Motoo Nagai

Breathing life into our improved governance system to prevent the reoccurrence of misconduct Motoo Nagai, independent outside director, chair of Audit Committee

What is the role of an independent outside director?

After working for around five years as an outside statutory auditor, I was appointed to be an independent outside director and chair of the Audit Committee in June 2019. My impression of the current Board of Directors meetings, as compared to previous ones, is that the agenda items are properly explained in advance so that all of the members can proactively express their opinions. In serving as a board member, I am always conscious of the following three points.

First, the need for management oversight from a “macro” perspective independent of and external to the company. Like the other board members, I have executive experience at another company,

so I do feel the urge to enter into the realm of actually implementing measures. However, that would make it impossible to separate such execution from oversight. At the Board of Directors meetings, I try to represent the interests of shareholders and other stakeholders, asking questions from perspectives that company executives may not have considered in order to help them gain new insights.

The second point concerns restoring trust.

Trust can be lost in a single day, but restoring it can take a very long time. For Nissan, restoring trust and reviving our business are like the two wheels on either end of an axle. Since I am also the chair of the Audit Committee, I want to place a greater emphasis on restoring trust.

The third and final point is building a relationship of trust with the company executives.

Without this, governance cannot function in the true sense of the word. The question I ask myself every day is whether enough is being done to ensure that we respect the executives and they respect us. Since I, in particular, am the only full-time independent outside director, I make a conscious effort to maintain close communication with company executives.

Preventing the reoccurrence of misconduct

The chair of the Audit Committee must play many roles, such as preventing the reoccurrence of misconduct and dealing with issues like conflicts of interest and trials related to fraud cases. I also feel that our stakeholders have a strong interest in such matters. Through the discussions at its Special Committee for Improving Governance, Nissan transitioned to a company with three statutory committees (Nomination, Compensation, and Audit), thereby renewing its system of governance. But at this point only the framework is in place.

One area of concern for stakeholders is whether Nissan will indeed be able to prevent misconducts from happening again. The crux of a company with three statutory committees is first the evaluation and appointment of the CEO, and next compensation. Because Nissan had a scandal related to remuneration, there is a great deal of public interest in this issue. A system is now in place to ensure transparency around remuneration, and the decision-making authority has been transferred to the Compensation Committee so that the sort of misconduct seen under the former chairman will not reoccur. In addition, a rule has been introduced to the effect that, in cases of compliance violations by executive officers and higher-ranking officials, the response will not involve company executives but will be reported directly to me as the chair of the Audit Committee.

During the discussions on how to improve governance, many questions were raised regarding best practices, global standards and the meaning of transparency. Each of those issues is important, but focusing only on these issues risks making the discussion too formalistic. What is even more important is to be keenly aware of how situations will be viewed by stakeholders—whether they will be considered problematic in simple common-sense terms—and to be able to understand and articulate the stance that Nissan must take. Putting systems in place is not enough. Nissan was criticized by the media even after improving its governance. We must correctly understand the situation Nissan is in and think carefully about the views of stakeholders.

A key task for the Audit Committee will be to continue the effort to hold the company’s former chairman responsible for his misconduct and fraudulent activity. Although the criminal trial against the former chairman was suspended in the wake of his fleeing Japan, the civil lawsuit seeking damages from him is progressing steadily, without requiring his appearance in court. We filed a lawsuit against him in the British Virgin Islands in 2019, as well as a lawsuit with the Yokohama District Court in February of this year seeking 10 billion yen in damages. The former chairman has set up an agent for the latter case, and court proceedings began in November. Civil lawsuits take time, but we will advance steadily toward receiving damages through these judicial proceedings. At the general meeting of shareholders, a question was posed about whether the case was closed when the former chairman fled Japan, but the Audit Committee, in cooperation with executive management, will continue its efforts to hold him accountable for his misconduct.

The road to improving Nissan’s governance

In working with Nissan, I recognized that the company has a rich array of talent in the form of outstanding employees and executives. This is why initiatives were driven by individuals. For example, if you asked who was in charge of this or that, expecting the answer to be a team or department, you were instead told the name of a specific individual. While this approach may have yielded positive results, relying too heavily on individuals may have resulted in the concentration of power under the former chairman. For this reason, I requested that job tasks be assigned to teams rather than individuals.

In order to truly strengthen governance so that it functions well, it is necessary to enhance related teams. Starting this fiscal year, our group in charge of corporate planning and control began to function. Additionally, while no department oversaw risk management in the past and the Executive Committee (EC) rarely took up matters related to risk management, designating a new team has made it possible for the EC and the Audit Committee to carry out discussions. A concerted effort is being made within the new framework to respond as an organization to various issues and advance initiatives to strengthen governance. It does seem to me that the process of breathing life into the new framework has begun.

In strengthening governance for the group, which is a major theme this year, we have been reviewing consolidation under our one-year plan, including setting up a task force to decide which companies to consolidate and appointing a dedicated officer to manage group companies and concentrate business functions. The global internal audit unit under my supervision is firmly monitoring the progress of governance-strengthening measures like these.

Preparations have been made to improve the system and the organizational structures that implement it are rapidly being improved, but the abnormality of the former system means that the company is just arriving at the level of a normal corporation. In other words, the company went from being in negative territory to reaching “zero,” but I believe that improved governance is creating potential for Nissan’s future advancement.

Published in January 2021