What Carlos Ghosn’s Indictment Means for Renault

(Bloomberg) -- Renault SA faces big decisions now that its top executive, Carlos Ghosn, has been formally indicted in Tokyo for financial improprieties at partner Nissan Motor Co.

In a sign the investigation is deepening, Ghosn, 64, was also re-arrested on Monday on allegations of understating his income for a new time period, Japanese prosecutors said. The stepping up of the Japanese probe puts Renault’s board in a bind.

What Carlos Ghosn’s Indictment Means for Renault

1. Why has Renault stuck with Ghosn?

Even after Nissan and Mitsubishi Motors Co. ousted Ghosn as chairman, he remains CEO and chairman at Renault. The French automaker’s board -- blindsided by the initial accusations -- has named an interim leadership team led by Thierry Bollore. The most powerful shareholder, the French state, has stressed that Ghosn should be considered innocent until proven guilty and demanded that Nissan share all the evidence it gathered on the executive. Ghosn has benefited from a larger-than-life status within Renault. There are also suspicions on the French side that his legal problems stem from a power struggle within Nissan and the Renault-Nissan-Mitsubishi Alliance, long held together by Ghosn.

2. How do Monday’s events weaken his position?

The indictment and additional charges mean Ghosn is likely to remain behind bars in Japan for some time, stepping up the pressure on Renault’s board to consider longer-term changes at the top. And within the board, fault lines are emerging. Some members are pondering a more permanent solution than the stop-gap team put in place after the arrest, Bloomberg has reported. The hard-line CGT union, which is represented on the board, is calling for deeper change, arguing that Ghosn’s reputation is now tainted.

3. What about the government’s role?

Questions over the executive’s high levels of compensation, which have flared in France in the past, come at an awkward time for the government. President Emmanuel Macron faces a month-long “yellow-vest” protest movement over inequality and shrinking purchasing power. That may dissuade the state from coming to the aid of one of the nation’s highest-paid executives.

4. What happens next?

Ghosn is likely to remain in custody as prosecutors continue to investigate additional suspected crimes. Trials in Japan typically begin 40 to 50 days after an indictment, and, if convicted, Ghosn could face up to 10 years in prison, prosecutors have said. Japan has one of the highest criminal conviction rates in the world. Fewer than 1 percent of cases in Japan’s district and county courts resulted in a not-guilty verdict or the defendant being released in 2017, according to prosecution data. Meanwhile, Renault is conducting its own investigation into the pay package of Ghosn and top managers, and aims to have the first conclusions this week.

5. How are markets reacting?

Renault shares fell 3.2 percent to 55.80 euros by 3:16 p.m. in Paris, taking losses since the last trading day before Ghosn’s arrest to almost 14 percent. Nissan dropped 2.9 percent in Tokyo. The management turmoil comes at a bad time for the French carmaker. The Ghosn-related losses compound existing pressure from the China-U.S. trade war, emissions standards and mounting spending on electric and self-driving cars. Since the start of the year, the stock has dropped by about a third.

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