Nissan’s Palace Coup d'état or Little Napoleon Meets his Waterloo?
One wild week in November
In lieu of any Black Friday outing, post-Thanksgiving Day was housekeeping followed by a refreshing shower and dressing in a freshly laundered, starched button-down shirt. A nice feeling, which made me wonder how an unwashed Carlos Ghosn might be feeling now that he will only be permitted two showers a week for possibly an indeterminate amount of time.
Many in the automotive industry, academics and others have for years wholly credited Ghosn with saving Nissan from the dustbin of automotive history – the company was on the verge of bankruptcy in 1999 – in a story that’s been widely covered by media, heralded in Japan and used as the content for many a case study learned by many an MBA. The automotive titan has been a significant public figure – a star, really – and industry powerhouse for the last 20 years of his 40-year career in the industry. In that period Ghosn has headed automakers Nissan and Mitsubishi, based in Japan; Renault in France and/or the Nissan-Renault-Mitsubishi Alliance, mostly simultaneously, and cultivated other strategic relationships, including with Russia’s AvtoVAZ.
But all went dark after Ghosn’s arrest in Japan just before Thanksgiving on financial misconduct charges – what most would call “white-collar crime” – based on a whistleblower report. There was no statement from anyone on Ghosn’s behalf until Sunday, 25 November, nearly a full week after his arrest, when NHK reported Ghosn denied allegations. It’s all been very shocking and mysterious, with the feel of 21st century Kabuki, with Ghosn, the gaijin, versus Japan. Will the yakuza make an appearance?
As has been reported, Ghosn was scheduled to have dinner with his daughter the day he arrived in Japan, after a 5,500-mile flight from Beirut. But instead, reports stated he was taken from a private plane – arrested – upon landing in Japan and delivered to a detention center which houses convicted criminals and death-row inmates, and includes a gallows used as recently as July.
It’s also been reported Ghosn may be held for up to 23 days without being charged, longer, if charged, to the tune of 20 days per charge, and can be interrogated at length without his representation present. His accommodations, according to media reports, have a bed, toilet, handle-less door and a window with iron bars in approximately 52 sq. ft and are cold this time of year. He is permitted one-half hour of exercise daily and access to mail after it’s been reviewed.
For some perspective on how popular this guy – now sitting in detention – is, or was until a few days ago, the cult of Ghosn was so strong in Japan, according to reports, that he even appeared in manga comic books and in bento lunch boxes. Now, in lock-up, awaiting a bento box may be one of the few things he’ll have to look forward to in the 24-hour cycle of solitude mixed with interrogation.
Read all that and one might think Japan may be seeking a return to Sakoku, with the arrest of Ghosn sounding more like an Asian version of “Midnight Express.” The Wall Street Journal reported that a Renault director “found this very, very violent.”
How did the Brazilian-born French man of Lebanese ancestry, as he’s often described, the voice of electric car leadership, the connected car and autonomous drive, the leader of the Renault-Nissan Alliance that became the largest seller of light vehicles last year – the man Forbes called “the hardest-working man in the brutally competitive global car business” – end up in a Japanese jail last week?
Nissan’s Official Statement
Nissan’s statement on its global newsroom Monday, 19 November read as though it might have been hastily prepared. There was enough for some, reading between the lines, to wonder if a palace coup had just gone down. Its six paragraphs, headed, “Regarding serious misconduct by Nissan’s chairman and one representative director,” read:
YOKOHAMA, Japan — Based on a whistleblower report, Nissan Motor Co., Ltd. has been conducting an internal investigation over the past several months regarding misconduct involving the company’s Representative Director and Chairman Carlos Ghosn and Representative Director Greg Kelly.
The investigation showed that over many years, both Ghosn and Kelly have been reporting compensation amounts in the Tokyo Stock Exchange securities report that were less than the actual amounts, in order to reduce the disclosed amount of Ghosn’s compensation.
Also, with regard to Ghosn, numerous other significant acts of misconduct have been uncovered, such as personal use of company assets, and Kelly’s deep involvement has also been confirmed.
