A closer look at the scandal that has engulfed auto titan Carlos Ghosn
An icon of the Middle East business landscape, Carlos Ghosn was the go- to man for reviving the fortunes of failing carmakers. But his recent arrest for financial misconduct has put him at the mercy of Japanese prosecutors, with potential jail time and mu
FOR DECADES CARLOS GHOSN WAS UNTOUCHABLE.
He was the man with the golden touch who succeeded at turning around failing companies’ fortunes, earning himself the nickname ‘Mr Fix It’, as well as global praise for his work with Michelin, Renault, Nissan and Mitsubishi Motors.
A hero in his native Lebanon, where he was tipped as a potential president before dismissing the idea, he has long been hailed as a business icon of the Arab world – despite also being a dual French citizen born in Brazil.
Indeed, the 64-year-old has been a regular feature near the top of the Gulf Business Arab Power List over the years, ranking ninth in 2018, and seventh a year earlier.
In Japan, where he undertook some of his most significant work, he was serialised in one of the country’s most famous comic books. And in 2011 he came seventh in a poll of people the Japanese would like to run their country; ahead of ninth-placed Barack Obama.
In November, however, the business community was left in shock when Ghosn was arrested for and subsequently charged with financial misconduct – a move that has severely threatened the auto executive’s celebrity status and future career.
The rise and fall
Ghosn was arrested following allegations that he had underreported his commission
on five years of Nissan’s financial reports with Japanese prosecutors charging him with financial misconduct in December. The size of the underreporting is thought to be about $44m. He was still in detention at the time of going to press, and was likely to be so until December 30, according to reports.
Dismissal from his role as Nissan and Mitsubishi’s chairman followed his arrest, with implications for his position at Renault. If convicted, the charges could mean up to 10 years in prison, as well as a fine of up to YEN700m ($6.2m).
To find out how we arrived to this point, let’s rewind and briefly look at Ghosn’s career path.
After graduating in 1978, Ghosn joined Europe’s largest tyre maker Michelin, where he spent 18 years rising through the ranks. In 1985, aged 30 years old, he was appointed chief operating officer of the company’s South American operations. There, global CEO François Michelin tasked Ghosn with turning around the then struggling operation. He succeeded, and in 1989 was appointed president and CEO of Michelin North America. A year later he was CEO, whereupon he led the company’s reconstruction after its acquisition of the Uniroyal Goodrich Tire Company.
In 1996, Ghosn joined French auto manufacturer Renault as executive vice president in charge of purchasing, advanced research, engineering and development, powertrain operations and manufacturing. He was also put in charge of the firm’s South American division.
He led a restructure that contributed to profitability over 1997 for the newly privatised company. In 1999 Renault and Nissan formed the Renault-Nissan Alliance, with Renault purchasing a 36.8 per cent stake in Nissan shortly thereafter. Ghosn retained his roles at Renault and also joined Nissan as COO in the same year, becoming president a year later and CEO a year after that in 2001.
It was here that Ghosn truly earned his sky-high reputation. With Nissan having an automotive debt of more than $20bn, and only three of its 46 models generating a profit in Japan, he announced his Nissan Revival Plan in 1999, calling for a return to profitability in fiscal year 2000, a profit margin in excess of 4.5 per cent of sales by the end of 2002, and a 50 per cent reduction in the 1999 level of debt by 2002. The plan included 21,000 job cuts, mainly in Japan, as well as shutting five Japanese plants, reducing the number of suppliers, and selling off assets.
On top of this, Ghosn went against Japanese business etiquette and long-held traditions by leading changes to Nissan’s structure and corporate culture. Despite risking outrage inside and outside the company, his plan saw net profit after tax rise to $2.7bn for 2000. The previous year the company saw a net loss of $6.46bn.
Further growth plans in the subsequent years were all achieved – including sales of 3.67m vehicles in the period from September 2004 to September 2005, up from 2.6m in the fiscal year ending March 2002. In 2005 Ghosn was named president and CEO of Renault, becoming the first person in the world to run two companies on the Fortune Global 500 simultaneously.
By 2008 he was chairman, president and CEO of Nissan, and a year later was named chairman and CEO of Renault. But it wasn’t just in the workplace that he made an impact. In 2011, following the earthquake and tsunami that hit Japan, he led some recovery efforts, including site visits, and appearances on Japanese television.
In 2012 the executive was named deputy chairman of the board of directors of Russian manufacturer AutoVAZ, becoming chairman in 2012. Renault had been partnered with AutoVAZ since 2008, and eventually the Renault-Nissan alliance gained control of the firm in 2014.
Mitsubishi Motors was next in line for acquisition, with Nissan taking a controlling 34 per cent stake in the company in 2016. Ghosn added chairman of Mitsubishi to his lengthy list of roles, with his sights set on rehabilitating the carmaker following the fuel-economy misrepresentation scandal.
