Corporate Governance in a Globalizing World: A Case Study of Nissan

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CORPORATE GOVERNANCE IN A
GLOBALIZING WORLD
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Contents
LIST OF FIGURES.............................................................................................................................3
TASK 1............................................................................................................................................ 4
A) SUMMARY OF THE STORY...............................................................................................4
B) CORPORATE GOVERNANCE ISSUES RAISED IN THE ARTICLES AND THEIR RELEVANCE TO
THE CORPORATE GOVERNANCE PRACTICED IN AUSTRALIA AND JAPAN...................................5
C) INSIGHTS OF AGENCY THEORIES INTO THESE ISSUES......................................................8
D) CORPORATE GOVERNANCE THEORIES............................................................................9
TASK 2.......................................................................................................................................... 11
A) CRITICALLY EVALUATE THE CORPORATE GOVERNANCE SYSTEM OF JAPAN TAKING
INTO CONSIDERATION THE ISSUES IDENTIFIED IN 1(B)...........................................................11
B) COMMENT ON THE DIFFERENCE BETWEEN CORPORATE GOVERNANCE OF AUSTRALIA
AND JAPAN.............................................................................................................................. 13
C) RECOMMENDATIONS ON HOW THE CORPORATE GOVERNANCE SYSTEM OF JAPAN
AND AUSTRALIA CAN BE IMPROVED........................................................................................15
CONCLUSION............................................................................................................................... 16
REFERENCES.................................................................................................................................17
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LIST OF FIGURES
Figure 1: AGENCY THEORY.............................................................................................................8
Figure 2: STEWARDSHIP THEORY...................................................................................................9
Figure 3: MODEL OF STAKEHOLDER THEORY...............................................................................10
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TASK 1
A) SUMMARY OF THE STORY
Carlos Ghosn was the chairman of Nissan group for 20 years and was the reason behind the
success of the Nissan-Renault-Mitsubishi global alliance (article 3). Ghosn, the chairman and
Greg Kelly, the representative director of Nissan were arrested by the public prosecutor of
Tokyo Detention Center in November 2018 for their misconduct in the business which include
misusing the company’s funds for personal use and underreporting his income to an amount of
¥5 billion from 2011 to 2015 (Article 2). Ghosn was arrested due to the violation of rules and
legislation by the government and internal regulations of the company, lacking an ethical code
of conduct, financial misconduct like paying company's advisory fee to his elder sister without
getting any deliverables in return, etc. (Article 4).Ghosn and Kelly were removed from their
respective designation by the CEO of Nissan, Hiroto Saikawa and he apologized to the
stakeholders of the company (Article 2). Carlos Ghosn took bail from the Tokyo Detention
House in March 2019 but was arrested again on April 4 under new allegations (article 3). Ghosn
walked out of the detention centre in an outfit of a construction worker wearing a mask and a
cap on April 25, 2019, by paying $4.5 million and agreeing to strictly follow the conditions of the
bail, that are, restrictions while contacting his wife or other family members, limitations
overusing internet and mobile phone, not moving out of the country and staying under close
observation with the help of camera while visiting specifiedresidence (Article 3). Nissan's
governance committee proposed to establish an elegant structure of governance by taking
certain actions in the business that follows the international standards (Article 4). Carlos Ghosn
has claimed that he is innocent and has become a part of some conspiracyby some executives
of Nissan and the government of Japan who is biased towards Renault and wants to provide
benefits to the shareholders of Renault (Article 1).
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B) CORPORATE GOVERNANCE ISSUES RAISED IN THE ARTICLES AND THEIR
RELEVANCE TO THE CORPORATE GOVERNANCE PRACTICED IN
AUSTRALIA AND JAPAN
CORPORATE GOVERNANCE ISSUES IN NISSAN:
Being the leader of the Nissan group, Carlos Ghosn violated many rules and laws formulated
within the company and legislation by the government which can be explained as:
Ghosn and Kelly were engaged in financial misconducts in the business by underreporting their
income by five yen dollars for five years and also misused the funds of the company for
personal use (Article 2).
