Corporate Governance Analysis: Carlos Ghosn Case and Recommendations

This report analyzes the corporate governance failures exposed by the Carlos Ghosn case, focusing on the alliance between Nissan, Renault, and Mitsubishi. The report summarizes the case, detailing Ghosn's alleged financial misconduct and the subsequent governance issues. It explores the relevance of the case to corporate governance practices in Australia and Japan, examining the application of agency theory and other corporate governance theories to understand the issues. The report then compares the corporate governance systems of Japan and Australia, highlighting key differences and challenges. It discusses the issues within the Japanese system, such as stakeholder responsiveness, and contrasts it with the Australian system's emphasis on hard and soft laws. The report concludes with recommendations for improving corporate governance in both countries, drawing on the strengths of the Australian model and addressing the weaknesses exposed by the Ghosn case. The report emphasizes the need for greater transparency, shareholder value, and robust board oversight to prevent future misconduct and ensure sustainable corporate development.

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Contents
1. Analyse the articles and the issues.......................................................................................................2
A. Summary of the story..........................................................................................................................2
B. The corporate governance issues rose in the Carlos Ghosn Case and its relevance to the corporate
governance practice in Australia and Japan.................................................................................................2
C. Agency theory.....................................................................................................................................4
D. Any other corporate governance theories that help us understand the issues in Carlos Ghosn case.....4
2. Corporate governance systems............................................................................................................5
A. Issues in the corporate governance system of Japan............................................................................5
B. Differences between Australian corporate governance system and the Japanese system.....................6
C. Present recommendations as to how corporate governance systems could be improved in both
Australia and Japan.....................................................................................................................................8
Reference:...................................................................................................................................................9

1. Analyse the articles and the issues
A. Summary of the story
Carlos Ghosn was the Chairman of the alliance between Nissan Motor Corporation, Renault SA
and Mitsubishi Motors Corporation. He made one of the business’s major alliances of Nissan,
Renault and Mitsubishi. In 2018, he was arrested by the police officers in the case of misuse of
the funds of the company and detained in the Tokyo Detention House. The investigating officer
said that in his investigation there is some evidence about the other wrongdoings of Mr Ghosn
which includes the use of the business resources for his personal purposes. Mr Ghosn was
arrested in the November 2018 and released on bail in March 2019 but he was again attested in
April 2019 on the new accusation of underreporting his post- retirement reimbursement and uses
the funds of Nissan for the recovery from personal losses (Collie 2018).
Director Greg Kelly and Carlos Ghosn both were charged for the misconduct with company
resources. Because of the charges made against Kelly and Ghosn both were relieved from the
post of the representative director and chairman of the alliance of Nissan, Renault and
Mitsubishi. Mr Ghosn denied all the charges of business misconduct and as per his statement, the
arrest is illogical and disgraceful (Lewis and Inagaki 2019).
Nissan Motor Corporation released the governance report which contained the intense and
comprehensive shot about the misconduct of Mr Ghosn. So that Governance Committee of
Nissan recommends the abolition of the customary role of the Corporation Chairman and the
establishment of a board of directors with the majority vote. The main argument was in the
corporation was the abolition of the oversight role the Corporation’s Directorate (Nagata 2018).
B. The corporate governance issues rose in the Carlos Ghosn Case and its relevance to
the corporate governance practice in Australia and Japan.

Allegations on Mr Ghosn rose because the industries offer an excess power of the valued
corporate governance to the chairman and to the directorate. It is significant to note that Mr
Ghosn as a chairman was the most powerful executive of the world. The internal investigation of
Nissan allegedly exposed three main contentions against Mr Ghosn that he was wrongly
broadcasting his reimbursement over a period of years, used the company’s fund for the personal
purposes and improperly filing expenditure reports. He was doing these legal violations from
several years but he was neither indicated nor sentenced for any legal violation. However the
accusations rising from the internal investigation of Nissan deliver the valuable fodders for
corporate governance treaties (Lewis and Inagaki 2019).
The corporate governance association of Asian’s main concerned key issue about Mr Ghosn case
is that he was doing a legal violation and how is it possible that the board of directors of Nissan
were apparently unaware about it. There may be an internal control and governance issue in
Nissan which was not opened by the board of directors of Nissan. And the governance may be
related to the satisfactory attention to the board that is why the board of Nissan Corporation is
unable to give an answer in relation to the misconduct of Mr Ghosn. As per the investigation
officer, it is important that the board of Nissan must identify the governance issue of the
corporation and look back on the matter on what transpired seriously. It is important to take
immediate actions on these alleged wrongdoings for Nissan corporate governance (Olsen 2018).
In the response off the scandal of Mr Ghosn case, Prime Minister of Japan said that the
companies registered in Japanese can absorb much from Australia regarding the worldwide high
standard of its corporate governance. Australia was graded first by the Asian Corporate
Governance Association in corporate governance practices. Australian registered companies are
composed of specialized, knowledgeable, self-governing and non-supervisory directors who
work in meeting room atmospheres which encourages the healthy argument for the consideration
of all viewpoints and ideas. This methodology depends on the chairman’s governance to take the
conversation or an argument to a conclusion and to preserve the power- sharing of the board.
Japanese companies can absorb this methodology from Australia (Moodie 2018).

