Activist investors are circling Japan Inc., creating momentum for change in the country’s boardrooms. While you’d hope that the Carlos Ghosn saga would help in that effort, it may in fact slow things down.

The latest episode in Ghosn’s downfall came on Monday, as shareholders in Nissan Motor Co. voted to remove him as a director. The once legendary auto executive was rearrested last week on the basis of new allegations that he misappropriated millions of dollars of company funds for himself. Whatever twist or turn comes next, Ghosn’s future looks bleak.

Unfortunately, all of the scrutiny of the former Nissan and Renault SA chairman’s pay, and the allegations about his misreported compensation, might put the brakes on the much-needed conversation over incentivizing managers in Japan. Activist hedge funds – who’ve been involved in campaigns at companies from Olympus Corp. to Seven & i Holdings Co – usually try to offer rewards to improve a company’s performance and directors’ behavior(1). But with Ghosn sitting in a jail cell, no Japanese executive wants to be seen as being greedy right now.

This is doubly true with disclosure rules on boardroom remuneration likely to become more stringent anyway. Late last year, Japan’s Financial Services Authority put forward a proposal that requires more reporting on management rewards, including details of company pay plans and each executive’s package. That could come into force in 2019, analysts say.

Incentive-linked compensation hasn’t won much support in Japan thus far, with a big portion of salaries coming in the form of base or fixed pay. Japanese executives’ total pay versus global peers remains low too. I’ve written before about why carefully structured performance-based pay in Japan would improve companies, but many Japan-watchers and investors insist that the country’s austere culture of economic egalitarianism cannot and will not change. The salary man won’t budge, they argue.

Nevertheless, the stats at least show a certain loosening up on rewards, and disclosure. The number of managers paid at least 100 million yen ($900,000) has doubled over the past decade, and more companies (albeit still a low 10 percent of them) are publishing executive pay. About four in 10 companies has a remuneration or nomination committee now, up from 7 percent only four years ago. (Nissan has neither). 

There is certainly plenty of evidence that stock ownership by management does help other investors. While complete data on compensation packages is spotty, you can get a picture of directors’ vested interest through their shareholdings. Where CEOs hold about $5 million of stock, returns tend to be far higher, according to Jefferies’ Zuhair Khan. At companies where the boss holds less than $500,000 in shares, the performance tends to be dismal. 

None of this is to say that company profits should be shoveled into managers’ pockets. In a 2014 study of 400 CEOs across several industries over eight years, researchers found that greedy bosses were bad for shareholder value. Greed was defined by factors such as perks (including company cars and private jets), as well as pay relative to the next highest remunerated executive.

But paying more, while cutting out the perks and forcing transparency, would help everyone. It would also probably reduce the gray areas in which unusual rewards sometimes flourish. With Ghosn, no one seemed to know where his interests ended and those of Nissan began.

The immediate response in Tokyo to the Nissan case isn’t especially encouraging. Despite what’s been the highest-profile scandal faced by corporate Japan in recent years, no concrete action has been taken to address the severe governance failures. Nissan’s newly established Special Committee for Improving Governance has submitted recommendations to the board, calling for various changes, including making sure a majority of the directors are outsiders. But there’s still doubt about what will actually be implemented and the business is floundering. 

The future remains uncertain on many levels, both for Nissan and Japan Inc.

(1) Plenty of behavioral studies have shown the linkage of pay and performance.

To contact the author of this story: Anjani Trivedi at

To contact the editor responsible for this story: James Boxell at

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. She previously worked for the Wall Street Journal.

©2019 Bloomberg L.P.