Ghosn did not follow an appropriate ethical code of conduct in business and did not allow any
kind of objections from the members of the company over his conduct. Under his leadership,
the meetings of the board were kept short and dysfunctional (Article 4).
Ghosn also tried to misrepresent the documents that presented the salary and compensation of
the former chairman of Nissan. The misconduct created in the management of the business by
Ghosn was made opaque in order to get private gains (Article 4).
Ghosn utilized business property like a corporate jet for his private use and also he paid an
advisory fee of Nissan to his elder sister and took no deliverables in return (Article 4).
CORPORATE GOVERNANCE STRUCTURE IN AUSTRALIA:
The corporate governance in Australia is ruled by the Australian Securities Exchange (ASX) since
August 2002 and has laid down the following principles along with their recommendations:
 Business must promote an ethical and responsible code of conduct while making
decisions: it is recommended that the company must disclose the code of conduct
established by the company to fulfill the expectations of the stakeholders and maintain
integrity in the business (Sivathaasan, 2016).
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 Protect the integrity while making financial reports of the company: ASX recommends
that an audit committee must be established by the company consisting of minimum
three members that focus on recording and maintaining the financial reports with
integrity (Sivathaasan, 2016).
 Respecting the shareholders’ rights: this principle recommends that there should be an
effective flow of communication in the business and the shareholders must be
motivated to involve in the discussions and meetings (Sivathaasan, 2016).
 Fair and structured remuneration must be provided to all the members of the company.
CORPORATE GOVERNANCE CODE OF JAPAN:
The various companies in Japan have to follow certain principles established under the
corporate governance structure of Japan that are:
 Providing equal treatment to all the shareholders of the company and respecting their
rights (Aguilera and Crespi-Cladera, 2016).
 Maintaining transparency in business by disclosing all the important financial and non-
financial information to the stakeholders that are concerned with the business.
 Companies must conduct meetings frequently to have a word with the stakeholders of
the company so as to be aware of their opinions and interests and communicating the
policies of the business with the stakeholders effectively (Aguilera and Crespi-Cladera,
2016).
 The board of directors of the business must determine the amount of remuneration to
be paid to the members and through a transparent process.
The relevance of corporate governance practices of Japan and Australia in the Nissan group:
The chairman of Nissan, Carole Ghosn violated many of the rules of corporate governance that
must be followed by the companies listed in Japan and Australia as he did not formulate the
policy of complete disclosure in the business. The departments of Nissan where Ghosn was
engaged in misconducts were “opaque”, thus, business operations of Nissan lacked
transparency. Ghosn didn't involve the participation of the stakeholders in the decision-making;
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rather he didn't even allow any questions regarding the ethical code of conduct framed by him
in Nissan. The use of the business property for private use is considered unethical in business
still it was done by Ghosn.
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C) INSIGHTS OF AGENCY THEORIES INTO THESE ISSUES
AGENCY THEORY: The agency theory comprises of two parties namely the agent (a person who
makes the decision) and the principal (a person for whom the decision is made by the agent). In
the agency theory, the relationship between these two parties are explained and it is expected
that the agents make decisions keeping in mind the interest of the principal rather than only
focusing on their own interests (Bosse and Phillips, 2016). The varying interest of both parties
can lead to conflicts among them which result in disagreements that affect the business.
Figure 1: AGENCY THEORY
(Source: Bosse and Phillips, 2016)
The issues faced by the shareholders of the Nissan group can be resolved by applying agency
theory as being the chairman; Ghosn did not care for the interest of the shareholder of the
company, he was self-centred and focused on fulfilling his personal goals thus, he was engaged
in misconducts and did not disclose complete information of business operation to the
stakeholders of the company.
Thus, agency theory in corporate governance is very effective in understanding and taking care
of the interest of both the parties of the company while taking business decisions aiming at
efficiently accomplishing the corporate goals which results in long term success of the business
(Bosse and Phillips, 2016).