Nissan has been providing information to the Japanese Public Prosecutors Office and has been fully cooperating with its investigation. Nissan will continue to do so.
As the misconduct uncovered through our internal investigation constitutes clear violations of director duty of care, Nissan’s Chief Executive Officer Hiroto Saikawa will propose to the Nissan Board of Directors to promptly remove Ghosn from his positions as chairman and representative director. Saikawa will also propose the removal of Kelly from his position as representative director.
Nissan deeply apologizes for causing great concern to its shareholders and stakeholders. Nissan will continue its work to identify governance and compliance issues, and to take appropriate measures.
Also on the 19th, Nissan CEO Hiroto Saikawa held a press conference. Saikawa assumed the CEO position at Nissan in April 2017 when Ghosn stepped down, ostensibly to focus on the Mitsubishi relationship, but retained the Chairman’s title. Ghosn often publicly said he wanted to see a Japanese at the helm of Nissan, because it was a Japanese company. In the press briefing, Saikawa said he felt “despair, indignation and resentment,” and read from a prepared statement, referring to Kelly and Ghosn with the highly charged term, “masterminds.”
Going back to the idea of Kabuki, is Saikawa a modern-day Samurai following Bushido code, while gaijin Ghosn seethes with what he is experiencing as an act of the greatest betrayal, as he plots his revenge? Definitely some high-stakes theatrical drama appears to be unfolding.
Saikawa also stated that “this event” would have no impact on the relationship with Renault and Mitsubishi. That Saikawa would speak on behalf of other entities was surprising, a departure from traditional communications etiquette – stick with what you know and only speak about your business – and perhaps overreach. Who knows how such a blowup will play out or contribute to unwinding relationships?
Perhaps the internal investigation was so closely held – it was reported to be a very small team – that maybe not even the communications team entered until late to help craft messaging before going public. Or perhaps that’s not really a concern of Nissan, Saikawa or the Nissan board if the underlying intent is to dissolve the Renault-Nissan Alliance, which has been speculated, or at least restructure the relationship which Saikawa has called “unbalanced.” The public perception for years though has been that Ghosn is key to juggling the complex relationships of the Alliance, and thus his absence would have an impact.
“In the future, we will make sure we don’t rely on a specific individual, rather we will look for a more sustainable structure,” Saikawa also said in the press conference. What that statement really means is unclear, but it was unmistakable that Saikawa wants to minimize the contributions of Ghosn’s nearly 20 years leading Nissan and Alliance members when he speaks of Ghosn’s “concentration of power” and “negative impacts” of Ghosn in daily operations.
There may have been too many years of too much Rock Star in Ghosn to the liking of Saikawa and others. But the destruction of the 20-year cult of Ghosn may come at a high cost to the company. Nissan, Renault and Mitsubishi shares all fell upon Ghosn’s arrest, and that’s against a backdrop of a decidedly downward trend in automotive sales industry-wide.
A few days after the dramatic arrest, Nissan stripped Ghosn of his chairman title. And on 26 November, perhaps not surprising for those expecting a unified Japanese front, Mitsubishi stripped Ghosn of his titles of chairman and representative director. Renault has not dismissed Ghosn as of this writing, but has appointed an acting chairman to handle day-to-day duties in Ghosn’s absence.
Reporting overall initially was as light on detail as the official announcement. An early story noted that Ghosn and Kelly were “suspected of violating financial reporting laws,” which could result in 10 years in prison as a maximum penalty or an $89,000 fine. (Uh, ten years in jail or less than a hundred grand – the fine, please!) It has been reported that Nissan itself may face financial penalties if a violation in reporting has indeed occurred.
As stories came online, some offered a bit more insight into the Nissan announcement. Essentially, accusations lodged against Ghosn include understating income on statements provided to shareholders, analysts and investors; using an account designated for technology startups to purchase housing for Ghosn; and expensing personal items. The alleged financial improprieties cover multiple years.
