TOKYO – Greg Kelly, the American former Nissan executive accused of helping Carlos Ghosn hide tens of millions of dollars in deferred compensation, denied the charges as the closely watched financial misconduct trial began in Tokyo on Monday.
Kelly said his work on Ghosn’s pay package was strictly legal and called his ex-boss an “extraordinary executive” who needed to be retained for the company’s benefit.
Kelly went on trial nearly two years after being arrested in Japan. He denied violating the law and said his actions simply revolved around legal ways to keep Ghosn from jumping to a competitor. Proceedings at the Tokyo District Court began the same day Kelly turned 64.
“This was all in the best interests of Nissan,” said Kelly, dressed in a dark suit and red tie and wearing a mask to guard against the coronavirus. “I was not involved in a criminal conspiracy.”
Kelly, who rose from his job as Nissan’s top U.S. human resources executive to become a director on its global board of directors and a trusted Ghosn aid, is charged with orchestrating a plan to conceal more than $80 million in deferred remuneration to Ghosn over the 2010-17 fiscal years, resulting in the information not being reported in Nissan’s public financial documents.
Ghosn was arrested separately the same day as Kelly, Nov. 19, 2018, in a coordinated sweep by Japanese prosecutors. But Ghosn jumped bail at the end of December 2019 and fled to Lebanon.
Ghosn’s arrest threw Nissan’s management into chaos and nearly derailed its 20-year alliance with French partner Renault. Nearly two years later, both companies are struggling to restore trust and momentum, and Nissan is bracing for its biggest-ever operating loss this fiscal year.
If found guilty, Kelly could face up to a decade of prison in Japan.
Nissan, as a corporate entity, is indicted on the same charge as Kelly. But in court, the carmaker’s representative, Vice President Manabu Sakane, said the company will not contest the allegations.
Prosecutors said Kelly plotted with Ghosn to effectively hide more than half his compensation in a scheme that would have the payouts deferred until after he retired.
They allegedly did so beginning in 2010, the year Japan changed its corporate reporting rules to require executives with big pay packages – those totaling over 100 million yen ($) a year – to disclose their individual compensation. Ghosn, long under fire for pulling down one of the highest salaries in Japan, allegedly wanted to hide his full pay to avoid additional public scrutiny.
Kelly listened to an English interpretation of the proceedings through an earpiece, as the three-judge panel presided over a half-empty courtroom thinned out by social distancing measures. More than 240 people entered the lottery for 19 seats in the public gallery to watch the highly anticipated trial. Kelly entered the courtroom looking solemn and sat straight-backed and expressionless through most of the first day. His wife Dee sat front and center.
Kelly described how Nissan was on the verge of bankruptcy in the late 1990s, only to be saved by the tie-up with Renault and the arrival of Ghosn, who went on to become CEO and chairman.
“Mr. Ghosn was an extraordinary executive,” Kelly said. Even most industry watchers thought Nissan was doomed, Kelly said, “Mr. Ghosn proved the experts wrong.”
Because Ghosn was such an asset, the company wanted to keep him. Kelly said that he, former CEO Hiroto Saikawa, other executives and internal and outside attorneys brainstormed ways to keep Ghosn on board at Nissan – but always considering only those measures that were legal.
The prosecutor, in his opening statement, said that Nissan people listed seven ways Ghosn could be paid his full due, while concealing part of it from public view. They included the following:
- Pay through Renault-Nissan BV, a Netherlands based joint venture
- Pay through a nonconsolidated Nissan subsidiary
- Pay through an outside company
- Sell real estate to Ghosn at a cut-rate price so he could profit by reselling it
- Give Ghosn a loan that could be forgiven later
- Pay Ghosn compensation after retirement
- Add a “thanks for service” top-up to the amount already set for retirement.
Another idea involved paying Ghosn to stay on as an advisor for 10 years after stepping back from his current posts. All these discussions were done in complete secrecy, the prosecutor alleged, and carried out on the “premise that he [Ghosn] was certain to receive the payments.”
The prosecutors cited a 2011 document that states, in writing, that Nissan must compensate Mr. Ghosn more than he was officially being paid, calling it “postponed compensation.”
The finagling of different ways to compensate Ghosn continued up until the arrest of Ghosn and Kelly in November 2018, the prosecutor said. Prosecutors displayed evidence and images of documents that outlined Ghosn’s pay structure on large wall-mounted video screens.
Kelly’s attorney argued that that Nissan money earmarked for Ghosn was not part of a scheme to provide deferred compensation. The defense had previously argued it was a legal draft of a post-retirement contract intended to keep Ghosn as an adviser to the Japanese carmaker and prevent him from bolting to a competitor.
Kelly’s lawyer maintained that the amount of the compensation was never fixed, an agreement never finalized, and nothing was ever paid.
Thus, the defense argued, there was no requirement to disclose any of it in financial reports.
Moreover, Kelly’s lawyer said Kelly was not involved in making many of these arrangements. Indeed, the signatures of many other Nissan executives are on related documents, he said.
A Nissan representative told the court Ghosn was worried about public criticism if his full compensation were disclosed. A Nissan lawyer said attempts to distinguish disclosed compensation and concealed future compensation were to benefit Ghosn, not the company.
Nissan later issued a press release addressing its own internal probe of the matter.
“Based on substantial and convincing evidence found in the investigation, Nissan established that Carlos Ghosn and Greg Kelly intentionally committed serious misconduct and significant violations of corporate ethics,” it said. “The company contends that the facts surrounding the misconduct will be shown during the court proceedings and the law will take its course.”
The case is drawing international support for the former Nissan director, who spent the last few years of his career working in Japan for the automaker. Three U.S. senators published a letter in support of Kelly, calling Kelly’s predicament a “cautionary tale” for Americans working in Japan.
As he awaited trial on bail, Kelly was prevented from leaving Japan and has been living in a Tokyo apartment, where he has been joined by his wife from Nashville.
In order to stay in Japan, his wife studies Japanese language on a student visa and must maintain high standing or run the risk of losing legal immigration status.
Ghosn was once pinned as a friendly witness backing Kelly’s defense, until he bolted Japan.
Speaking outside the courtroom, Kelly’s wife said, “It’s disappointing that Mr. Ghosn isn’t here, but he had to do what’s right for him.” She added that the couple’s sons wanted to come to Japan to support their father during the trial but couldn’t make the trip due to the COVID-19 pandemic.
Kelly’s trial is scheduled to last until July 2021, and a verdict is unlikely before that autumn.