NSANY Nissan Motor Company Ltd (PK)

By Nick Kostov in Paris and Peter Landers in Tokyo 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (November 21, 2018).

As auto-making executive Carlos Ghosn spent a second day in detention in Japan for alleged financial misconduct, members of the globe-spanning partnership he leads moved to make sense of his arrest and fill the void left by his absence.

Japanese prosecutors are focusing on stock-related pay at Nissan Motor Co., whose chairman is Mr. Ghosn, and whether it was properly disclosed in financial filings, according to a person familiar with the matter. Nissan, meanwhile, informed the board of Renault SA, where Mr. Ghosn serves as both chairman and chief executive, that it had evidence of potential wrongdoing at a Dutch-based joint venture between the two auto makers, according to people familiar with the matter.

Late Tuesday, Renault said it had named a deputy CEO and interim chairman to temporarily take over Mr. Ghosn's responsibilities at the French auto maker. Renault said it was seeking evidence from Nissan of the financial misconduct it and Japanese prosecutors allege against Mr. Ghosn.

The 64-year-old businessman was arrested in Japan earlier this week after Nissan told authorities that an internal probe found that the executive's income allegedly had been underreported in the company's financial statements.

Representatives and family members of Mr. Ghosn weren't available to comment.

Nissan shares fell nearly 5.5% on Tuesday, their first day of trading since news of Mr. Ghosn's arrest. Renault shares have shed almost 10% in the two trading sessions following the arrest.

Mr. Ghosn, who forged the alliance as a top Renault executive and later as leader of both auto makers, is credited with turning it into a successful partnership, a rarity in the auto industry. He recently stepped down as chief executive of Nissan; in addition to his roles at Nissan and Renault, he is chairman of Mitsubishi Motors Corp., another alliance member. He is also chairman and chief executive of the Dutch venture, which serves as a corporate bridge for the nearly two-decade operational alliance -- and is now part of Nissan's internal probe.

Mr. Ghosn's role has been a source of growing tension as executives at Nissan and Renault look toward the future, including the long-speculated possibility of a full-blown merger. The Wall Street Journal reported in May that executives on both sides were informally exploring such a combination. Nissan's senior Japanese leadership has strongly opposed the idea. Mr. Ghosn has publicly said a merger isn't the best option, though people familiar with the matter told the Journal that privately he was more open to a deal.

On Monday, Nissan Chief Executive Hiroto Saikawa sent a message about the findings regarding the Dutch entity to Renault's lead independent director, Philippe Lagayette, the people familiar with the matter said. It wasn't clear exactly what Nissan communicated about its findings.

That entity, Renault-Nissan BV, jointly owned by Renault and Nissan, doesn't make cars, but instead is intended to coordinate the broad partnership between the two companies. Its board consists of executives from both companies, according to Dutch corporate filings.

The unit owns subsidiaries responsible for such activities as joint purchasing and information-technology services.

Its expenses, which totaled more than EUR150 million ($171 million) in 2016, include management fees for executives, services provided to alliance partners and payments to outside consultants, according to the Dutch filings.

Greg Kelly, a Nissan director who was arrested in Japan along with Mr. Ghosn, is also lead director of a separate financial-holding company based in the Netherlands, according to Dutch corporate filings. The company was formed as a subsidiary of another Nissan unit in 2010, according to filings. It was intended for investing in startup companies but was largely dormant for years, said one person familiar with the matter.

After arresting Mr. Ghosn on Monday, Japanese prosecutors said that he was suspected of understating his income, resulting in Nissan's issuing inaccurate financial reports in the five fiscal years ending March 2015.

Prosecutors said they believed Mr. Ghosn received just shy of Yen10 billion ($89 million) in income over those years, but the income reported by Nissan to the Tokyo Stock Exchange totaled about Yen5 billion.

During those years, Nissan reported that several of its executives received share-appreciation rights, a form of compensation similar to stock options that rewards executives when the company stock price rises above a certain level. However, Nissan reports showed Mr. Ghosn didn't receive any share-appreciation rights.

Prosecutors believe that Mr. Ghosn, in fact, did receive such income and that Nissan failed to report it, according to the person briefed on the investigation. Such a move, if borne out, would account for a chunk of the income prosecutors allege wasn't reported.

Even if those suspicions prove accurate, it remains unclear how the income came to be underreported in Nissan's financial filings, or why accountants didn't flag the discrepancy. Nissan has said a whistleblower triggered its internal probe, and that it shared its findings with the authorities.

Nissan also accused Mr. Ghosn of improperly filing expenses and using company assets for his private use. The alleged improprieties occurred over many years, Nissan said.

Mr. Ghosn, who holds French citizenship, hasn't been formally charged with any crime. But if he is treated like a typical Japanese detainee, the auto executive is likely to spend the next few weeks in a small cell in Tokyo and undergo daily interrogation by prosecutors without a lawyer present.

Prosecutors must decide this week whether to hold him for up to an additional 20 days. Such a request is typically granted. During that period, the suspect isn't entitled to bail.

After a meeting late Tuesday, Renault's board said it had appointed the firm's No. 2 executive, Thierry Bolloré, to serve as deputy CEO on a temporary basis and Philippe Lagayette, Renault's lead independent director, to act as interim chairman.

By deputizing Mr. Bolloré, Renault's board empowered him to wield Mr. Ghosn's voting rights on the board of Renault-Nissan BV, according to people familiar with the matter. That move is crucial, the people said, because it preserves the balance of power that Renault and Nissan share in the joint venture.

In a memo posted to the company's intranet late Monday, Mr. Bolloré, who is currently chief operating officer, expressed his "full support" for his boss, but also said the company's "governance bodies are playing their full role in defending Groupe Renault's corporate interest."

--Sam Schechner in Paris and Phred Dvorak in Tokyo contributed to this article.

Write to Nick Kostov at Nick.Kostov@wsj.com and Peter Landers at peter.landers@wsj.com

(END) Dow Jones Newswires

November 21, 2018 02:47 ET (07:47 GMT)

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