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Nissan's Ghosn crisis

Ghosn saga leaves unanswered questions over Japan business norms

Victim to some, villain to others, ex-Nissan chief's experience is not unique

Former Nissan Chairman Carlos Ghosn has gone from high-flying executive to criminal suspect and now fugitive from justice. 

TOKYO -- Carlos Ghosn, the former Renault-Nissan chief, is due to give a news conference late on Wednesday in Beirut, where he has taken refuge after a daring Dec. 31 escape from house arrest in Japan, where he faces charges of financial misconduct.

Ghosn, who claims he was the victim of a coup by Nissan executives who opposed giving up more authority to Renault, has said he plans to name those who plotted his arrest in late 2018 -- including people in the Japanese government.

Ghosn's arrest, lengthy detention and subsequent flight having jumped bail in Tokyo have thrown a spotlight on Japan's justice system. A statement by his legal team on Tuesday also slammed Nissan's investigation into his alleged misdeeds as a "gross perversion of the truth."

More broadly, the fate of the brash, Franco-Lebanese-Brazilian captain of industry, who denies all charges, has raised many questions about Japan itself: for those outside the country, over how much Japan has embraced the international business and investment norms that Ghosn sought to instill in the Nissan-Renault alliance; for those inside the country, whether Ghosn's escape has robbed Japan of an opportunity to learn what went wrong, and whether its business practices should change.

What has been the experience of other foreign CEOs at Japanese companies?

Good, bad and ugly -- much like Ghosn's own checkered history in Japan where he started out as a corporate hero who rescued a struggling carmaker, but ended-up cast out as a vainglorious villain.

First the good. French-born Christophe Weber, took over as president and CEO of Takeda Pharmaceutical in 2015, lifted the drugmaker into the global top 10 by revenue with its acquisition of Irish peer Shire last year. The roughly $60 billion purchase -- the biggest outbound acquisition in Japan's history -- was approved by 90% of shareholders, though the massive amount of debt the deal incurred has worried some. Weber says the move will turn Takeda into a global contender and help it weather increasingly fierce competition from overseas rivals.

Next, the bad. Michael Woodford was fired in 2011 as president of Olympus, the medical devices maker, after the British businessman exposed a long-running scheme used to hide losses via dubious acquisitions.

Olympus only investigated and found criminality in the $1.7 billion accounting scandal after Woodford went public; an Olympus subsidiary then tried to sue Woodford in a British court. By comparison, Olympus executives who actually falsified the accounts pleaded guilty, confessed and received suspended sentences.

Last, the ugly. Sir Howard Stringer oversaw a turbulent but not unsuccessful era as CEO of Sony between 1998 and 2005, during which he struggled to build a collaborative culture in a company known for its divisional silos.

When asked in 2012 interview for his views on Japanese corporate culture, the Welsh-American sidestepped the question by pointing to an independent report on the Fukushima nuclear disaster, which highlighted four fundamental flaws: reflexive obedience; reluctance to question authority; devotion to sticking with the program; and hierarchy.

On the other hand, Tadashi Yanai, the Japanese founder of iconic retailer Uniqlo, did not mince his words in a recent Nikkei interview in which he said that Japan will "perish" if it doesn't remedy its economic complacency and executives' resistance to globalization.

Ghosn has slammed Japan's justice system. What do others say?

Impressively, Japan has one of the lowest homicide rates in the world and some of the safest streets anywhere. The overall conviction rate, meanwhile, is a startling 99% -- a fact often trotted out in descriptions of the Ghosn case.

But that statistic is deceptive. For one, prosecutors in Japan are reluctant to go to trial unless a conviction is certain. It is also common practice to detain suspects who deny allegations against them until they "confess."

In one infamous case, Muneo Suzuki, a former Japanese legislator suspected of mediating bribery, was held for 437 days before being granted bail.

Then there is the fate of one of Olympus's financial advisers, Nobumasa Yokoo, who spent three years in detention before trial and was subjected to up to eight hour interrogations. Yokoo, who was found guilty of abetting the falsification of financial statements but has maintained his innocence, has called Japan's judicial system "horribly flawed."

As it happens, his case was overseen by the same prosecutor in charge of Ghosn's case.

International criticism of what Ghosn has called Japan's "hostage justice" system may even have played a role in his release on bail after 108 days in prison after his legal team slammed Japanese justice and said the former auto executive had been subjected to a host of questionable practices during his detention.