While the allegations certainly sound compromising, both the reporting and Nissan statement lacked detail, which was enough to raise questions, and the two men have not been formally charged. Wouldn’t the first item, related to the reporting of senior management income from a publicly traded company in Japan to the Tokyo Stock Exchange, be very public information that would have required the imprint of more than two people at the company? If so, how could inaccurate numbers have been unrecognized for so long? Note that one article said this is not a tax-related situation to evade taxes. And why would so public a person risk any financial misstatement?
The housing was said to have no business purpose; yet, with Ghosn overseeing a global automaker – his continuous travel for business is well-documented – the argument could have been made that wherever he was involved company business. And it’s not unusual for a company to have holdings that are corporate housing. One question is: Are these actually Nissan properties?
It was reported these properties were not disclosed on securities filings? Why not? Alleged financial misconduct on both the housing and income understatement are being ascribed to Ghosn and Kelly. So we are to believe that the internal accounting controls, and accounting and board oversight at Nissan – a major global corporation – have been so poor for so many years that no one internally, and no audit firm, identified problems? If there were any question on how to account for items, wouldn’t that have been discussed with the company’s public accounting firm? Or, were the items considered immaterial? Or, are we to believe the board, management team and auditors all looked the other way?
The sketchy details led Business Insider to offer three theories as to what might be going on – if there’s more than meets the eye. The first, the most obvious, is that Ghosn has done all he’s accused of. If this worst-case scenario is true, Business Insider writes, and Ghosn is “completely guilty,” then “his fall would be unprecedented in the history of the industry.”
Theory #2 is the idea of a “palace coup” wherein Ghosn was working to merge Nissan and Renault, a situation which Nissan found untenable. But it would have been difficult to get rid of Ghosn on a strictly business reason, so “he was taken out in the corporate world’s version of a Game of Thrones move: completely ruined reputationally and humiliated before the audience that had formerly followed him as though he were godlike in his powers.”
Theory #3 has Ghosn guilty as charged, but with Nissan as an enabler, looking away.
If what’s been presented as financial malfeasance (theory #1) proves indeed to be the actuality, what an ignominious fall for Ghosn. But if #2, Ghosn could be redeemed and take down his palace betrayers – highly unlikely since the reputation ruin and humiliation appear well done at this point. And #3 would be an ignominious fall for all of the senior management team. If there’s extensive fraud, it would seem unlikely that this will not reflect negatively on senior leadership at the company.
More to Come
Since the initial Nissan statement and media coverage, other alleged financial improprieties have been reported, including stock shenanigans. Among others, according to the Mainichi Shimbun, Ghosn is suspected of using Nissan funds to contribute to a university his daughter attended. This seems a bit Allegation Lite. Surely a CEO for a company the size of Nissan would have an executive discretionary fund for corporate giving of his choosing.
It’s also been reported that Ghosn had his sister compensated by the company for approximately $100,000 a year for a “nonjob.” It will be interesting to see how this one is explained by Ghosn. What sort of “product” was provided in this advisory or consultancy role? Are there deliverables that can be shown? If Ghosn’s sister needed an income, why would Ghosn not provide an income or “job” out of his personal compensation of $16.9 million annually? Why run the risk of nepotism and fake job allegations for a mere $100k a year? But perhaps rationale thinking doesn’t apply if what had been created through the reign was a new Napoleon.
As well, another late-breaking report of alleged impropriety by Ghosn indicated a post-separation agreement with the company would result in an $8 million payout that was not disclosed in public reporting, but was handled by an internal memo reviewed by senior management. It’s not unusual for a high-level executive to have an exit package, so why was there a failure to disclose? Again, maybe a rational question doesn’t apply if we’re dealing with a Napoleonic world.
Ghosn’s total compensation (Renault, Nissan and Mitsubishi) was not out of line with CEO compensation for GM and Ford. But, Ghosn did have three jobs, so in his mind perhaps it was insufficient compensation. As well, his compensation was not in the realm of the top echelon of CBS, Time Warner and Broadcom CEOs, which may be where he believed he should be.