C. Agency theory
Agency theory is the type of theories of the corporate governance of the industries. It describes
the association between the principal and agents. The Principal of the company includes the
shareholders of the company or industry and the agents of the company include the directors of
the company or industry. As per this theory, the shareholders of the company hire the directors of
the company to execute work. The director of the company works for the running of the
company and this duty is delegated by the shareholders to the directors of the company or
industry. The main feature of the agency theory is the separation of the power of shareholder’s
ownership and the control of the directors over the company. In this theory, all the employees
and people are held responsible and accountable for their own work. Recompenses and penalties
can be used to precise the main concern of the director or the agents of the company.
In the case of Carlos Ghosn, he was alleged for the misconduct of funds of the company it
clearly shows that are some governance issue was there in the company as the board of Nissan
was unaware about the misappropriation of funds by the CEO of the company. Agency theory
provides the insight into these issues that the board of the company must monitor the CEO of the
company which will develop the performance of the CEO of the company and evade the
conceivable conflicts of the interests (Associated Press 2019).
D. Any other corporate governance theories that help us understand the issues in
Carlos Ghosn case.
Corporate governance has various theories for the understanding of the governance- related
issues in the corporation. Some of the theories are there which can implement for the
understanding of the issues arises in the Carlos Ghosn case.

In this theory of the corporate governance executives of the company and managers of the
shareholders works for the protection and generate profits for the shareholders. The Stress of the
returns is on the employees and executives of the company who work for the shareholders. In
that case all employees or workers who work for the shareholders take ownership of their works.
In the case of Mr Ghosn, he was using the company funds for the own purposes which are not
possible in this theory because if this theory applied the stress of returns of shareholders will be
on Mr Ghosn and shareholders can control the illegal use of business resources.
The stakeholder theory amalgamated the responsibility of the board to a comprehensive range of
shareholders. These theory prominences on the judgment making and interest of all shareholders
have core value and no interest is expected to be governed by the others. This is governed by Mr
Ghosn and Mr Kelly by misusing the funds of the company.
The Resource Dependency theory incorporated the character of board management. As per this
theory, it is the responsibility of the board to access the resources for the need of the company.
The Director plays a substantial role in the protection and acquiring the necessary resources of
the company. The providing of resources improves administrative working, company’s
enactment and its continued existence. So that if the chairman of the company needs any
resource or funds of the company they have to take permission from the board of director which
makes control over the illegal use of funds of the company which is done by Mr Ghosn.
2. Corporate governance systems
A. Issues in the corporate governance system of Japan
The main issue of the corporate governance system of Japan is that the companies do not pay
satisfactory responsiveness to the stakeholders. The shareholders are the titleholders of the

company but the correct value is not provided by the management of the company. Undoubtedly
there are complications in the management of the corporate governance system of Japan. And the
change in the corporate governance system of Japan is unavoidable. Firstly the corporate
governance system of Japan must be more apparent, Secondly the importance to the shareholders
as they are the actual owner of the company. Sound corporate governance is necessary to the
establishment of a further worldwide reasonable corporate sector in Japan and to the extensive
tenure development of Japanese corporation economy and its money marketplaces (Tricker
2015).
For the reformation of the corporate governance system of Nissan, the company asked the
shareholders for a meeting for considering the governance issue in the corporation. The directors
of Nissan recommend that there must be an independent board for the corporate governance
system of the company. After the case of misconduct by the CEO of Nissan, it is very vibrant
that the corporate governance system of Nissan is very weak. And the Weak governance of the
group company can cause grave and permanent damage to the entire group.
It is essential for the corporate governance of Japan that they construct reliable long term
relationship with shareholders. In the U.S the major focus of the corporation for corporate
governance is on the association maintenance between the stakeholders and the managers of the
corporation. Australia has a best corporate governance system in the Asian countries because in
Australia there are strict laws for the corporate governance in the company which is corporation
act 2000 and there are other rules and guidelines for the obedience of the governance system of
the corporation. As per the rule of Australian guideline for the corporate governance
shareholders, boards and manager have to follow the laws for better governance (Hanazaki
2016).
B. Differences between Australian corporate governance system and the Japanese
system