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D) CORPORATE GOVERNANCE THEORIES
STEWARDSHIP THEORY: In this corporate governance theory, the steward that can be the
executive or managers of the company that is engaged in maximizing the wealth of the
shareholders and lays emphasis on the satisfaction of the shareholders (Rodriguez-Fernandez,
2016).
Figure 2: STEWARDSHIP THEORY
(Source: Rodriguez-Fernandez, 2016)
STAKEHOLDER THEORY: This theory states that it is the moral responsibility of the business to
consider the interest of all the internal and external stakeholders of the company in order to
accomplish the objectives of the organization and attain sustainability (Andriof and Waddock,
2017).
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Figure 3: MODEL OF STAKEHOLDER THEORY
(Source: Android and Waddock, 2017)
Thus, the above-mentioned theories can be used in Nissan in order to follow the rules of
corporate governance in the business where the manager must consider the interest of the
stakeholders along with the objectives of the business to achieve success (Andriof and
Waddock, 2017).
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TASK 2
A) CRITICALLY EVALUATE THE CORPORATE GOVERNANCE SYSTEM OF
JAPAN TAKING INTO CONSIDERATION THE ISSUES IDENTIFIED IN 1(B)
The structure of corporate governance followed by the companies in Japan is very strict having
certain principles that must be followed by the board of directors of the Nissan group which can
be critically evaluated in the following categories:
Accountability of the board: The directors of the company are motivated enough to work for
the interest of the shareholders of the business as they know that the members of the board
are elected by the votes of the shareholders and shareholders invest their funds into the
business, thus, the board members are responsible to take care of maximizing the wealth of the
shareholders (Aman et al. 2018).
The consideration of the shareholders’ interest has a positive impact on the satisfaction of the
shareholders which result in the attainment of the goals of the company and achieve success.
Carole Ghosn did not follow this principle in Nissan as he was more focused on achieving his
personal goals over the interest of the shareholders which created dissatisfaction among the
executives of the Nissan.
Internal control and financial disclosure: This principle of Japanese corporate governance
structure focuses on communicating all the business related information which includes the
finance reports, audit reports, non-financial data, etc. with the shareholders of the company as
they are the partial owners of the business and have the right over the information of the
company (Aman et al. 2018). The firms must also encourage the participation of the
shareholders in the team meetings for full information disclosure. Thus, the company must
have transparency in business which was not the case in the Nissan group.
The shareholders of the Nissan group have a negative impact because of the chairman, Ghosn
not considering the rights of the shareholders in business, not involving them in discussions,
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having dysfunctional and short meetings, paying the advisory fees of the company to his elder
sister without receiving deliverables in exchange and providing the underreports about the
salaries paid to the chairman by the company. Also, Ghosn did not practice transparency in
business operations so as to hide his personal gains from the shareholders of the business.
Remuneration policy: The principle of remuneration focuses on paying equal and fair
remuneration to the employees on the basis of work done by them and aims at making the
policy of remuneration transparent in the company (Aman et al. 2018).
This principle has a positive impact on all the members of the company as this transparent
procedure helps in building trust among the employees and other executives that they are
being paid fairly in the business (Boateng and Lu, 2016).
This law of governance structure was ignored by Carole Ghosn as he did not disclose his correct
salary for five years from 2011 to 2015 and underreported his salary to 5 Billion Yen and got
arrested for his misleading actions in the Nissan group.
Corporate behaviour: The companies listed under Japanese governance system follows this
principle under which the company has to take care of the interest of the employees working in
the organization and also consider the protection of the environment in which the company is
operating its business so as to build good relation with the stakeholders of the company and to
increase the goodwill of the company (Boateng and Lu, 2016).
This principle has a positive impact on the interest of the stakeholders as their opinions and
suggestions are considered in the company meetings and this helps in boosting their trust and
morale.
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