Carlos Ghosn. Photo by Wikimedia Commons user Thesupermat.
When news broke about Carlos Ghosn’s arrest on charges of under-reporting his income to Japanese securities regulators, I – like many of my peers, judging from my LinkedIn news feed – was simply astonished.
Ghosn headed an alliance of three major automakers, but has since been ousted from two of them. He remains in detention over claims that he falsely understated his salary; Nissan also alleges that Ghosn used company money for personal purposes, though Japanese prosecutors have not said whether they are investigating these allegations as well. As of this writing, Ghosn has made no public comment – he effectively can’t be reached to do so – though Japan’s public broadcaster NHK reported that he has denied the claims of wrongdoing to investigators. He has not been formally charged thus far.
CEOs of public companies live in a fishbowl, and probably none more than a globe-trotting auto executive who has been hailed as a corporate hero. So my immediate question was not why Ghosn might have tried to keep any of his compensation under wraps, but rather how he could have thought it was even possible.
A lot of people seem to blame some combination of hubris and greed for Ghosn’s alleged misdeeds, and maybe that’s accurate. But allegations do not automatically equate to guilt. We should at least consider the possibility that there is another side to this story. We might also consider the chances that the story may turn out to bear more than a passing resemblance to “Game of Thrones.”
Ghosn was born in Brazil, reared largely in Lebanon and is a citizen of France, whose government holds a 15 percent stake in French automaker Renault. Renault holds a dominant 43 percent stake in Japan’s Nissan, which was once the weaker partner in the alliance but has since overtaken the French firm in size and prominence. Nissan, in turn, has a 15 percent stake in Renault. Nissan also holds a 34 percent stake in another Japanese automaker, Mitsubishi, which has essentially moved into Nissan’s former role as the alliance’s little sibling.
Ghosn therefore represented European cultural dominance in what has morphed into an Asia-centered collaboration. Nissan eclipses its partners in sales in both China and the United States, the world’s two largest markets. Under Ghosn’s leadership, Nissan also announced plans to more than double its Chinese production to more than 2 million units annually, which would be four times the size of what Renault eventually hopes to produce with its local Chinese partner.
It is in this light we should consider Nissan’s chief executive Hiroto Saikawa’s statement this week that Ghosn had become too powerful within the company. In Japan, where personal modesty is prized even among corporate leaders, Ghosn’s style would have grated even had he avoided stepping on any legal or corporate governance landmines. But it went further. Ghosn’s pay package was geared toward Western norms for a high-profile executive with his track record. In collaborative Japan, where it is unusual for even high achievers to deliberately make themselves stand out, this could well have made him a target.
Ghosn may have made himself still more vulnerable by seeking to disclose only what was required, rather than what was prudent. His compensation package was set by just a three-person panel that included Ghosn and his fellow Nissan executive Greg Kelly, an American who was also arrested in connection with Ghosn’s alleged misdeeds. There are early indications that Ghosn did not report his uncollected deferred compensation to Japanese regulators because he did not believe he was required to do so. In Japan, shareholders usually are told less about executive compensation than is typical in the West, and the details of Ghosn’s compensation package were reportedly not transparent to shareholders either.
While perhaps legal, this omission left Ghosn vulnerable to exactly the sort of charges that have now been leveled against him. Greater disclosure, or at the very least an insistence on his part that all directors of all companies in the alliance know the details of his pay, might have vaccinated him against the legal attack that he now faces in Tokyo. It also would have made it easier for Ghosn to demonstrate a good-faith effort to comply with tax laws, though to date, he faces no charges of tax evasion.
I’m not in any position to have a view on Ghosn’s guilt or innocence. Japan’s legal process, while different from ours – and generally more conservative when it comes to cultural norms – is fairer to defendants than many others in Asia. It relies heavily on prosecutors’ discretion over which cases to bring and which charges ultimately to file. My guess is that that prosecutors will proceed cautiously in taking such a high-profile target to trial in the absence of compelling proof of intentional misconduct. So far, much of what has emerged publicly about Ghosn’s alleged wrongdoing has appeared to come from his corporate rivals, who have their own axes to grind.
Such caution from prosecutors does not mean Ghosn is out of legal danger, by any means. “Game of Thrones” fans know that sharp axes can take down the innocent as well as the guilty. From the outside, it is not yet clear which description fits Ghosn. What we do know already is that Ghosn’s tenure on Japan’s corporate throne is, in all likelihood, finished.