Further, in comparison to CEOs in some other regions of the world, Japan’s are compensated at a lower level, but Ghosn was well above his Japanese counterparts. For example, Toyota’s president earns $2.8 million annually and Honda’s, $1.4 million. Japanese senior management reportedly receive additional compensation in the form of housing and other perks, but that still doesn’t match the level, for instance, of compensation for top U.S. CEOs – and maybe the Japanese have that right.
Undoubtedly, more shoes will drop, and more will be emboldened to tell their “Ghosn stories” – perhaps how he slighted someone, was rude to someone else, threw a fit when he didn’t have something in his hotel room, demanded that a particular journalist never be allowed in a press conference again or instructed assistants to keep girlfriends apart – all the Rock Star stuff. And likely we’ll hear many times about the party at Versailles, because who can resist a Marie Antoinette “Let them eat cake” reference?
Ghosn’s first wife, Rita, took to social media to share, “All narcissists are hypocrites. They pretend to have morality and values that they really do not have. Behind closed doors they lie, insult, criticize, disrespect and abuse, they can do and say what they want, but how dare you do something. They have a whole set of rules for others, but they do not follow their own rules and do not practice what they preach.”
Personal Shock
When the story broke last week, I was particularly stunned. For a few years, I transcribed many of Carlos Ghosn’s speeches and talks, along with the Q&A that followed with media or students. There’s now software to drop in an audio file and get a transcript back ASAP. But I transcribed in the old-fashioned and extremely slow and tedious way – play and listen to a section, typing as I listened. Go back, repeatedly, to catch what was missed. Rinse & repeat.
Over time, I developed a strong sense of Ghosn’s cadence and very accessible speaking style, impressed with his ability as a non-native English speaker. Even for someone who had the most remedial understanding of the automotive industry, Ghosn could make a complex topic immediately comprehensible.
Over time too I was struck by his ease in a room and dexterity with questions and an ability to so easily positively position issues and challenges. As well, his understanding of the industry and the business operations of Nissan, Renault, the Nissan-Renault Alliance and the many parties involved was remarkable. He simply appeared a cut above. So, on a surface level, it’s hard to reconcile that a man this sharp, this smart would engage in financial shenanigans, and that’s what makes this story so shocking.
My early training was in journalism and I live with a public accountant and auditor, so skepticism is the default position in the household. Thus, it’s not an environment where we tend to bestow credit to anyone easily, ever. The last times I did led to disappointment. Lance Armstrong indeed turned out to be a doper, and Arnold Schwarzenegger impregnated the housekeeper! Good grief! But purely unintentionally and simply by virtue of listening to his communications, I came to admire Ghosn. This could be my Strike 3.
I would guess that the disappointment among Nissan employees, vendors and partners is palpable. And for those who aren’t disappointed, there are those who are just angry. As well, there likely are those in disbelief and those who don’t believe. Probably too there are those who disliked the man tremendously, and are pleased to see a stupendous fall. Surely there is much uncertainty. Are there Ghosn loyalists versus nonloyalists? Will there be a purge? Will Nissan breakaway from the Alliance?
The storyline, thus far, has a man of stature and vision turned into someone so small and petty, demanding more. Is that really who he is? Or is it partially manufactured, the palace coup scenario? As this moves forward, what’s truth, what’s machination, what was agreed and what was CEO overreach may or may not all come out, depending, possibly, on the lengths Japan, investment bankers and/or Nissan senior management are willing to go to humiliate the man if it’s more palace coup than garden variety greed. Wherever this story ends up, there definitely will be updates – new chapters – to all those Nissan case studies.
If Carlos Ghosn was a fan of “Game of Thrones,” I don’t know. Infiniti, the luxury brand of Nissan, did use actor Kit Harrington, Jon Snow in the series, for an exhilarating poetic spot. If not, perhaps Ghosn should have been, and heeded the advice of Littlefinger to Sansa in season 7:
Fight every battle, everywhere always, in your mind. Everyone is your enemy. Everyone is your friend. Every possible series of events is happening all at once. Live that way, and nothing will surprise you. Everything that happens will be something that you’ve seen before.
Maria Fotopoulos is a writer and communications specialist in Los Angeles.
