ArrowArtboardCreated with Sketch.Title ChevronTitle ChevronEye IconIcon FacebookIcon LinkedinIcon Mail ContactPath LayerIcon MailMenu BurgerPositive ArrowIcon PrintIcon SearchSite TitleTitle ChevronIcon Twitter
With Carlos Ghosn gone, Japan is being forced to grapple with his legacy -- and to decide whether to keep faith with the business revolution in which he played a role.   © AP
Cover Story

What Japan Inc. really thinks about Ghosn, Nissan's maverick savior

Carlos Ghosn's downfall sets up a clash between Japan's old guard and its reformists

TOKYO -- The Tsuru banquet room at the Hotel New Otani in Tokyo is decorated with images of Japanese cranes in flight. The white-feathered bird is regarded in Japan as a symbol of longevity and faithfulness, and formerly featured on the most common bank note, the 1,000 yen bill; tsuru no hitokoe -- "the crane's word" -- is a Japanese proverb for a decisive intervention from an authoritarian figure. Its broad wings often carry it across great distances.

Longevity, faithfulness -- and one particularly long flight -- were very much on the minds of the hundreds of executives who met in the banquet room to mark the start of the year on Jan. 7. They had returned from the traditional shogatsu holiday break to the shocking news that Carlos Ghosn, the once-celebrated, now-disgraced Nissan Motor leader, had made a dramatic escape from house arrest in Tokyo.

These new year meetings, such as that held at the New Otani on an unusually drizzly January day, demonstrate the consensus-driven nature of corporate Japan. Competitors huddle with politicians to listen to the prime minister speak, to exchange pleasantries and chat about the year ahead. Ghosn -- who became a household name, first for leading the restructuring and revival of Nissan in 1999, and latterly for his arrest in 2018 for allegedly understating his compensation -- represented a challenge to this collegiality, both in style and substance.

For most attendees, the Ghosn affair was judged too awkward to discuss openly by many in a culture that typically dislikes open conflict. However, the nature of his flight -- smuggled onto a private jet in an audio equipment case -- and his flamboyant news conference in Beirut, in which he attacked the Japanese judicial system and accused the country of "repaying me with evil," have turned it into a global story. Many in Japan would level the same accusation at Ghosn, who, having been accused of a serious corporate crime, fled before he could face trial.

Although at its heart the case is a criminal one, the nature of his performance, amid the complex international corporate battles at Nissan, has rekindled a sensitive debate about Japan's relationship with overseas talent and imported "superstar" CEOs.

Former Nissan board member Toshiyuki Shiga worked alongside Ghosn for nearly 20 years, including a spell as the automaker's chief operating officer. Speaking to the Nikkei Asian Review on the fringes of the meetings, he expressed disappointment with his former boss, and frustration that Ghosn had fled Japan instead of staying to fight his cause.

"Carlos Ghosn used to be a person who never ran away from an adversary. He tackled it head on. When I heard the news, I was very surprised and shocked. I missed the old Ghosn," Shiga said. "I wished he had tried to influence Japan from within. This is not a country that turns a deaf ear to calls for change. ... My fear is that it gives an impression that Japanese companies are insular and drives away talent from overseas."

A billboard in Beirut: Carlos Ghosn is a controversial figure both in Lebanon and Japan.   © Reuters

Many in Japan feel a similar sense of betrayal, made worse by the bitter attacks on its judicial system. With Ghosn gone, Japan is now being forced to grapple with his legacy, and to decide whether to keep faith with the business revolution in which he was the most visible figure.

Over the nearly 20 years of Ghosn's tenure, Japan has changed. Foreign executives are more common; at many levels, the country is trying to open up to international talent to deal with a profound shortage of labor. However, the ill-feeling created by Ghosn's sudden flight, and his attempt to push an alternative narrative to that of Nissan and Japanese prosecutors, could have consequences for Japan's gradual internationalization.

"Ghosn was the most brilliant operational manager of our generation and the start of the old Japan realizing through example that global leadership actually has its merits," says Jesper Koll, head of Japan for the U.S. asset manager Wisdom Tree. ''But this country is very clear that it does not want superstar American-style CEOs and personal enrichment. I fear the reaction will be a closing of the Japanese mind."