Some months later, in February 2017, he announced that he would step down as CEO of Nissan later that year, while remaining as chairman; Hiroto Saikawa would be his replacement.
Which brings us to November last year, when Tokyo District Prosecutors arrested Ghosn for questioning over allegations of false accounting – a charge he immediately denied.
On the day of the arrest, Sikawa announced to the press that Ghosn had been dismissed after an internal inquiry by Nissan, and would be stripped of his executive rights. Ghosn and his colleague, director Greg Kelly – who was also charged with financial misconduct – were said by Nissan to have under-reported their compensation and used company assets for personal use – reportedly to the tune of $18m.
“The investigation showed that over
In 2005 Ghosn was named president and CEO of Renault, becoming the first person in the world to run two companies on the Fortune Global 500 simultaneously
many years both Ghosn and Kelly have been reporting compensation amounts in the Tokyo Stock Exchange securities report that were less than the actual amount, in order to reduce the disclosed amount of Carlos Ghosn’s compensation,” the company said in a statement.
Nissan and Mitsubishi both sacked Ghosn as chairman after the arrest, while Renault refrained from doing so, announcing he would remain as chairman and chief executive. Chief operating officer Thierry Bolloré was installed as temporary CEO to oversee the running of the firm.
As a result of the affair, the future of the three-way alliance has been plunged into doubt, despite assurances from Nissan and Renault, and at the time of writing Ghosn’s fate also hung in the balance as he awaited legal proceedings. But according to some reports, there is more to the scandal than it seems.
More than meets the eye?
In the days after Ghosn’s arrest, media outlets around the world suggested the move might have been a carefully orchestrated effort by Nissan to oust him as chairman.
The BBC cited sources close to Ghosn as saying that the detention and dismissal was a “clinically planned hatchet job”, with Nissan executives said to be unhappy at the power Ghosn held at the company and opposed to plans to merge Nissan with Renault.
Among the suspected instigators is Nissan CEO Hiroto Saikawa, who is said to have been increasingly frustrated with Ghosn’s hero status – to the point where, according to the BBC, he refused to answer a question about whether Ghosn had become a “dictator”.
There had certainly been ill will towards the former chairman following his Nissan Revival Plan, which turned upside-down several traditions previously held sacred by the Japanese firm. These included removing seniority and age based promotions and changing lifetime employment from a guarantee to a desired goal. Ghosn also changed the company’s official language from Japanese to English, and brought in several executives from Europe and the US.
On top of the major job losses (some 14 per cent of the workforce), shutting plants, taking apart the network of suppliers, and selling off prized assets, the cultural changes left a sour taste for many at Nissan.
Indeed, the manufacturer said it started its internal investigation into Ghosn several months ago following a whistleblower report.
Another aspect that should not be overlooked is that Ghosn was allegedly on the verge of replacing CEO Saikawa.
Citing people close to the matter,
The Wall Street Journal reported that Ghosn had lost patience with Saikawa’s performance, with Nissan suffering a 19 per cent decline in US sales in November compared to the previous year. Ghosn is believed to have been looking at removing Saikawa before the end of the year, adding more fuel to the fire.
What happens next?
At the time of writing, Ghosn had appealed to end his detention – a move that was immediately rejected by the Tokyo District Court, meaning he would stay behind bars without the possibility of bail until December 30.
According to Japan’s legal system, Ghosn won’t necessarily have access to his lawyer during questioning – it will be at the discretion of prosecutors – and the consensus among commentators is that they are unlikely to prosecute unless there is near-certainty of a conviction. Indeed, prosecution data shows that only 1 per cent of cases in Japan’s district and county courts in 2017 resulted in a not guilty verdict.
A Bloomberg article quotes former Tokyo prosecuting attorney Kenichi Kinukawa as saying Ghosn’s trial is likely to be handled by a panel of three judges without a jury, and that the average trial duration for threejudge cases is 13.3 months. The official charge of breaking the Financial Instruments and Exchange Act carries a prison sentence of up to 10 years, and considered more serious than insider trading.
Already removed as chairman of Nissan and Mitsubishi, Ghosn’s responsibilities should he be found not guilty will be dramatically reduced. Renault has so far kept faith with its chairman and CEO, but question marks remain as to whether his presence would jeopardise the future – or at least the strength – of the carmaker alliance. Relationships are certainly being put to the test, not to mention the structure of the alliance, which had largely been forged by Ghosn himself and is bound together by cross-shareholdings. Much may have happened between writing and going to press, but the fallout of this episode is likely to be deep and long lasting. Time will tell if the business icon will be vindicated, but the sheen has certainly been taken off the reputation of the man with the golden touch.
CLOCKWISE FROM TOP: Hiroto Saikawa, president and CEO of Nissan Motor Co.; A television shows a news programme featuring Carlos Ghosn and representative director Greg Kelly.