Renault Exonerates Three Accused in EV Espionage Case, CEO Refuses COO's Resignation

Renault has exonerated three executives accused of leaking secrets from its electric vehicle (EV) programme. The news came in a statement released by the automaker prior to an extraordinary board meeting that was held yesterday (14 March). According to the press release, following information that it had received from the State Prosecutor, Renault's chairman and chief executive officer (CEO) Carlos Ghosn and chief operating officer (COO) Patrick Pélata presented "their sincere apologies and regrets, personally and in the name of Renault" to the three involved—Michel Balthazard, Bernard Rochette and Matthieu Tenenbaum—"who were wrongly accused in this affair." It said that Ghosn and Pélata "are committed that reparations be made to the three executives, and that their honour in the public eye be restored," before stating that they would meet the three men "as soon as possible."

In a second statement published the same day following the meeting, Ghosn told the full board that the prosecutor's investigation had exonerated the three men of all wrongdoing. He added that an investigation made by the French internal intelligence, the Central Directorate of Interior Intelligence (DCRI), pointed to organised fraud involving at least one employee at the automaker, alluding to the affair that has gained momentum over the past week (see France: 14 March 2011: Prosecutors Begin to Investigate Possibility of Fraud in Renault EV Espionage Case).The automaker is pressing charges and has filed a civil action, and said that it was "confident" that a positive conclusion would be reached by an enquiry opened by the State Prosecutor.

At the same time, Ghosn presented the board with an action plan which they unanimously supported. The main points are:

• Offer to reinstate or compensate all three employees accused and wrongfully dismissed. 
• Conduct appropriate disciplinary proceedings against three employees in Renault's security division linked to the fraud case.
• Restore Renault's image, and public confidence in the company and its management. This would include Carlos Ghosn, Patrick Pélata and all the senior managers involved waiving bonuses for 2010 and stock options for 2011.
• Overhaul the governance of Renault with regards to the security of the automaker, its staff and information, based on an analysis of the internal shortcomings that have come to light. The initiative will be led by Ghosn, Pélata and an independent director, the Chairman of the Audit and Accounts Committee, and the findings publicly released. Its Security Division will also report directly to a member of the executive committee and senior vice-president of human resources. It said that this should help to improve personal protection.

At the same time, Pélata tendered his resignation to Ghosn, who refused to accept it. Ghosn in turn emphasised his and Pélata's commitment to Renault.

Outlook and Implications

While Renault no doubt thought it was doing the right thing in protecting the technology that it and its partner Nissan have invested a great deal in developing, the outcome has shown that it may have been overly paranoid and not as discerning as it should have been. The biggest failing would appear to be its reliance on its internal security service, before handing over to the state judiciary and investigatory services after it had decided the fate of the three executives involved. This seems to have offered the opportunity for either fraud or incompetence to take place, and this current situation could well have been averted if they had been brought in sooner. However, the measures which Ghosn has put forward will no doubt significantly protect the possibility of such an occurrence happening again, even if the automaker's new-found instincts let it down.

The offer of apologies and compensation to the executives and their families are of little surprise, but it is likely to be some days before the three decide what to do next, given the stress caused by the matter. The Wall Street Journal (WSJ) has been told by the lawyer for Matthieu Tenenbaum, the former deputy director for Renault's EV programme, that his client would consider an offer, but "it depends on what they propose." However, the most senior executive involved in the matter, Michel Balthazard has previously said that he would not accept an offer to rejoin the company. Although Renault has sought to protect its technology, it could now lose three employees that have been key to leading this project, possibly to a competitor.

Although it had been reported that Pélata could hand in his resignation, there was always a question as to whether it would have been accepted by Ghosn. It would have been a significant loss for the business, given Pélata's over 25 years near the forefront of the business. He is also Ghosn's key right-hand man, having a relationship stretching back more than a decade to the revival of Nissan following the alliance partnership in 1999. His exit would potentially have caused something of a partial leadership vacuum, and could have shifted Ghosn's focus away from overseeing the Renault-Nissan partnership as a whole, in an effort to achieve the recently announced objectives (see France: 10 February 2011: Renault Reveals Definitive 2010 Financial Results, New Longer-Term Strategy).

The matter is unlikely to do much for Renault's relationship with its largest shareholder, the French government. Despite having initially supported the automaker in this matter, ministers have either backed away from the matter or voiced anger over the way that it has handled the affair (see France: 7 March 2011: French Minister Voices Annoyance at Latest Turn of Events in Renault EV Espionage Case, COO May Resign—Report). This is the latest in a series of matters that the government has had some involvement in, including political uproar that stemmed from reports that Clio production could move to Turkey (see France – Turkey: 18 January 2011: Renault Confirms Future Production of Clio in France and Turkey), as well as its reliance on a soon-to-be-paid-off loan to help support it through the financial downturn. Not only has the EV espionage case been a public embarrassment, but it could also = have resulted in a diplomatic incident with the Chinese government, which had been linked with the matter during its early days. The government is unlikely to want to relinquish its grip on the company after this matter, making it difficult to restructure its alliance with Nissan as there have been calls from investors to do (see Japan – Germany – France: 28 February 2011: Renault to Extend Relationship with Daimler to EVs, Considering Review of Financial Structure with Nissan). Sources have told Bloomberg News that talks had been taking place for Renault to reduce its 43.4% stake in Nissan, while at the same time restoring Nissan's 14.5% voting right. However, the French government is said to have been against the move as it could neutralise its own 15% stake. This recent occurrence will only add weight to these objections, possibly hampering the business in the medium term.