'Le Cost Killer'

The "old Ghosn" arrived at Nissan's Ginza headquarters in 1999 to tackle a crisis that had defeated Japan. Nissan Motor was a venerable Japanese icon, founded in 1933, that had become one of the world's biggest carmakers. It entered the U.S. in 1958 with its Datsun brand and in the 1980s and 1990s, along with Toyota Motor, became known for beating Detroit to make higher-quality cars with innovative manufacturing techniques.

But by 1999, the company was in deep trouble. It had made losses in seven of the eight previous years, few of its models were profitable, and costs were inflated by its practice of purchasing parts from within its 1,400-strong keiretsu group of suppliers and associated businesses. It had built up $19 billion in debt and its banks did not want to lend more, but its executives still hesitated over what to do.

Renault bailed the company out, taking a 37% stake -- later raised to 43% -- and forming an unprecedented global alliance between Japanese and European carmakers. Louis Schweitzer, the then-chairman of Renault, sent Ghosn, a Brazilian-born, French-Lebanese executive, to break with tradition and implement a painful restructuring.

"When you are a foreigner going to Japan, you are going for one reason and that is it. It is turning around the company, period," Ghosn recalled five years ago, talking to students at Stanford University. "That is what people are expecting from you. How much you work, what you do, if you have problems, if you have remorse, nobody cares. 'Fix it': That is the message."

Ghosn poses before a Fuga model luxury car at Tokyo Motor Show in 2003.   © Reuters

He arrived with a reputation for cost-cutting and restructuring in France, both at Michelin and then Renault, becoming known as "Le Cost Killer." But he was subtle enough to know that he could not simply impose that formula in Japan: Although he brought a team of 30 managers from Renault, he turned down offers of help from consulting companies and spent three months listening to employees himself. Clad in a factory jacket, he was a humbler, more consensual figure than the one on display in Beirut this January.

"I know how much effort and pain must be endured and am painfully aware of the need for sacrifice," Ghosn declared in October 1999 as he unveiled his Nissan Revival Plan. It included tough measures -- the closure of five plants and loss of 21,000 jobs, or 14% of the workforce. He also struck at the heart of Nissan's keiretsu, changing contracts to save money and eliminating its cross-shareholdings. The shock to the system was so significant that he is credited with driving the consolidation of Japan's steel industry, with the merger of Kawasaki Steel and NKK in 2001.

Ghosn also had an influence on Nissan's corporate culture. He took aim at the tradition of lifetime employment and promotion by age and seniority, which he saw as blocking talented younger managers from rising. Critics say that he also gradually abandoned his consensual approach in favor of concentrating power at the top, ruling by tsuru no hitokoe, rather than by consensus.

"I don't make scenes or attack people. I'm firm, but not confrontational," Ghosn wrote of his own style in his 2004 book "Shift: Inside Nissan's Historic Revival."

His medicine worked: Nissan hit the targets he had set of restoring operating profitability and halving its debt within three years, and Ghosn became an icon in Japan. He was popular -- even revered -- for risking his career on Nissan. He was featured in manga comics and the government awarded him a medal for outstanding achievement in 2004. Ghosn took his plaudits modestly, writing of the broader lesson: "Nissan's successful rebirth is a life-size illustration of what this country is capable of."

"The biggest contribution Ghosn made to the Japanese economy is that he told Nissan the importance of making money," says Atsushi Osanai, a professor at Waseda Business School and a former Sony executive. "The first thing he did was to stop various research programs and instead focus on design of products that could sell in the international market. That is how businesses should operate. If there is anything Japan has to think about, it is to get serious about making money first."

Culture clash

Being too serious about making money may have been Ghosn's downfall. Even before his arrest in 2018, revelations about his pay and gilded lifestyle, including a 2016 costume party given with his wife Carole at the Grand Trianon in Versailles, offended some in a country that shuns public displays of wealth.

The disquiet in some quarters was about more than Ghosn as an individual, but about what he represented -- a more buccaneering, Anglo-Saxon style of management, motivated by shorter-term metrics, including compensation.

Japanese companies traditionally recruit young workers as lifetime employees and restrain differences in pay to maintain internal mobility. The system shares company profits with many employees, limiting high rewards at the top level. Although 10 senior managers, including Kazuo Hirai at Sony, Ryota Akazawa at Fuso Chemical, and three top executives of SoftBank Group were each paid more than 1 billion yen ($9.1 million) in 2018, they are exceptions.

Mercer Japan, the human resources consultancy, found that CEOs of companies headquartered in Japan and employing between 7,000 and 12,000 people were paid an average of 87 million yen in 2018. This was 80% less than at U.S. companies of the same scale, and 50% less than German equivalents. "There is a clear lack in benchmarking remuneration of global human resources among Japanese companies," says Miwako Itoh, a senior consultant at Mercer.

