Learning from Nissan Motor: It’s Not Always about Numbers

In choosing which stocks to invest in, some people would just look at a bunch of ratios and numbers while others might be concerned with the financial models on the spreadsheets. However, not everyone realize that there is something beyond what the numbers show—often underappreciated by investors—which is corporate governance.

As an investor, especially thinking to invest in a longer time horizon, corporate governance is something that we all should take into account. Generally, Good Corporate Governance comprises of five main principles: Transparency, Accountability, Responsibility, Independence, and Fairness. What recently happened to Nissan Motor has shown that the company violated accountability principle in which the board of directors should have follow. Supposedly, corporate governance should be noticed by investors as research from Deloitte has shown that good governance has positive impact on company’s performance in the long run. Furthermore, Rivel Research Group has shown that 94% investors around the world believe that good governance positively impact a company’s valuation.

Nissan Motor Corporation as a well-known Japanese automaker has shocked the automotive industries through the misconduct done by its Chairman, Mr. Carlos Ghosn. After more than a decade of leading Nissan, he has been arrested for allegedly under-reporting his salary in the financial statement and using company’s asset for personal use. Despite successfully saving Nissan and Renault from near bankruptcy, this clearly unethical conduct of a leader has led him into dismissal from his position in Nissan and Mitsubishi. Currently, the man famous for being called ‘Le Cost Killer’ remains in the custody for further investigation.

From our perspective as an investor, it is difficult for us to objectively judge Mr. Ghosn as he has done a lot to the alliances, saving them from near bankruptcy. However, his spot as a chairman and CEO in multiple companies should fall under extra-supervision because there is just too much power in one hand. This concentration of power may lead to misconduct if there is not enough external oversight. It is also quite ridiculous to have him as a CEO to be supervised by himself as a chairman on the company, which in the end reduce the objectivity of the company’s decision making.

The main takeaway for us as an investor is that we shouldn’t be looking at just what the company presents on the financial statement or creates a quantitative model on the company. Being critical is an important thing to have as a shareholder, especially if the company has a potentially dangerous move, like what happen in Nissan where Mr. Ghosn was appointed to lead in several companies. This clearly violates accountability principle as there is lack of internal control due to the company’s concentrated control and power.

 


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