Cleaning up the mess made by its former chairman after engaging in financial misconduct, Japanese automaker Nissan’s board of directors met in May resolving to strengthen its corporate governance by transitioning from a company with statutory auditors to a company with three statutory committees: nomination, compensation, and audit.
The board unanimously voted in favor of the transition, in addition to new director candidates proposed by the company’s Provisional Nomination and Compensation Advisory Council. Both matters are to be submitted for approval at the Annual General Meeting of Shareholders (AGSM) at the end of June. Once the transition is complete, the company’s current auditors will leave their posts.
The new board of directors as nominated will consist of 11 members, seven of whom will be independent outside directors. An independent outside director is to be appointed to the role of chairperson. “[E]mphasis has been placed on diversity in experience, knowledge, nationality, and gender,” Nissan said. “Enhancement of diversity on the board will enable increased effectiveness and also strengthen the company’s governance structure.” A full list of the board candidates and their bios can be found here.
The decision to re-establish its corporate governance structure, which Nissan said is “imperative,” follows a whole mess of governance failures that have come to light in recent months. In November 2018, Carlos Ghosn was dismissed from his chairman role, following his arrest by Japanese prosecutors for engaging in financial misconduct. Immediately preceding his arrest, Nissan had issued a statement announcing that it had been conducting an internal investigation “over the past several months” regarding misconduct involving Ghosn and representative director Greg Kelly.
The internal investigation, sparked by a whistleblower report, revealed that “over many years both Ghosn and Kelly have been reporting compensation amounts in the Tokyo Stock Exchange securities report that were less than the actual amount in order to reduce the disclosed amount of Carlos Ghosn’s compensation,” Nissan stated at the time. Ghosn was engaging in numerous other acts of misconduct as well, such as personal use of company assets.
In December 2018, Nissan formed a seven-member “Special Committee for Improving Governance” (comprised of four independent third parties and three Nissan independent outside directors), whose purpose was to ascertain the root causes behind Nissan’s governance issues leading up to the misstatements and to provide recommendations for improving Nissan’s governance processes. The special committee published its findings on March 27.
Based on the special committee’s recommendations, Nissan said it worked to promptly reform its governance structure. “With the lessons from the recent executive misconduct still fresh, Nissan resolves to rigorously pursue separation of supervisory and executive functions and, with shareholder approval, to transition from a company with statutory auditors to a company with three statutory committees,” the company said. “Each of the committees will be chaired by an independent outside director.”