Ghosn Attacks the System That Crowned Him

(Bloomberg Opinion) -- Carlos Ghosn was nothing short of a celebrity in Japan. He carefully cultivated the image of a rebel outsider, but operated successfully enough within Japan Inc. to be adopted as something of a national hero after resuscitating Nissan Motor Co. He took on the system, yet scored its biggest victories when it was still intact.

Ghosn ended up taking advantage of the permissive establishment that he was picking apart. That style caught up with him as the corporate culture (slowly) mended its ways under Prime Minister Shinzo Abe’s economic reforms. Ghosn was seen to be making choices based on personal relationships. He spent the last few years building his own legacy, attempting to force together two vastly different auto giants in Nissan and Renault SA, causing yet more discomfort. Nissan’s aggressive sales tactics in the U.S. led to faltering performance while Ghosn talked up futuristic mobility.

Now, as global authorities try to piece together how Ghosn maneuvered an international escape from Japan to Lebanon, he’s planning to go public. He may name and shame some Nissan executives, adding suspense in Tokyo as Japanese markets re-open from a long break. He’ll be looking for sympathy, important to whatever legal future awaits him on accusations of financial misconduct, including violating pay-disclosure rules and transferring personal investment losses to Nissan. He has denied any wrongdoing, saying that he’s the victim of a corporate and political conspiracy.

More significantly, perhaps, will be his expected attacks on the system that made him a corporate emperor and scapegoat: Japan Inc. In doing so, Ghosn could help undermine Abe’s last decade of reforms, which were already showing signs of trouble.

In recent months, the government has backpedaled on corporate governance promises and openness to money from abroad. The legislature has passed a bill to tighten review of investments by foreigners that seems to limit the role of activist investors looking to pressure companies to change. It will require outside investors to file a pre-acquisition notification before taking a 1% stake in listed Japanese companies across a broad list of restricted sectors. Previously, the threshold was 10%. The government can review board nominations.

Foreign investors have flinched at the return of the anti-gaijin narrative. They account for 70% of turnover on the Tokyo Stock Exchange and own almost a third of the market. Until recently, they had felt encouraged. Shareholder proposals to nominate or dismiss directors or auditors were on the rise. Japan’s stewardship code, basic as it is, facilitated greater engagement. The likes of Third Point’s Dan Loeb had been treading carefully in their overtures and making inroads.

The Ghosn case has been a warning shot. Last year, one of his lawyers issued a cautionary note ahead of the Group of 20 summit: Japan Inc. was returning to its old, cozy nexus with the government, said Takashi Takano, and the treatment of Ghosn amounted to “heavy interference into a private corporate matter.”

In restructuring Nissan in the late 1990s, Ghosn, who came in as one of the first non-Japanese executives, helped rip up the keiretsu system — an often inefficient group of co-dependent companies. Known as Le Cost Killer, he slashed jobs and uprooted how auto suppliers did business in Japan. He pushed cross-functional teams mingling employees from different countries and divisions that bred “healthy conflict.”

But the turnaround proved fleeting. Ghosn’s reputation for success enabled him to run Nissan with insufficient checks and balances. Among the lapses in governance, he built up substantial key-man risk that left Nissan unprepared. Other Japanese corporate scandals in recent years focused more on company-wide data falsification and accounting. His is centered around an individual. That’s one price of nurturing a cult of personality.

The unraveling of Carlos Ghosn will put the brakes on much-needed conversations around remuneration and incentivizng managers, and on foreign investors demanding accountability. Who wants to deal with pesky minority shareholders? Rather than opening up Japan, Ghosn may, this time, push a turn inward.

To contact the editor responsible for this story: Patrick McDowell at pmcdowell10@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. She previously worked for the Wall Street Journal.

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