By Gosh – The Real Car Guy Is Gone! – #31
1999 was a great year as Carlos Ghosn took over a very distressed Nissan Motors as Chairman of the Board and CEO. For me personally, it was great in that Mr. Ghosn brought back the “Z” a few years after he was in the job. I bought one (My 5th “Z”) a convertible and drove it for 11 years, selling it for a few thousand dollars less than I paid for it.
When Mr. Ghosn took over the responsibility of reigniting Nissan, he definitely went against Japanese culture, and it is my belief that the suspicions of compensation fraud and misuse of Corporate revenues in paying for 2 personal homes, was not the real reason for his arrest. Instead, there was 20 years of frustration built up in Japanese auto industry circles, and they were waiting for an opening to do to him what had been done to them. The following facts are presented as support for my reasoning:
- Cultural norms of relatively low pay for executives and lifetime employment had existed in Japan for a long time.
- To counter these norms Mr. Ghosn had chosen to split his pay and only declare 50% leaving the outstanding as an IOU to be paid upon his retirement. Over the years this approach reduced some of the intensity of lower paid Japanese Managers complaints, but also continued his favorable image with the Japanese where he held the title of “gaijin”. As far as the two homes in question, Nissan had paid for them ($18M), therefore, wouldn’t these expenses have had numerous approvals, and they should have raised internal/external audit examination questions.
The total deferred pay amounted to $82M – a figure unacceptable to the Japanese where the contempt and anger resided – since the growth of the left became evident in the last elections, they now could establish Mr. Ghosn as a target of their movement.
- Mr. Ghosn’s problems started in 2010 when Japan passed the following law that at “best” is weak and would not be held up if tested. It says, when companies are preparing their annual filings for a given year, the companies must include any future compensation if the amount has “become clear” in that year. Mr. Kelley who was on the Board at Nissan was also arrested along with Mr. Ghosn due to the fact that he was the mastermind of the deferred compensation plan. They met the law because they could not meet or pinpoint varying terms – and payout periods could not be learned. If he was to receive deferred compensation, he would receive $8.9 million for each of the years in question. If this amount was disclosed, one can imagine the outcry on all fronts. To compare his pay to other industry leaders, it was four times that of the Toyota Chairman.
- Japan’s financial reporting on executive compensation is skimpy – one page at Nissan for 2018 vs. 10% of financial report in most Western Countries. There continues to be a wide gap in compensation levels, and it will continue if foreigners are in charge of large Japanese business entity’s.
- Mr. Ghosn got Nissan back on track after one-year and has Renault owning 43% stake in the company, and Nissan owns 15% in Renault. While he has held the positions of Chairman at the key two companies, he also is the Chairman at Mitsubishi a recent acquisition.
- He is known as a cost cutter, and during his first six months at Nissan he eliminated 21,000 jobs and also laid off several top managers. All this in a country where layoffs are rare. He was quoted – “right now Nissan is like a boat on fire and we need to extinguish the fire”. He backed up his cost cutting plan by putting his job on the line, if he could not meet the plan. Not only has cost cutting been a way of life at Nissan (even Management had to take a 5% pay-cut as well as the Japanese baseball team they owned), but so has a unique and sound approach to management been implemented along with a high dedication to innovation in the electric car arena. He has abandoned age-old Japanese system of seniority and shunned incentive awards that existed all over the company. Instead his replacements are based on merit and market based tradition. “The highest achievers get the highest rewards”. Nissan turned around in one year and Mr. Ghosn earned his recognition as one of the most successful leaders in an industry where successful partnerships are a rarity. Just look at the failure of Daimler and Chrysler.
- I do have one reservation about the role he played, and that being the fact that Mr. Ghosn was part of a special 3 member board compensation committee that was responsible for setting the compensation levels for all Managers. This simply means that Mr. Ghosn could set his own compensation levels, which has to be a NO-NO in my book. The other two members were Mr. Kelley and the current CEO of Nissan – Mr. Hiroto Saikawa. This is where my suspicions started about the reasons for Mr. Ghosn landing in jail – the two foreigners were the only ones arrested –
Mr. Saikawa the current Nissan CEO , instead, was meeting with the media folks and bad-mouthing Mr. Ghosn as having become too powerful in his position. What happened to Japanese loyalty to boss, job and company?
The media had been pre-informed on the contents of the meeting on Monday with Mr. Saikawa. Mr. Osamu Masuko the CEO of Mitsibushi replaced Mr. Ghosn as Chairman about the same time as Mr. Saikawa was bad-mouthing Mr. Ghosn’s role at Nissan. It can quickly be seen that this firing and replacement was pre-meditated and removal had been carefully orchestrated, in Mr. Masuko’s well prepared statement – “If Mr. Ghosn had remained as Chairman, it could expose the firm to – reputation risk – now there is a new term that can be used by folks who want to accuse without any evidence”.
The French, at Renault, have to be given credit, for they are the only company that has yet to replace Mr. Ghosn in his position of Chairman – not enough evidence to so. However, The Finance Minister – Mr. LaMair said that “Mr. Ghosn was no longer in a position capable of leading Renault, but he was waiting to see the evidence”. The French and Japanese were quick to affirm quick support for the alliance between Nissan and Renault. No wonder, Renault in France employed 47M employees. There has to be more behind this weak if not inexcusable accusation of Mr. Ghosn – the strains of the relationship between Renault and Nissan that have been growing over the years, and resentment of his unconventional approaches that kept a very different management style alive and enlarged the issue of a slowdown in automobile sales on a global basis.
The Whistle-Blower at Enron went to her superior, and reported on suspicious financial activities, she was fired from her position at the company. Had management provided a clear set of policies that assured no retribution for providing info of suspicious activity, Enron’s top management would not have been able to continue their fraudulent strategies for a number of additional years. As an employee identifying a problem that eventually put Enron out of business, would you tell anyone knowing that, at a minimum, the retribution would come in the form of losing your job.
Please review your approach to these issues (Visibility, Transparency, Safe Avenue for Whistle Blowers), and ask the questions that will allow you to implement effective policies in your business. Get some opinions on these solutions! Please utilize our BLOG to do so.