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Ghosn Returns Bonus, Keeps COO as Renault Spy Case Fizzles

Renault SA  CEO Carlos Ghosn
Carlos Ghosn, chief executive officer of Renault SA. Photographer: Tomohiro Ohsumi/Bloomberg

Renault SA Chief Executive Officer Carlos Ghosn gave up his bonus and turned down second-in-command Patrick Pelata’s resignation after wrongfully accusing senior managers of spying in a case that has become a personal embarrassment for the top two executives.

Ghosn said in January he was directly involved in the internal probe and that the carmaker had an abundance of evidence. Pelata said earlier this month that he would take responsibility if it turned out the accused were innocent.

Renault’s mishandling of the espionage affair has weakened the CEO in a tussle with the French state, its largest shareholder, over the carmaker’s future, four people familiar with the matter said. Ghosn’s decision to keep Pelata, who has worked closely with the CEO since 1999, also highlights Renault’s lack of succession planning, analysts said.

“It’s a mess,” said Rebecca Lindland, an analyst at IHS Automotive in Lexington, Massachusetts. “It’s obviously a huge amount of embarrassment for the company and for Ghosn.”

Renault fell as much as 1.52 euros, or 4 percent, to 36.65 euros and was down 3.9 percent to 36.68 euros as of 9:15 a.m. in Paris trading. The shares have dropped 16 percent this year, valuing the automaker at 10.9 billion euros ($15.2 billion).

The French carmaker yesterday also announced disciplinary action against three of its security officers and pledged to compensate and reinstate the three executives fired on suspicion of selling company secrets.

Pelata’s Role

Pelata’s resignation was rejected “in the interests of Renault,” the CEO said on TF1 television. “I didn’t want to add crisis to crisis.” Ghosn, Pelata and other executives involved in the case will return 2010 bonuses and receive no stock options this year, the company said after an emergency board meeting late yesterday.

Pelata, 55, graduated from France’s elite Ecole Polytechnique in the same 1974 class as Ghosn, before joining Renault as head of bodywork assembly at the carmaker’s plant in Flins, west of Paris. In 1999, when Ghosn was sent by then CEO Louis Schweitzer to rescue Japanese affiliate Nissan Motor Co. from near-bankruptcy, he took Pelata with him and the two have worked closely together ever since. Pelata took over day-to-day control from Ghosn in 2008.

The departure of Ghosn’s No.2 would have left Renault “without an operating manager” and no obvious successor, Philippe Houchois, a London-based analyst with UBS, said before the announcement. The carmaker “hasn’t done a very good job of managing succession, and Pelata is one of the few people who can hold his own against Ghosn when necessary,” he said.

Claims Retracted

The carmaker retracted its espionage claims yesterday after Paris Chief Prosecutor Jean-Claude Marin said they had been discredited by police. Pelata had pledged earlier this month that managers would be held accountable “all the way up to me” if the three were cleared.

Upstream development chief Michel Balthazard, his subordinate Bertrand Rochette and deputy electric-car program chief Matthieu Tenenbaum were fired in January after a company investigation concluded they had received payments from Chinese companies via foreign accounts.

Renault’s u-turn came three weeks after Ghosn presented a medium-term plan to narrow the profitability gap with Volkswagen AG, telling investors that Renault-Nissan’s capital structure “can change over time and probably will.”

‘Tough Times’

“Times for selling cars are tough enough, and Renault needs the best people they have,” said London-based Credit Suisse analyst Arndt Ellinghorst, who has a “neutral” recommendation on the stock. “As unfortunate as this situation is, the company should return to running the business.”

Fallout from the spying affair will make it harder to win government support for changes to the Nissan alliance, the people said. Renault wants to reduce its Nissan stake and allow the Japanese carmaker to vote as a Renault shareholder, they said, declining to be named because the matter is confidential. “Renault currently has no plans to reduce its stake in Nissan,” alliance spokeswoman Rachel Konrad said, declining to comment further.

The case against the three men was based on verbal information obtained by security manager Dominique Gevrey from an undisclosed source, for which Renault had paid more than 300,000 euros, the prosecutor said. Gevrey has been jailed, facing charges of “organized fraud.” His attorney did not return calls or messages left at his office outside regular office hours.

Under Pressure

Ghosn has also come under pressure over the mishandled investigation after an earlier TF1 appearance in January, when he insisted there were “multiple” findings to support the espionage claims.

The CEO yesterday issued a personal apology to the fired executives and promised reparations to “restore their honor in the eyes of the world, taking account of the serious prejudice they and their families have suffered.”

“The situation at the company is such that they feel they can’t take out their major players but they had to make some kind of face-saving gesture,” said Alan Baum, an analyst at industry consultant Baum & Associates in West Bloomfield, Michigan.

Balthazard, a former management committee member, may seek damages exceeding Ghosn’s 9.2 million-euro combined salary from Renault and Japanese affiliate Nissan Motor Co. “Nobody would be shocked if he left with 8, 9 or 10 million euros,” Balthazard’s lawyer Xavier Thouvenin said in an interview.

Tenenbaum will also be seeking “substantial material compensation,” his attorney Thibault de Montbrial said in an interview broadcast on i-Tele.

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