THE sudden, dramatic arrest of Carlos Ghosn, one of the auto industry’s most admired leaders, is exposing rifts in the global alliance between Nissan Motor Co. and Renault SA that Mr. Ghosn built and ruled for more than a decade.
Mr. Ghosn, Renault’s chief executive and chairman, is accused of failing to report $44 million in pay at Nissan, where he also served as chairman. On Thursday, Nissan directors voted unanimously to strip the chairmanship from Mr. Ghosn.
A Nissan internal investigation alleges Mr. Ghosn also spent millions from an obscure Nissan fund to buy and renovate luxury homes, according to a person familiar with the matter.
Mr. Ghosn, in custody in a Japanese detention center, has not been heard from publicly since his arrest hours after his arrival in Tokyo Monday. Mr. Ghosn has not been charged. He was unable to be reached for comment.
Japan’s public broadcaster NHK said former prosecutor Motonari Otsuru, now in private practice, is representing Mr. Ghosn. The lawyer’s office declined to comment.
In Mr. Ghosn’s absence, long-festering stresses are surfacing that reveal a far more conflict-ridden alliance than previously suspected, according to interviews with more than a dozen people connected to the pioneering marriage between the French and Japanese car makers.
At Renault, where sales are smaller than Nissan’s, some union officials have long worried they would be absorbed in a creeping “Nissanization.” At Nissan, where many Japanese employees grumble that foreigners are promoted faster and paid better, some talk darkly of an attempt by old-timers to return the company to its roots and eject foreigners.
Hours after Mr. Ghosn’s arrest, the board of Renault hastily gathered at the car maker’s headquarters in Paris for an informal meeting. The directors assembled around a U-shaped table on the banks of the Seine and by phone. Two board representatives from Nissan didn’t join.
Nissan had released a statement denouncing its longtime leader’s term as rife with misconduct. Nissan Chief Executive Hiroto Saikawa had called a news conference to say Mr. Ghosn made personal use of company funds. The failure to report compensation, if proved, could put Mr. Ghosn in prison for a decade.
Renault’s directors were in shock—over Nissan’s handling of the matter.
A Renault director at the snap meeting told fellow board members, “I found this very, very violent.”
At the meeting, Renault lead independent director Philippe Lagayette read aloud a message from Mr. Saikawa saying Nissan had found evidence of potential wrongdoing at Renault-Nissan BV, a Dutch-based joint venture between the two auto makers.
The topic touched a nerve, because Renault-Nissan BV is the corporate entity that links the two auto makers Mr. Ghosn helped ally. Its board is evenly divided between the companies’ representatives, with Mr. Ghosn serving as chairman and Mr. Saikawa as vice chairman. Renault directors worried that with Mr. Ghosn in a Japanese jail cell, the balance would tip toward Mr. Saikawa and Nissan.
They also didn’t want Japanese investigators poring over the auto alliance’s records without Renault’s involvement. “We won’t let them investigate alone,” one board member told the group.
The next evening, Tuesday, Renault’s board convened an official meeting. This time Nissan’s representatives were told they couldn’t take part, people familiar with the matter said, because they were deemed to have a conflict of interest.
Two days later, Nissan’s board held a four-hour meeting during which directors were briefed on the allegations against Mr. Ghosn.
People familiar with Renault’s board said it had asked Nissan to postpone the decision on Mr. Ghosn until more information was available from Tokyo authorities.
Nissan’s board went ahead with stripping Mr. Ghosn of his chairman’s title.
In a letter to Renault’s board reviewed by The Wall Street Journal, Nissan’s board said it wouldn’t allow Renault to name a replacement because Mr. Ghosn remains a Nissan director and, in Nissan’s view, Renault isn’t entitled to any further representation on the Nissan board. A Nissan spokesman said removing Mr. Ghosn as a director would require a shareholder vote.
Renault’s request to Nissan for more information about the allegations against Mr. Ghosn hit a brick wall. The Nissan board letter said it couldn’t give information because it might be perceived as interfering with the separate probe by Tokyo prosecutors.
A Renault spokesman declined to comment.
A Nissan statement after the board meeting Thursday said Mr. Ghosn committed serious misconduct in three areas: incorrectly reporting his compensation over many years, using a company investment fund for personal purposes and inappropriately filing expenses.
The two automakers came together in 1999, when Renault bailed out a failing Nissan and sent Mr. Ghosn, its No. 2 executive, to lead a turnaround. Mr. Ghosn took Nissan from losses to become one of the world’s most profitable car makers in a few years. But his cost-slashing methods stirred up resentment in Japan.
