Nissan Panel Urges Stronger Oversight in Wake of Carlos Ghosn’s Arrest

YOKOHAMA, Japan — A committee formed to address failings of Nissan’s corporate governance recommended an overhaul of the Japanese automaker’s board on Wednesday as it seeks to move past the arrest of its former chairman Carlos Ghosn.

The recommendations laid the blame for the company’s failings squarely at the feet of Mr. Ghosn and his close associate, Greg Kelly.

Japanese prosecutors detained both men in November on suspicion that they had conspired to underreport Mr. Ghosn’s compensation. In the months since, Mr. Ghosn has been arrested and rearrested on charges of financial wrongdoing from 2010 to 2018 while leading Nissan. He was released this month after paying bail of 1 billion yen (roughly $9 million) and agreeing to strict conditions on his activities, including limits on his contacts with people involved in the case.

The news media in Japan and abroad have published allegations of financial excesses while Mr. Ghosn led the automaking alliance of Renault, Nissan and Mitsubishi, including luxury homes in three cities, expensive personal trips, lavish parties at Versailles and most recently college tuition at Stanford for his four children. The details raise questions about how he and the companies he ran managed their affairs.

Mr. Ghosn and Mr. Kelly have insisted they are innocent. Mr. Ghosn said his compensation and expenditures had been approved by Nissan, which the Japanese government has also indicted, on charges related to the underreporting of his compensation.

But the report released Wednesday, while calling for sweeping changes in Nissan’s corporate governance, distanced the company and its board from responsibility for whatever improprieties may have occurred during Mr. Ghosn’s time at the helm.

“The primary root cause of the misconduct was the concentration of all authority in Mr. Ghosn,” the report said. It added that he had “created a situation in which it would be difficult to detect Mr. Ghosn’s demands for his personal gain.”

Fixing the problems that allowed such a concentration of power will require an overhaul of Nissan’s board structure and corporate culture, the committee said. It said the majority of directors on future boards should be independent. (Currently, three of Nissan’s nine board members are independent directors.) It also called for the creation of committees to nominate new directors and determine executive compensation, safeguards that are often found at public companies in Europe and the United States but are not common in Japan.

In a statement, a spokesman for Mr. Ghosn said the allegations in the report were “part of an unsubstantiated smear campaign against Carlos Ghosn to prevent the integration of the alliance and conceal Nissan’s deteriorating performance.”

The statement added that Mr. Ghosn had “acted at all times with the full authority of the board and its shareholders, and his paramount goal was achieving value for Nissan’s shareholders.”

Nissan created the panel in December as an independent group tasked with delivering recommendations for improving the company’s organization and oversight. Three of its seven members serve as the board’s independent directors, including two who were appointed last summer, before Mr. Ghosn’s arrest but after the behavior described in the prosecutor’s charges against him and Mr. Kelly.

The other four members were experts on Japanese corporate governance, a former judge, and a onetime head of Japan’s largest business association.

The report revealed details of Nissan’s internal investigation into Mr. Ghosn and Mr. Kelly, including the claim that an unspecified individual had falsified corporate documents in an effort to conceal the details of Mr. Ghosn’s compensation.

While conceding that Nissan’s current chief executive, Hiroto Saikawa, a board member, had signed off on at least some of Mr. Ghosn’s compensation, the report argued that Mr. Ghosn’s machinations had made it impossible for the board to exert proper oversight of his behavior.

The report said that until the appointment of the two new independent directors, typical board meetings chaired by Mr. Ghosn had lasted no longer than 20 minutes, “creating an atmosphere where it was not possible to ask questions about or give opinions on the agenda at the meetings.”

The committee emphasized at a news conference after the report’s release that it was not making any legal judgment but said it had found “facts sufficient to suspect violations of laws and regulations.”

Corporate governance experts gave cautious praise for the committee’s recommendations, saying they went beyond the guidelines followed by most corporations in Japan, where conflicts of interests and weak oversight are found at some of the country’s largest enterprises.

The committee “recommends many excellent improvements,” said Nicholas Benes of the Board Director Training Institute of Japan, a nonprofit group that focuses on corporate governance.

But it does not go far enough, Mr. Benes said. “The nomination committee should be required to be fully independent, and governance training for all directors and executive officers will be needed in order to change mind-sets,” he said.

Nissan is expected to take up the recommendations in the coming months. Mr. Ghosn, who was ousted as chairman in November, is expected to be formally removed from the board at a special shareholder meeting on April 8.