Nissan Faces Stock Option Backdating Charge

After more of than a year of one corporate scandal after another—faked emissions tests, claimed improper payments, executive financial misconduct, and even arrests—Nissan may face yet another problem.

CEO Hiroto Saikawa reportedly received a bump to a stock-based bonus when the company’s board rescheduled by a week the date it the shares were priced. The result was a $432,382 increase, according to Reuters. The charge, originally from Japanese magazine Bungei Shunju, came from the first interview given by Greg Kelly, a former Nissan director who was an aide to former CEO and chairman Carlos Ghosn, since Kelly was arrested in 2018 and then freed from jail in December.

Nissan did not respond to requests from Fortune for a comment.

In the context of all that has recently happened, this latest scandal might seem easy to ignore in comparative magnitude. But the charge bears the echoes of the stock options backdating scandal that started before the global economic collapse and extended beyond, making executives wealthier at the expense of shareholders.

Options backdating was a common way for corporate boards to pass more compensation onto managers and directors. Stock options allow people to buy corporate shares at a pre-arranged price. In backdating, a board would edit the original option grants, changing the date to one when the price was lower, letting a person pay less and instantly net more money.

The practice was controversial for two reasons. Although in theory legal, “the place where these companies got into trouble was in the accounting,” said Robin Ferracone, CEO of executive compensation consultancy Farient Advisors. “You have to account for the extra value. It’s like a new option. Lots of times the accounting was not done properly.”

For many companies that were caught up in the scandals, backdating was an attempt to hide the maneuver from investors and accountants, so the illegality wasn’t a simple technical oversight. Such companies as Broadcom, Apple, Deloitte & Touche, and others got caught up in investigations.

The reason CEOs and boards hid the activity was the second part of the controversy. Investors and workers became angry over well—if not lavishly—paid executives receiving extra consideration without delivering any more value. “We don’t get ours but you get yours,” Ferracone phrased it.

“I think it does go to the corporate culture,” said Michael Klenov, an attorney with plaintiff law firm Korein Tillery. “It’s a one-way option for an executive and it sounds like it was done by the board at the expense at the shareholders. It seems the rules were changed to benefit the CEO.”

It may be that the example at Nissan was a single occurrence without a sign of repeat offenses. Japanese laws are not necessarily the same as those in the U.S. Also, times have been good for investors for a long time. “You earn 10% and you’re not that worried about something that happened that kept you from earning 10.2%,” Klenov said. “But when stocks are down 20%, people are wondering.”

Backdating in the U.S. has largely fallen away in the wake of Dodd-Frank. However, it’s a good for investors to remember how many ways some CEOs and the boards they frequently control are willing to bend the rules for their own gain.