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Hermes comments on the Nissan AGM

Ahead of the Nissan AGM, Hans-Christoph Hirt, Head of Hermes EOS at Hermes Investment Management, assesses the company’s progress and highlights areas for improvement.

Succession Planning
There is no question about how successfully Carlos Ghosn, Nissan’s current chair, has turned the business around since he assumed the position of chief operating officer (COO) in 1999, when it was suffering from poor performance and heavy debt. Since becoming joint chair and CEO, he has led the company effectively, as well as its 43% owner, Renault.

However, we are greatly concerned about the apparent concentration of power and key man risk at Nissan, coupled with Mr Ghosn’s remuneration and the limited disclosure around it. Furthermore, our concerns heightened substantially when Nissan announced its plan to acquire 34% of Mitsubishi Motors in 2016, following fuel economy scandals at the company, and to appoint Mr Ghosn as executive chair of Mitsubishi Motors. We questioned how one individual would be able to run and lead three companies.

Therefore, we firmly welcomed the announcement earlier this year that Mr Ghosn would step down as Nissan’s CEO and focus on the role of chair. We recently received assurances that the handover of responsibilities was effective in practice and that Mr Ghosn is now focusing on overseeing the board and leadership team at Nissan. However, we continue to have concerns about the planning of his succession.

Board Independence
We have been uneasy about the lack of independence on Nissan’s board, which has increased our concerns about the apparent concentration of power. The Nissan board, which is made up of eight company executives, has one non-executive director who formerly held senior positions at Renault. While Nissan classifies the non-executive director as independent, we do not consider him to be so due to his previous roles at the major shareholder.

It is our view that independent non-executive directors are appointed to boards to hold management to account and protect the interests of minority shareholders. This is particularly important in a company, such as Nissan, with a significant shareholder.

Regardless of the fact that we continue to hear that Nissan has been seeking suitable candidates for independent director positions for the past three years, they have failed to propose nominees for election to the board of directors. This lack of independence on the board leaves Nissan among a small minority of companies listed on the Tokyo Stock Exchange, which do not meet the minimum requirement by the Corporate Governance Code, to appoint a minimum of two independent directors.

In order to express our disappointment, we recommend voting against the re-election of representative directors, including the chair and CEO, as well as the non-executive director due to his insufficient independence from management.

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