Weak Governance Comes Back To Bite Nissan Again with Saikawa’s Departure

Nissan’s continuing crisis of leadership comes at an absolutely terrible time for the automaker for a number of reasons. But it seems to have been rooted in a long-term governance structure which invited problems at some point just due to human nature.

That’s the view, anyway, of one high-level Japanese auto-industry insider who has observed the struggles of Nissan in obtaining steady leadership as the company tries to navigate all sorts of wrenching changes, both internal and external in nature.

The latest development, of course, is that Nissan CEO Hiroto Saikawa has resigned, with the company’s board announcing that his departure is effective on Monday. Nissan named Chief Operating Officer Yasuhiro Yamauchi as acting CEO while the company searches for a successor. The board’s independence from management has been growing as a result of the installation of a large crop of new directors at the company’s annual shareholders meeting in June.

Saikawa quit just days after he admitted to reporters that he, along with other top Nissan executives, were overpaid as part of a stock-related payment plan. A company investigation found that in 2013, when Saikawa was an executive vice president, he notched about $439,000 in improper stock-based performance compensation. He had asked colleagues to find ways to boost his pay, and employees subsequently falsified performance documents, Nissan said. The company called Saikawa’s actions inappropriate but didn’t characterize them as misconduct; he sais he would reimburse the company.

The irony must be delicious for Saikawa’s predecessor, Carlos Ghosn, who is awaiting trial for Nissan-related financial crimes largely because Saikawa’s pursuit put him there in 2017. Yet a lawyer for Ghosn reportedly noted the “contradictory and incoherent” fact that while Ghosn is accused of hiding compensation he never received and is facing a lengthy prison sentence as a result, Saikawa did receive excess pay and isn’t facing criminal charges.

Saikawa’s problems exceeded the stumble that did him in. Lackluster earnings had the company hitting “rock bottom” in May, Saikawa said then, and Nissan said in July that it will slash about 12,500 jobs from its workforce worldwide. Meanwhile, a sales slump in many parts of the world, including the crucial United States market, has raised concerns about the future. And Saikawa wasn’t able to reshape Nissan’s long-standing agreement with Renault over governance of their alliance.

In fact, the new outside directors of Nissan are finding, governance seems to be at the root of many of the company’s problems. Japan has been overhauling corporate-governance standards for a few years now in the wake of financial scandals and broad recognition that the country’s practices were lax. But Nissan proved to be a laggard even against that backdrop.

Only 11 of the largest companies in Japan, including Nissan, did not have two independent directors by 2011, according to Jeffries Group research. Even after Japan’s new corporate-governance code took effect in 2015, it took Nissan until 2018 to add two independent directors.

It also still had no board committees, meaning among other things that Ghosn personally selected independent directors and set his own compensation – “the worst flaw in corporate governance I’ve ever heard of,” the high-level insider, who declines to be identified, tells Chief Executive. In effect, as chairman and CEO of Nissan, Ghosn reported to himself as chief of Renault. Independent auditors didn’t raise the right questions, either.

“Having independent board committees in today’s world is very important,” the insider says. “If you get into a position like Nissan’s board did, with an overlord that was internal – that’s just a recipe for huge problems.”

Fortunately, Nissan’s new independent directors came in June with a new structure for board overview of executive compensation and other crucial changes in governance. But with Saikawa’s departure, the problems at Nissan continue to deepen.

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