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story.lead_photo.caption Nissan Motor Co. President and Chief Executive Officer Hiroto Saikawa bows after a news conference Monday in Yokohama, Japan, announcing the arrest of company Chairman Carlos Ghosn on charges of violating financial laws.

YOKOHAMA, Japan -- Nissan Chairman Carlos Ghosn, who became one of the auto industry's most powerful executives by engineering a turnaround at the Japanese manufacturer, was arrested Monday and will be fired over allegations he underreported his income and misused company funds, the automaker said.

The scandal reverberated across the globe and abruptly threw into question Ghosn's future as leader of the Renault-Nissan-Mitsubishi alliance, which sold 10.6 million cars last year, more than any other manufacturer.

Nissan Chief Executive Officer Hiroto Saikawa said Ghosn was taken into custody after being questioned by prosecutors upon arriving in Japan earlier in the day. Ghosn is of French, Brazilian and Lebanese background and lives in both France and Japan.

Nissan said Ghosn, 64, and another senior executive, Greg Kelly, were accused of offenses involving millions of dollars that were discovered during a monthslong investigation set off by a whistleblower. Kelly was also arrested.

"Beyond being sorry I feel great disappointment, frustration, despair, indignation and resentment," Saikawa said, apologizing for a full seven minutes at the outset of a news conference.

Yokohama-based Nissan Motor Co. Ltd. said it is cooperating with prosecutors in their investigation.

Saikawa said Nissan's board will vote Thursday on dismissing Ghosn and Kelly, whom he described as the mastermind of the alleged abuses.

"This is an act that cannot be tolerated by the company," he said. "This is serious misconduct."

Saikawa said three major types of misconduct were found: underreporting income to financial authorities, using investment funds for personal gain and illicit use of company expenses.

He said that because of the continuing investigation, he could not disclose many details. But he promised to tighten internal controls, saying the problems may have happened because too much power was concentrated in one person.

"We need to really look back at what happened, take it seriously and take fundamental countermeasures," he said.

Ghosn officially still leads the Renault-Nissan-Mitsubishi alliance as CEO and chairman. But experts said it is unlikely he will be able to stay on there or at Renault, where he is also CEO. Renault said its board will hold an emergency meeting soon.

"The last thing one of the world's biggest automakers needs is the disruption caused by an investigation into the behavior of a man who has towered over the global auto sector," said Michael Hewson, chief market analyst at CMC Markets in London.

The companies in the alliance own parts of each other and share investments in new technologies, among other things. Renault owns 43 percent of Nissan, which owns 15 percent of Renault and 34 percent of Mitsubishi.

In France, where the state owns 15 percent of Renault, officials were quick to demand continuity in a pact that observers have said has long favored the French side. President Emmanuel Macron said he would remain "extremely vigilant" regarding the stability of the Renault-Nissan alliance.

The turmoil created by Ghosn's downfall speaks to the executive's outsize role in holding together a house he almost single-handedly built. As CEO of Renault SA as well as the chairman of Nissan and new partner Mitsubishi Motors Corp., the 64-year-old was the common denominator and driving force of the partnership originally formed in 1999, when Nissan was near collapse. More than once since then, Ghosn stepped in to appease bickering shareholders, and his departure leaves no obvious person to fill that role.

Renault SA stock plunged more than 8 percent in France. Japanese markets had already closed when the scandal broke.

Ghosn was at Nissan for 19 years and signed a contract this year that would have run through 2022. His compensation, high by Japanese standards, has been a source of controversy over the years.

According to NHK and the Kyodo News Service, Nissan paid Ghosn nearly $89 million over five years through March 2015, including salary and other income, but he reported receiving only about half that amount.

The allegations are a serious blow at a time when Nissan is still getting over a scandal in which it admitted altering the results of emission and fuel economy tests on vehicles sold in Japan.

Ghosn is credited with helping bring about a remarkable turnaround at Nissan, resuscitating it from near bankruptcy by cutting thousands of jobs and shutting plants. His triumph made him something of a national hero in a country where foreign CEOs of major Japanese companies are relatively rare.

He also looms large in France, where he previously turned Renault around and made it into a global player, notably in electric vehicles. He also led the French carmaker through major job cuts and an expensive and contentious bailout, earning the nickname "Le Cost Cutter."

Ghosn has also been a nemesis of French unions and left-wing politicians, who saw him as a symbol of capitalism's excesses, particularly its executive pay packages.

Renault shareholders voted in 2016 against Ghosn's pay package, seeing it as too generous, but the board ignored the vote.

That prompted the ire of then-President Francois Hollande. Hollande's socialist government imposed limits on executive pay at state-run companies and tried to do the same in the private sector but backed down amid concerns such action would scare away foreign investment.

Ghosn served as Nissan's chief executive from 2001 until last April. He became chief executive of Renault in 2005, leading the two major automakers simultaneously. In 2016, he became Mitsubishi Motors' chairman.

Saikawa said the scandal was a "negative outcome of the long regime of Mr. Ghosn."

Information for this article was contributed by Mari Yamaguchi and Angela Charlton of The Associated Press, and by Chris Reiter and Ania Nussbaum of Bloomberg News.

Business on 11/20/2018

Print Headline: Nissan's chief arrested in Japan

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