Prosecutors have since suggested that Ghosn's escape is proof that it was wrong to release him on a $14m bail. Ghosn faces an Interpol "red notice" for his arrest, issued at Japan's request, and on Tuesday Japanese prosecutors also issued an arrest warrant for his wife, Carole, for alleged perjury.

On Monday, Justice Minister Masako Mori said: "I am aware there are a lot of criticisms about Japan's criminal justice system. ... But we believe that the fact that there are issues with the Japanese justice system does not mean that he can leave the country in an illegal manner." Ghosn has since said he would be prepared to face trial in Lebanon.

Separately, Ghosn has paid $1m to settle fraud charges with the U.S. Securities and Exchange Commission over allegations that he hid more than $140m of his pay package. Nissan paid a separate $15m settlement.

M&A between Japanese and foreign companies has surged. Why?

On the face of it, much like the Nissan-Renault tie-up that Ghosn oversaw, this is irrefutable evidence that Japan is internationalizing. Indeed, there has been a slew of outbound deals over the past decade, as Japanese companies have plowed billions overseas to offset the country's shrinking population and slowing economy.

Last year, Yahoo Japan announced a $27 billion tie-up with Line, a unit of South Korea's Naver; Asahi spent $11 billion on Australia's Carlton & United Breweries; while in 2018 Takeda Pharmaceuticals splurged $60 billion on the acquisition of Irish drugmaker Shire.

Other major recent deals include SoftBank's $36 billion acquisition of U.S. telecoms company Sprint; and Japan Tobacco's $19 billion acquisition of Gallaher and $8 billion acquisition of R.J. Reynolds' international tobacco businesses.

However, the record of companies buying into Japan -- other than Renault's cross-shareholding agreement with Nissan, and Foxconn's $3.8 billion purchase of electronics maker Sharp in 2016 -- are few and far between. In 2019, for example, the value of total outbound M&A reached 10 trillion yen, while inbound deals totaled just 1.5 trillion yen, according to data provider Recof.

In large part, the number of inbound deals remains small for the same reasons that Japanese companies are moving abroad: the country has negligible economic growth and a shrinking population. Japanese companies may be internationalizing but they are not necessarily internalizing that overseas expansion.

One illustrative example is U.S. carmaker Ford's one-third stake in Mazda. Built up through the 1990s, Ford sold down its stake through the 2000s -- a move that Mazda's then CEO Takashi Yamanouchi called a "godsend."

Corporate restructuring, spurred by foreign activist investors, has surged in Japan.

True. Shareholder proposals to nominate or dismiss directors or auditors have risen. Japan's stewardship code has facilitated greater investor engagement. And activist foreign investors have agitated for change at several Japanese companies, most emblematically Toshiba.

There they have produced some of the same kinds of restructuring that Ghosn was tasked to carry out internally as a manager at Nissan-Renault, and that Prime Minister Shinzo Abe has encouraged as part of his reform drive.

But that reform drive may be faltering. Parliament has passed a bill that tightens the review of investments by foreigners who may be looking to pressure companies to change.

The new rules require outside investors to file a notification before taking a 1% stake in listed Japanese companies across a broad list of restricted sectors. The previous threshold was 10%. The government can also review board nominations.

Still, some observers say Japan's long-term challenges of low growth and a shrinking population will continue to drive Japan Inc.'s restructuring and internationalization.

Japan needs foreign workers, but is it ready to open up?

Twenty years ago, Ghosn was brought in to save Nissan and make the tough decisions that a local leader would have found difficult if not impossible.

Today Japan needs outsiders for more mundane reasons: a steadily falling birthrate has created chronic labor shortages, particularly in construction, manufacturing and hospitality. Foreign-born people account for just 2% of Japan's population, compared to 14% for the U.S. or 11% for France.

To change the situation, while retaining Japanese cultural integrity, the government has slowly opened the door to foreign labor, introducing a revised immigration law last April to allow visas for blue collar workers for the first time.

Leery of a public backlash, however, the government has insisted that such moves do not constitute an "immigration policy." Foreign reaction to Japan's opening has also been lukewarm.

The government had hoped to issue 40,000 "semiskilled" visas within a year of first offering them in April. As of the end of November, however, just 1,019 had been issued. Uncompetitive wages, red tape and language barriers have all been cited as hurdles for overseas workers.

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