Among Ghosn's high-profile moves was to reform Nissan's supply chain, which drove consolidation in Japan's steel sector. (Photo by Koji Uema)

Japan's pay and promotion structures remain a barrier to attracting international talent into the country -- something that the government has made a stated ambition under Prime Minister Shinzo Abe.

Internationalization is one of the driving principles of "Abenomics," which seeks to make Japanese companies and the Japanese economy more competitive with their global peers. The government has reduced corporate taxes and increased public spending to try to stimulate growth, and has tried to push for reforms to some long-standing corporate practices that outsiders see as anti-competitive -- such as listed companies' cross-shareholdings and the absence of independent directors on boards.

The government wants to raise foreign direct investment to 35 trillion yen this year from 30.7 trillion yen at the end of 2018, and to encourage more executives and skilled workers to come to Japan. Although the country has long limited immigration, its demographics are widely acknowledged as a profound challenge that needs to be addressed. Its population of 127 million is now falling and the International Monetary Fund has warned that, without economic reform, real gross domestic product could shrink by 25% in the next 40 years.

"Nothing new can be created out of uniformity," says Nobuaki Kurumatani, chief executive of Toshiba. "Look at Japan's World Cup Rugby team. We won't slow our efforts to pursue diverse talent."

A "specified skilled worker" visa scheme for workers in labor-constrained industries was established last April, although takeup has been poor. The government has a target of 345,000 migrants under the visa over five years, with 40,000 in the first year. However, by November, just over 1,000 people had arrived under the scheme.

"The Japanese labor market is a case of Galapagos syndrome, just like its old feature phone market," says Waseda Business School's Osanai, "Workers' wages and executive compensation in Japan are kept low by the lack of labor mobility between Japan and the rest of the world. It has helped Japanese companies to keep personnel costs low, but it also meant that they have trouble attracting international talent."

Pay is only part of the problem. At a broader level, language and culture can be challenging. Japan is one of only a few developed countries without comprehensive anti-discrimination legislation.

Ghosn's claims to have been treated unfairly are now unlikely to ever be proven in court, but there is a sense -- shared by Japanese and international executives -- that foreign executives are often regarded as mercenaries, brought in to solve especially tough challenges. That has bred mistrust, particularly when their performance dips, or when they come up against governance issues.

Some, such as Christophe Weber at Takeda Pharmaceutical and Sarah Casanova at McDonald's Japan, are regarded as successful. But Sir Howard Stringer's record at Sony was mixed and Olympus' appointment of Michael Woodford as CEO in 2011 led to a fierce clash after he disclosed an accounting fraud. He lost his job, and the scandal subsequently led to the resignation of the company's entire board and the arrest of several senior executives. As difficult as their experiences may have been, the parallels with the Ghosn case are limited -- no other high-profile foreign CEO has faced, and fled, criminal charges.

However, such experiences have left lingering doubts about how deeply Japan wants the disruptive effect of recruiting from abroad. "Japanese corporate culture is extremely dense and it is hard for them to fully accept anyone who comes from outside and has not absorbed it," says Stephen Givens, a Tokyo-based lawyer who advises on deals. "If I were a talented foreign executive, the last thing I'd want to be was president of a Japanese company."

Pivotal moment

This uncertainty about whether foreign talent should be something for short-term expedience, or part of the long-term fabric of Japan Inc., speaks to a wider ambivalence, notably within the still-powerful Ministry of Economy, Trade and Industry, over whether opening up is a good idea at all. Some believe it weakens the economy's strengths of long-termism, consensus and social harmony.

"I sometimes think that Japan followed Anglo-Saxon business practices too much during the 2000s," says Sota Kato, executive director of the Tokyo Foundation for Policy Research and a former METI official. "The Western system works for some industries. The Japanese system works for others."

For some, discord between Ghosn, Renault and Nissan after years of harmony is a warning sign that progress could stall, or even reverse.

There have been signs of that reversion, notably in October, when the government unveiled a law to force the disclosure of stakes of more than 1% in companies in strategic industries, such as aerospace. After protests from activist investors, it clarified that the law would not apply to them -- provided they did not seek to gain board seats, or try to force the sale of business units. "One of the biggest Abe legacies is improvements in corporate governance and they do not want to lose that," says Nicholas Smith, Japan strategist at CLSA.

