Renault SA presents to the vote on April 29th. in resolutions 5 and 6 two related party agreements, one with its first shareholder the French State and the other one with its listed Japanese giant subsidiary Nissan Motors. This so called ‘stabilization agreement’ follows the adoption of a double voting right provision last year imposed by the French State and it includes an unexpected revision of the original balance of power between Renault and Nissan Motors. While this situation was foreseen by observers, for Proxinvest, this unneeded change is actually a “coup d’état” by Carlos Ghosn, the Chairman & CEO of two listed and integrated groups, arranged with the complacency of the Renault directors and insuring him a perfectly entrenched position as perpetual tycoon. For the record, under the 1999 agreement, Renault owns 43.44% of Nissan while Nissan owns 15% of Renault but has no voting rights. The French government has been since 1945 the largest shareholder , holding at the time of the alliance with Nissan 44% of Renault’s capital and now only 19.74%, but since the Florange law 23.56% of the voting rights.
A resolution 5 for the defeat of the French State: a confused, childish and unruly shareholder
Carlos Ghosn and his Board have used the enforcment of the double voting right provision at Renault to protest, in the name of the Japanese against a stated negative impact on historic balance of power with Nissan Motors. The point was actually unfounded as the French State stake was far larger in the beginning of the century… But naive or cynical French politicians finally succombed to the pressure masterminded by Ghosn and settled in a arrangement that claims to “protect the relations between the two automakers” considering theobvious benefits of the Renault – Nissan alliance. However, the recently released content of the agreement with Nissan offers full powers to Carlos Ghosn, an incredible Directors surrender which appears contrary to best governance practice and shareholder democracy.
In a demonstration of weakness the French State first renounced to part of its new dearly obtained voting power. The first agreement presneted in resolution 5 provides both a ceiling for certain decisions the voting rights of the State in general meetings: if the voting quorum is less than or equal to 70% of the shares with voting rights, the voting rights of the French State are capped at 17.9% of rights Renault exercisable voting, and if the quorum is more than 70% of the shares with voting rights, the voting rights of the French State are capped at 20% of Renault exercisable voting rights. The cap covers all decisions within the jurisdiction of the ordinary general meeting, with the exception of certain decisions (allocation of earnings, the stock dividend option, appointment of directors state officials, transfer of significant assets or share buybacks). For extraordinary general meetings, the State may exercise all of its voting rights, with the exception of certain decisions (granting of options or shares, changing the age limit for the performance of duties or the term of office of the directors and executive officers, …). This waiver by the shareholder of some of its main prerogatives is obviously not explained.
In short, an odd concession which can not reassure neither citizens nor shareholders as to the seriousness of the leading shareholder.
A resolution 6 insuring Carlos Ghosn a tycoon position for perpetuity
The newly released agreement provides also for a totally unjustified abandonment by the Board of Directors of Renault of its shareholder legitimate authority, notably on core governance issues, over its investment in Nissan owned 43.44% .
Based on the fair observation Médiapart “If implemented this stabilization agreement abandons to Carlos Ghosn, the management of beneficial rights of the Renault Nissan Alliance, the French State now playing a passive annuitant role . ”
The initial release indicated an “A contract between Renault and Nissan with Renault noninterference object in the governance of Nissan, maintaining the current 16 years practice . ”
But this formulation is clearly misleading : there is clear novation in the contract. Renault according to the agreement signed by Ghosn for Renault and Ghosn for Nissan allows the same Ghosn never to be worry of any disacgreement from the Board of Renault now aligned with the decisions and directions of the Board of the large Japanese company.
The presentation of this agreement is also troubling because of the omission of part of the formulation eventually contained in the special report by the Renault Nissan : this includes the prohibition to disapprove the Nissan proposals or resolutions as concerns the appointment, removal and remuneration of members the Board of Directors of Nissan and prohibition to submit to the General meeting of Nissan or vote any resolution that would not have been previously approved by the Nissan Board of directors !
A Directors loyalty failure
It is a clear that over the years the production of the moribund Japanese Nissan has remarquably exceeded the production of the Renault units, turning it into a cash machine : Nissan sells now almost twice as many cars in the world that Renault (5.5 million expected this year, against 2.7 million). The group is better positioned in the markets that matter, the US (where Renault is absent) and China, , up to represent three quarters of the result of Renault which produces 200,000 cars more than when he took power at Nissan.
But this unjustifiable agreement for Renault shareholders goes against every rule of good management and good governance. There is at this stage no reason for Renault to give up its legitimate rights as a shareholder in Japan. It appears rather to be an agreement of pure comfort, exclusively benefiting the Chairman & CEO of Renault and Nissan, now irresponsible to the Renault Board nor to shareholders.
The abandonment by the Renault Directors of their responsibility for supervision of the assets considered – the stake in Nissan weights at least fifteen billion yen – appears as a loyalty failure, as there is no valid reason from the standpoint of the interests of Renault shareholders to such renunciation.
According to the British Institute of Directors “Strong performance is no excuse for ignoring the corporate governance rules without a very convincing explanation.” Proxinvest asked for the complete production of the Renault-Nissan original new contract terms in English not disclosed to date.
PARIS April 7, 2016