“The alliance was not popular, neither with Nissan executives nor Renault executives, even though it was presented as a beautiful collaboration,” said one former Nissan manager who likened Mr. Saikawa’s move against Mr. Ghosn to the betrayal of Julius Caesar by Brutus.
Mr. Saikawa fielded a question at his news conference on whether Mr. Ghosn’s ouster was a coup d’etat. “I don’t see it that way,” he answered.
French economy and finance minister Bruno Le Maire said this week that the French government, which owns 15% of Renault, believed in “the rule of law” and had seen no evidence “justifying the accusations brought against Carlos Ghosn.”
On Thursday, Mr. Le Maire held a roughly one hour meeting with his Japanese counterpart Hiroshige Seko, in Paris. After the meeting, the two ministers reaffirmed their “strong support” for the alliance formed between Renault and Nissan, “and their shared wish to maintain this winning cooperation.”
Mr. Ghosn’s family has been unable to reach him, a person close to the family said, although the Brazilian-born executive, who has French citizenship, received a visit from France’s ambassador to Japan, according to a French embassy spokesman.
Lawyers familiar with the Tokyo Detention House said those held there are treated the same regardless of their stature. If his experience is typical, Mr. Ghosn is living in a room of roughly 80 square feet, waking at 7 a.m. and going to bed at 9 p.m. Detainees are allowed to take a bath two or three times a week and get three meals a day consisting of a mix of rice and barley, and side dishes.
The lawyers said daytime is likely taken up largely with prosecutors’ interrogations, which attorneys for suspects aren’t allowed to attend, although they can pay shorter visits.
It’s a stark departure from Mr. Ghosn’s jet-setting lifestyle where he splits time between homes in Tokyo and Paris, and is ferried by corporate jets. In 2017, Town and Country Magazine published a spread on Mr. Ghosn and his wife’s Marie Antoinette-themed wedding party at Versailles, featuring actors in 18th century costumes and wigs, and tables piled high with cakes and pastries.
On the day of his arrest, Mr. Ghosn landed in a Gulfstream jet at Tokyo’s Haneda Airport at 3:41 p.m. after a 5,500-mile trip from Beirut. He had an appointment to meet his daughter for a sushi dinner. Instead, Japanese prosecutors boarded the jet. Less than five hours later, he was under arrest in central Tokyo.
The main accusation against Mr. Ghosn and another executive arrested, Nissan director and longtime Ghosn aide Greg Kelly, is that they conspired to underreport Mr. Ghosn’s compensation for at least five years.
Prosecutors suspect that the allegedly unreported compensation includes a kind of incentive compensation called share-appreciation rights, which pay out when the stock tops a certain level, said a person familiar with the investigation. Like Mr. Ghosn, Mr. Kelly hasn’t been formally charged.
Mr. Kelly couldn’t be reached for comment.
Mr. Saikawa observed at his news conference that Mr. Ghosn’s decisive, hands-on style had downsides when he gathered too much power.
“Having someone in the seat of power for so long, I felt it started to show problems, not only from a governance perspective but from an operational perspective as well,” Mr. Saikawa said.
For many at Nissan, Mr. Saikawa now represents a chance to take the leading position in the alliance with Renault that they feel the Japanese company deserves. Last year, Nissan’s sales were around 60% of the Nissan and Renault total. Over the years, Nissan has floated the idea of either increasing its 15% stake in Renault or getting Renault to reduce its 43% stake in Nissan.
“We should recognize ourselves as the key player in the alliance,” Mr. Saikawa said in an interview with The Wall Street Journal in September 2017, about four months after he was appointed Nissan CEO to succeed Mr. Ghosn. “We should be the main driver of the alliance growth and integration.” Since 2016, the alliance has included a third auto company, Mitsubishi Motors Corp.
Nissan and Renault have feuded in technology too, with some Nissan engineers saying their company is better at advanced technologies and expressing frustration at what they viewed as Renault’s cost-driven approach.
A case in point was the companies’ tug of war over electric-car batteries. Around 2010, Nissan developed its own batteries in-house to power its Leaf electric car. It was soon facing pressure from Renault to switch to the cheaper batteries Renault was getting from South Korea’s LG Chem Ltd.
The Renault team said Nissan’s batteries were too expensive. Nissan said its own were safer, and stuck with them. But as low-priced Chinese-made batteries emerged, Nissan in August agreed to sell its car-battery business.
Mr. Ghosn kept the parties from making their grievances too open through such tensions.
Mr. Ghosn’s daughter never got to see her father at their planned dinner date in Tokyo Monday, said a person close to the family. She was waiting at his apartment when she got a news alert on her phone telling of her father’s arrest.
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