In Australia, corporate Governance system takes a progressively noticeable role in Australia
corporate atmosphere. Australia has a fundamental interpretation that respectable structure of the
corporate governance system in the corporation can maintain and develop the performance of the
corporation. Therefore the corporate governance system extends as a matter of lawful obedience.
In Australia the modern corporate governance agenda spreads beyond the ordinary obedience
with supervisory desires. There are three important fundamentals of the corporate governance
system in Australia:
Hard law, there is a legally binding law for the corporation and the governance of the corporation
of Australian companies are enlisted in the Corporation Act 2001 (Cth).
Soft Law, Australian Securities Exchange Limited has a predominantly influence on corporate
governance as a contract under the law and
In Australia there are some non-binding guidelines for the better understanding of the corporate
governance system which includes the principles and recommendations of the Corporate
Governance Council.
It is the duty of the directors of Australian companies to impose the above- listed law, procedure
and guideline for the composition of the board and committee for internal and external
governance of the corporation and for other processes of the company (Williams 2016).
But in Japan, Japanese companies are following the older style of the American Governance
system which is known as Contingent corporate governance system. In this governance system,
the management of the corporation is free for the operation of their duty. And if there any crisis
in the corporation, in that case, the banks play a vital role as they take over the administration
system of the corporation. In the structure of the corporate governance system of Japan there are
three major features: Standardized and categorized board of directors in the corporation, the
stakeholders of the corporation play a silent character in the governance of the corporation and
banks monitored the administration and management of the corporation.

If the stakeholders have considerable responsibility for the corporation it helps in the
effectiveness of the governance of the corporation (Basu and Miroshnik 2019).
C. Present recommendations as to how corporate governance systems could be
improved in both Australia and Japan
For the recommendation of the improvement on the corporate governance system of Australia
and Japan it is important that the control over the governance of the corporation must be I the
right hand and the power of the control must be separated by the corporation which helps in the
transparency of using powers and work of the management of the corporation. There must be a
review committee for the solution of the internal conflicts and who can review all categorized
power. The motorization of the board of directors and the management is very important for the
better governance in the corporation. A general report analyses that the change in the practice of
the shareholders involvement in the matters of the corporation played an important role in the
improvement of the corporate governance system of Japanese registered companies.
Japan Revitalization Strategy 2013 recommends Japanese enlisted companies in February 2014
that the stewardship theory will help in the improvisation of the governance system of the
corporation. Shareholders of the corporation play a vital role in the stewardship theory of the
corporate governance system. For the improvement in the corporate governance system of any
country whether Australia or Japan it is important that there is a pattern of the behaviour towards
the governance system of the company. The behaviour of the shareholders and manager also the
behaviour of all employees of the corporation with each other and towards the interest of the
shareholders and the corporation improve the governance system of the company.
It is essential for the governance of the corporation that the business supremacy of the company
set the rules and frames of the behaviour and relationship of employee, manager and shareholder
for the strategy of corporate governance formation.

Reference:
Basu, D. and Miroshnik, V. (2019) Corporate Governance System Of Japanese Multinational
Companies: A Quantitative Evaluation. World Scientific, 2019.
Clarke, T. (2017) International Corporate Governance. 2nd ed. Routledge 2017.
Collie, S. (2018) Japanese Government Intervened In Nissan- Renault Merger Plans- Report. Car
Advice. Available from: https://www.caradvice.com.au/750651/japanese-government-
intervened-nissan-renault-merger/
Hanazaki, M. (2016) Corporate Governance and Corporate Behavior in Japan: The
Consequences of Stock Options and Corporate Diversification. Springer, 2016.
Kageyama, Y. (2019) Nissan ex-chair Ghosn released from Japanese detention. Associated Press
25th April 2019. Available from:
https://www.apnews.com/bcd27be6b2714d298a09ebd0926ce870
Lewis, L. and Inagaki, K. (2019) Nissan governance report condemns ‘personality cult’ around
Ghosn. Financial Review. 28th March 2019. Available from:
https://www.ft.com/content/3b1d60e0-5085-11e9-9c76-bf4a0ce37d49
Moodie, A. (2018) Japan can learn from how Australia responds to corporate scandals. Japan
Today. 2nd November. Available from: https://japantoday.com/category/features/opinions/japan-
can-learn-from-how-australia-responds-to-corporate-scandals
Nagata, K. (2018) Nissan Chairman Carlos Ghosn arrested over allegations of ‘grave’ financial
misconduct. Japan times. 20th November 2018. Available from:
https://www.japantimes.co.jp/news/2018/11/20/business/corporate-business/nissan-motor-co-
president-carlos-ghosn-facing-arrest-charge-not-reporting-full-salary-report/#.XPI2D4_hXIU

Olsen, K. (2018) Soul-searching is in order for Nissan’s board after Ghosn allegations,
governance experts. CNBC. 7th December 2018. Available 01.06.2019:
https://www.cnbc.com/2018/12/07/carlos-ghosn-allegations-put-focus-on-nissan-board-
governance-experts.html
Tricker, R.I. (2015) Corporate Governance: Principles, Policies and practices. Oxford
University Press 2015. PP- 153-155.
Williams, I. (2016) Corporate Governance in Australia: A snapshot. Herbert Smith Free hills
2016. Available 01.06.2019: https://www.herbertsmithfreehills.com/latest-thinking/corporate-
governance-in-australia-a-snapshot