving Mr. Nada, say people familiar with her views.

Ms. Murray had been promoted to vice president in May and had been due to present the investigation findings to company executives and the board in early September. "In my view the timing of this is very unusual, " Mr. Passi wrote.

At a news conference following Nissan's September board meeting, Mr. Nagai, the board director in charge of audit affairs, said that Ms. Murray had told him in July that she wished to resign.

Write to Sean McLain at sean.mclain@wsj.com and Nick Kostov at Nick.Kostov@wsj.com

(END) Dow Jones Newswires

September 23, 2019 12:49 ET (16:49 GMT)

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