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Renault CEO Ghosn Loses Second-in-Command Over Spy Scandal

Renault CEO Loses Second-in-Command Over Espionage Scandal
Patrick Pelata, chief operating officer of Renault SA, right, speaks as Carlos Ghosn, chief executive officer of Renault SA, listens during a news conference in Paris, in Feb. 10, 2011. Photographer: Antoine Antoniol/Bloomberg

Renault SA Chief Executive Officer Carlos Ghosn will lose his second-in-command after Patrick Pelata resigned, bowing to pressure from the French government to take responsibility for a botched espionage probe.

Pelata will stay on temporarily as chief operating officer before moving to a role within the carmaker’s alliance with Nissan Motor Co. Ltd., the Boulogne-Billancourt, France-based company said late yesterday. Four other executives directly involved in the flawed internal probe will also leave.

The resignations follow calls from the French government, the carmaker’s biggest shareholder, for Renault to take further action for the wrongful firing of three senior executives. Finance Minister Christine Lagarde said those responsible for the affair “must depart.” Pelata had offered to resign last month and Ghosn refused to accept it.

“It might appease the French government, but Renault shareholders seem to be losing more than they gain at this point,” said David Arnold, an analyst at Credit Suisse in London. “We struggle to see the benefits to Renault from the decision to remove Pelata.”

Renault admitted last month it was tricked into wrongfully firing three senior managers after the company incorrectly concluded they had received payments from Chinese companies via foreign accounts. The carmaker did not name a successor for Pelata, who took over day-to-day control from Ghosn in 2008.

Shares Drop

Renault fell as much as 1.27 euros, or 3.3 percent, to 37.72 euros in Paris trading, its lowest since March 16. The stock was down 3 percent as of 1:38 p.m., extending its slide this year to 13 percent, the second-worst performance on the 14-member Stoxx 600 Automobiles & Parts Index after Porsche SE.

Lagarde welcomed the announced reorganization and departures, which she said conformed to “guidance offered by the government.” She and Industry Minister Eric Besson will meet Ghosn in coming months “to review industrial strategy with a view to reinforcing the Renault-Nissan alliance,” she said in an e-mailed statement.

The board of directors agreed at an emergency meeting on the departure of Laurence Dors, the company’s general secretary; human resources manager Jean-Yves Coudriou; Legal Director Christian Husson and Director of Security Remi Pagnie.

The Renault board also approved a draft settlement negotiated with the three wrongfully dismissed executives: upstream development Michel Balthazard, his former subordinate Bertrand Rochette and electric-car deputy program chief Matthieu Tenenbaum. The automaker didn’t disclose any details.

‘Difficult Page’

“This board meeting turned a difficult page in the history of Renault,” Ghosn said in the statement. “Besides the managers involved, all the group’s employees have suffered.”

Renault’s main CGT union today voiced dissatisfaction with the board’s decision.

“The dismissal of a certain number of executives won’t change anything unless there’s a structural overhaul of management’s role at all levels,” the union said in an e-mailed statement. “It’s astonishing to see Ghosn absolved of all responsibility after he proclaimed the three victims’ guilt in the national media.”

Renault’s board examined the findings of an audit ordered last month to establish the roles and responsibilities of executives involved in the spy case.

The inquiry revealed “failings and dysfunction within the company, particularly in the control and supervision of its security department,” the automaker said. The audit also found that “the manner in which the investigation was conducted was deliberately hidden from the board,” Renault said.

‘Satisfying Settlement’

Security manager Dominique Gevrey, who obtained more than 300,000 euros ($434,000) from the carmaker to pay an anonymous source for the information, was arrested on fraud charges after the espionage claims unraveled. An internal security department reorganization at Renault will be supervised by French law enforcement, the carmaker said.

“It is a very satisfying settlement,” said Xavier Thouvenin, a lawyer for Balthazard. He declined to specify how much the former executive will receive. The unanimity of the board’s decision was “very important to us” and ends his client’s wrongful firing complaint, he said.

Tenebaum’s lawyer, Thibault de Montbrial, said his client will return to a post at the carmaker. Rochette’s lawyer didn’t return calls for comment. The criminal investigation into how the three men were targeted continues, Thouvenin said.

“We still want to know who started it,” he said. “That will be the end of the story.”

Close Associate

Pelata has been a close associate of Ghosn for more than a decade. Ghosn, who also heads Japanese affiliate Nissan, refused an earlier resignation offer from Pelata over the espionage case, the carmaker said March 14.

The 55-year-old Pelata, who ran day-to-day affairs at Europe’s second-largest carmaker, 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 Nissan from near-bankruptcy, he took Pelata with him and the two have worked closely together ever since.

“Sacrificing the number two is a way of refocusing public attention on Renault, its business and its electronic car program,” said Christopher Mesnooh, a Paris-based lawyer with Field Fisher Waterhouse, who isn’t involved in the case.

Pelata “will continue to manage operations until his departure from Renault,” when he will move to another job within the automaker’s alliance with Nissan, the carmaker said.

The company also negotiated an agreement with Philippe Clogenson, a fourth executive wrongfully dismissed in 2009, who will return to work next month as business development director for Renault Consulting, Renault said.

The resignations and settlement won’t end the affair given the ongoing criminal case, Mesnooh said. “This is going to take several interesting twists and turns.”

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