Ep36 The fallen Sun King – Carlos Ghosn and Nissan
[Watch this episode on Youtube]
What has happened at Nissan?
On November. 19, Carlos Ghosn, Chairman of Nissan and CEO and Chairman of Renault, was arrested at the airport in Tokyo, Japan, for allegedly falsifying financial reports filed with the Tokyo Stock Exchange. Prosecutors say he is suspected of underreporting his income by $44 million over a period of more than five years.
Allegations against Ghosn brought forward by Nissan itself, suggest not only violations of securities laws, but he allegedly spent Nissan funds on fancy homes in Paris, Beirut, Rio de Janiero and Amsterdam, and on family vacations and other personal expenses. Apparently, he spent lavishly on himself, many times abusing Nissan’s generous contractual terms for expenses. Among them, spending for his personal wedding that at the Grand Trianon in Versailles, once favored by Marie Antoinette, and utilizing other executives perks, such as jet-setting around the world in a private jet.
In his first formal comment, after his surprise detention, Ghosn denies all allegations brought forward against him from prosecutors and Nissan internal investigative team. Among them, he denied reports that he passed on personal trading losses to the automaker. As it may be, it is important to note, that no charges have been brought forward as of yet.
Though, as the days have passed, it becomes obvious that all allegations and concerns brought forward have less of a punch that could trigger a lengthy prison term for Carlos Ghosn in Japan. As legal expert noted, it is much more likely that he will be released soon after paying a fine and promising improvement, hefty as the fine maybe. Certainly, the best possible outcome for the former hero of Nissan than any kind of prison term, though his reputation as the hero of Nissan and notorious cost-cutter will forever be tarnished by this drama in five acts.
The Fallen Sun King – Carlos Ghosn
Ghosn is by all standard a very capable manager and restructuring expert in his industry. He turned around France’s Renault SA, then Japan’s Nissan Motor Co., and he continued his success story at Mitsubishi Motor Corp. which became part of a complex triangular alliance.
For this Ghosn is greatly admired, among his peers and particularly in Japan, for rescuing Nissan from certain doom almost 20 years back. He is known as “le cost killer”. He brought in modern management structure, empowered women in managerial roles, and personally oversaw key projects, such as the Nissan Leaf, Nissan’s entry into e-vehicle and e-mobility.
He reached a rock star like status even become the hero of a popular Japanese comic book series (Manga). These days, this isn’t that as special anymore as it used to be – even Warren Buffett, the chairman of Berkshire Hathaway, is featured in one of them.
CEO, Hiroto Saikawa, Protégé turned Worst Enemy
But while renowned as an industry cost cutter and overly strict tyrant, Ghosn was also the peacock of his industry who stood out with his 5.6 feet (170 cm) and not always in a good way. His official take-home salary (public information) from all his position combined was several times that of rival Toyota Motor Corp.’s chairman, who earns relatively modest salaries.
Granted, Ghosn is not an owner-manager, as Akio Toyoda is, but he was at the top of the food chain when it came to compensation within his industry that could easily compete with other captains of industries in this all exclusive club of elites. But it is exactly this, and his eccentric behavior that seems to be the focal point of allegations and criticism pointed towards Carlos Ghosn, and from no other than Nissan’s CEO Hiroto Saikawa himself.
Ironically, he was handpicked by Ghosn and his protégé for many years. But it was Saikawa, who portrayed his boss in a way never seen or heard of before in Japanese corporate history. A long and emotional speech about betrayal and crime, saying he (Ghosn) had too much power and was given too much credit for Nissan’s success. Remarks such “too much concentration of authority”, “He did things that were very hard for somebody internal to have done,” or “It’s hard to put into words, but what I feel goes far beyond remorse to outrage,” raised eyebrows among reporters.
Yet, there is no Japanese law, against excessive use of company resources for personal usage. In regards to filing to authorities and securities law, Japanese corporate law is known to have plenty of room for interpretation in case lawmaker need to make ad hoc adjustments – causing nightmares for companies involved. All the allegations miss the last and final punch – a real sever violation of corporate laws, such as embezzlement or insider trading. For many professionals, it seems more a legal technicality that could have been solved behind doors rather in the open public.
So what is really behind Saikawa’s radical move, in a culture where saving face is valued above all else, and avoiding public attention is the highest priority? How is it that, Saikawa so openly criticizes his former mentor? Is this a personal vendetta – a coup d’état, the CEO wants to disguise? Is there more in play than just underreporting the chairman compensation to the financial authorities. Maybe a smoke screen or hidden message for someone else or just a pure act of desperation like a wounded animal that takes a final stand?
Speculations run rampant
Some French media have suggested Ghosn’s arrest was a setup led by Saikawa and looking into the details suspicions are confirmed as news drips out day by day. Journalists reported they are being hand-fed material that is directly aimed at destroying Ghosn’s personal reputation and legacy – from sources within Nissan that are close to Saikawa.
Or the fact, that these investigations (underway for months) were kept so secretly and so covertly within Nissan that no one close to Ghosn (and these are a lot of administrative staff at its head office in Yokohama) have been involved, least informed about such serious internal investigations. When the news broke it was a complete surprise for Ghosn himself.
Turning to some of the players in the background, the French government has expressed concern about the future of the Renault-Nissan alliance, which it wants to deepen (it owns 15% in Renault). Emmanuel Macron, French President, who considers himself a fender of business interests and financial expert has always closely followed the auto industry and Renault as the largest company in particular. Too strategically important is Renault in Macron’s personal visions for his country, his economic policies, and global ambitions.
And returning to the aforementioned alliance which Ghosn forged, it has become apparent that it needed to be much more than just a loose alliance and I am sure Macron and Ghosn knew this themselves. But it might be these calculations that caused fear and pure anger, that triggered a faction within Nissan to take such radical and simply un-Japanese steps to challenge the Sun-King.
The future is uncertain, as France under the leadership of President Marco himself will most likely move in to integrate Nissan and to make Renault the global car manufacturer worthy of a Grand Nation. Because one thing is certain, neither company can survive on its own and the Japanese simply don’t possess the pomposity the French own but which is so vital for long-term success in this cut-throat industry.
The Story is not over yet
Like in a Machiavellian playbook, CEO Saikawa’s personal victory over his former mentor and boss is absolute and complete. He didn’t shock and awe or simply challenge Ghosn. No, he utterly destroyed him to the point where Ghosn’ legacy is destroyed beyond repair. For that, he deserves respect from Machiavelli himself.
However, the move such as this, bear many risks and unknown consequences. A heroic CEO on a mission to bring back independence for his honorable company and himself, free of foreign aggression and influence, his personal vendetta could simply backfire.
Forcing a final decision as a last desperate attempt will most likely cause the opposite – a complete integration into a foreign managed umbrella company, where Nissan’s cultural identity will just become another brand; another product line serving a specific region and consumer taste – one of many in an increasingly competitive world of car manufacturing.
In the end, Saikawa himself might have brought Nissan into “play,” as investment bankers call it. Something he seemed to have been fighting against by slaying the tyrant. In the end, it could be Ghosn who has the last laugh – though in a new and unfamiliar environment.
What will be the consequence for ambitious projects, such as Formula 1 or Formula E? We will revisit the Nissan story in about 6 months – signing off from Tokyo –David Woo Schneider.
Sources:
https://www.manufacturing.net/news/2018/11/nissans-ghosn-auto-industry-icon-scandal
https://www.forbes.com/sites/peterlyon/2018/11/22/hero-to-zero-nissan-chairman-carlos-ghosns-fall-from-grace/#2567374b3216
