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Renault and Nissan lurch towards war

[SYDNEY] When Serbian nationalists assassinated the heir to the throne of Austria-Hungary in 1914, they hoped the move would lead to the independence they craved from their imperial overlord. Instead, a finely balanced system of alliances collapsed into one of history's bloodiest wars.

Those involved in the battle for the future of the world's largest carmaking group , the Renault-Nissan-Mitsubishi alliance, should consider that portent as they contemplate their next steps. Many at Nissan Motor Co will no doubt cherish hopes that escaping the French control embedded in the combination would herald a brighter future. The risk, though, is that breaking the bonds tying it together could be more dangerous than anyone anticipates.

Nissan chief executive officer Hiroto Saikawa on Monday revealed a police investigation into the group's founder and linchpin Carlos Ghosn, and announced plans to fire him from the role of Nissan's chairman. The testy response of Renault SA after a board meeting late on Tuesday shows that there'll be no immediate surrender from the French:

At this stage, the board is unable to comment on the evidence seemingly gathered against Mr Ghosn by Nissan and the Japanese judicial authorities.

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Market voices on:

"Mr Ghosn, temporarily incapacitated, remains chairman and chief executive officer. The board of directors resolved to appoint Mr Thierry Bollore on a temporary basis as deputy chief executive officer..."

You don't have to peel back a lot of conventional corporate language to see that the French board is having little truck with what's being alleged over in Yokohama. Just roll those phrases "seemingly gathered" and "temporarily incapacitated" over in your mind for a moment.

If the allegations against Mr Ghosn and fellow Nissan director Greg Kelly are true – both have been arrested by Japan's police, so neither has had an opportunity to respond – then they are guilty of financial misconduct. Whether the alleged behaviour rises to the level at which Nissan's handling it is a whole other matter.

The allegations are that Mr Ghosn failed to report five billion yen (S$60.9 million) of his pay from Nissan in Japanese securities filings; that he misrepresented the purpose of spending company money; and that he used company assets for personal purposes such as luxury homes in Rio de Janeiro and Beirut and family trips and dining.

"The experts judged that this gave us enough reason for dismissal," Mr Saikawa told a press conference on Monday night. "This is serious misconduct, that's the specialist evaluation. Therefore we decided to propose dismissal of him to the board of directors."

While it's in some ways welcome to see directors taking corporate governance so seriously, it's also a little bit – what's the word – incredible? Normally when companies consult with legal experts on issues of executive misconduct, it's not to see whether they can build a case for dismissal, but to see if they can find a way of protecting the boss and avoiding legal liability.

When Apple Inc was caught paying Steve Jobs an extra US$20 million via illegal options backdating, it was the group general counsel who took the fall. When Tesla Inc chief executive officer Elon Musk promoted a fictitious US$420-a-share takeover offer on Twitter, his lawyers managed to strike a deal in which he didn't even have to make an admission of securities fraud.

It's little different in Japan. No executives at Takata Corp have been charged over the millions of fatal airbags made by the now-bankrupt company. Toshiba Corp restated six years of its corporate filings and 152 billion yen of profits because of accounting irregularities. Kobe Steel Ltd misstated quality data on its products sold to more than 600 customers over nearly five decades. Nissan, Mitsubishi Motors Corp, Subaru Corp, Suzuki Motor Corp, Mazda Motor Corp and Yamaha Motor Co have all admitted to faking emissions tests. Yet there haven't been any executive downfalls that compare to what's happened to Mr Ghosn and Mr Kelly.

It's also hard to see how a case can be made that the two foreigners acted alone. Mr Saikawa has been a representative director at Nissan since 2011, a crucial role in Japanese companies that's closer to a chief executive than a standard director (Mr Ghosn and Mr Kelly were the other two). It's hard to believe that the alleged misconduct could have happened without both Mr Saikawa and a host of other audit and accounting officials being aware of it.

A Financial Times report on Wednesday, citing three sources saying Mr Ghosn was closing in on a merger of the group in the face of opposition from Nissan's board, only thickens the plot.

If Nissan had hoped that a quick strike against the emperor would lead to immediate victory, Renault's decision to dig in suggests they miscalculated. The stakes have already risen from corporate to national levels: France's embassy will no doubt extend consular assistance to a citizen under police investigation; the French state will look to protect its shareholding in Renault and its stake in the wider group; and Japanese Prime Minister Shinzo Abe's influential chief cabinet secretary Yoshihide Suga is closely watching developments as the local MP (member of parliament) for Nissan's headquarters in Yokohama.

The entente cordiale that held together this global carmaking group appears to have definitively broken down. The fight that will ensue is unlikely to be over by Christmas.

BLOOMBERG