Although the law was less draconian than feared, it coincided with tensions over Nissan's future. Analysts detected the hand of METI, and its wish to retain control over key sectors and technologies. Ghosn, in his Beirut press conference, blamed his downfall on Nissan's fear of a Renault takeover, dating back to the 2015 Florange law in France, which doubled voting rights for long-term equity stakes and increased the influence of the French state. "Some of our Japanese friends thought the only way to get rid of the influence of Renault on Nissan is to get rid of me," he said.

Ghosn in 2001 with Junichiro Koizumi, prime minister at the time, during the test drive of an eco-friendly Nissan model at Japan's parliament.   © Reuters

Some Japanese lay the outbreak of national conflict at Ghosn's door because he made Nissan overreliant on one person -- himself. "A global company requires governance that monitors executives, but Nissan became global without it because of his extreme leadership style," says Takaki Nakanishi, CEO of Nakanishi Research Institute, an auto industry intelligence company in Tokyo. "He protected it from the French government and Renault, but he became selfish toward the end to satisfy his own interests."

Even though the Renault-Nissan alliance succeeded in its initial goal -- saving Nissan -- over the following two decades, its popularity waned substantially.

"There is a widely held belief, within Nissan and the METI, that the relationship between Nissan and Renault is lopsided and needs to be corrected," says Kato. The fear was that Nissan would become a "cash dispenser" for the French group, developing French-owned rather than Japanese technology. That goes to the heart of how METI regards its oversight role in the economy.

To outsiders, it is an alien idea that Renault's stake in Nissan should be "corrected" because its bet in 1999 paid off better than Japan expected. But within Japan, there have been changes to capital structures when a subsidiary was doing better than its parent. Kato cites the examples of Seven-Eleven Japan, which was owned by the Ito-Yokado supermarket chain, and Fuji Television Network and Nippon Broadcasting System. Japanese officials would have liked to see the same approach at Nissan, he says. METI says that it is observing events at Nissan and Renault, but any changes are a matter for the companies.

This paradox at the heart of Abenomics -- that Japan realizes it needs to open up to global business, but is afraid of losing influence over Japanese research and development, as well as technology -- has erupted in the Ghosn affair. But it has far broader implications for the future of the economy, and its attitude to global integration. The alliance between Nissan and Renault seemed, for two decades, to provide the best of both, but when a battle for control developed between France and Japan, it proved unstable.

"I'm not going to waste my time with someone whose sole concern is his personal interest," Ghosn wrote in "Shift" of his 1999 effort to forge internal consensus at Nissan. He later weakened his authority by becoming too concerned about his own pay. Having created a groundbreaking alliance, in leaving Japan so bitterly he may have undermined the phenomenon that he embodied.

That is not guaranteed, and opening up still has many highly placed proponents. Masayuki Hyodo, chief executive of the trading company Sumitomo Corp., told Nikkei that, while Ghosn's flight was "very regrettable," he remains optimistic. "Globalization of society and business activity is something that is no longer reversible. There is nothing difficult about hiring foreign talent. Companies in other countries are doing it; there is no reason to think Japanese companies cannot."

However, for Ghosn's critics, and those who remain opposed to the loss of control over the country's flagbearers, the sour ending to the once-admired turnaround story has served to show the long-term difficulty of creating a fusion of Japanese and global approaches to business.

Nissan's alliance with Renault was widely interpreted as a watershed in Japan's liberalization and embrace of a Western-style free market. Twenty years on, it is clear that economic conservatism is still a powerful force in Japanese politics. "If the Abe government had been in power then, it wouldn't have let Renault buy Nissan," Kato concludes.

Sponsored Content

About Sponsored Content This content was commissioned by Nikkei's Global Business Bureau.

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this monthThis is your last free article this month

Stay ahead with our exclusives on Asia;
the most dynamic market in the world.

Stay ahead with our exclusives on Asia

Get trusted insights from experts within Asia itself.

Get trusted insights from experts
within Asia itself.

Get Unlimited access

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this month

This is your last free article this month

Stay ahead with our exclusives on Asia; the most
dynamic market in the world
.

Get trusted insights from experts
within Asia itself.

Try 3 months for $9

Offer ends January 31st

Your trial period has expired

You need a subscription to...

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers and subscribe

Your full access to the Nikkei Asian Review has expired

You need a subscription to:

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers
NAR on print phone, device, and tablet media