The Rise and Fall of Carlos Ghosn

The business world was stunned when news spread that Carlos Ghosn, who played a key role in changing the fortunes of Renault and Nissan was arrested in Japan today based on allegations of financial irregularities. The financial irregularities came to light in an internal investigation that was conducted by Nissan. The internal investigation was instigated after Nissan received a whistleblower report. More details about Ghosn’s murky financial deals are expected to come to light in the coming days. As of now, it is reported that Ghosn underreported his income to the tune of 5 billion yen (USD 44 million) over a five-year period that ended in March 2015. In Japan, the maximum punishment for filing a false financial statement is up to 10 years in prison and a fine of up to 10 million yen (USD 89,000).

Ghosn had cemented his position as one of the most powerful figures in the automotive world after he engineered the Renault-Nissan alliance, an alliance which was later joined by Mitsubishi in 2016 to emerge as one that made 10.6 million cars every year. The alliance accounts for one out of every nine cars that are made in the world. He forged the alliance between three automakers which differed in their approach and somehow made the alliance work.

Ghosn, who is the chief executive of Renault and chairman of the board at Mitsubishi has been accused of misleading financial authorities in Japan about the income he earned and misusing company assets. Another director of Nissan, Greg Kelly, is also said to be involved in the scheme. At a time when the automotive industry is facing big challenges like the growing preference for electric cars, trade conflicts and slowing economies, Ghosn’s downfall is expected to have a significant effect on the fortunes of the three leading automakers.

Hiroto Saikawa, Nissan’s CEO, who was handpicked by Ghosn commented at a press conference held at Nissan’s headquarters in Yokohama that he would recommend to his board that Ghosn be removed from his post. It is almost certain that he would lose his leadership positions in the other two companies also. The French government, which owns a 15 percent stake in Renault said that it is monitoring developments in the company closely. Mitsubishi has also said that it is starting an internal investigation.

Ghosn has been associated with the automotive industry for over 40 years and started his career by spending 18 years at Michelin. He moved to Renault in 1996 and played a key role in forming the alliance with Nissan in 1999. He took on the role of Nissan’s chief operating officer, and helped to strengthen Nissan’s financial position. He was known as the “Le cost killer” at Renault and Nissan for his ability to cut costs. He became Nissan’s CEO in 2001 and went on to become the CEO of Renault CEO in 2005. This made him the first person to become the CEO of two Fortune Global 500 companies at the same time.

Stocks in all three companies plunged as an outcome of Ghosn’s arrest. The three automakers which are part of the alliance have stakes in each other. While Nissan owns 15 percent of Renault, Renault has a  43.5 percent stake in Nissan, and Nissan had purchased 34 percent of Mitsubishi’s shares when the company joined the alliance in 2016. Together, the three companies employ over 470,000 people across almost 200 countries.