Carlos Ghosn, who had such a storied ascent in the auto industry that a graphic novel was written about him labeling him as a super CEO, was fired Monday as chairman by Nissan Motor and arrested in Tokyo for under-reporting his income for several years to Japanese financial authorities.
Ghosn was targeted by a whistle-blower who gave authorities information on Ghosn’s compensation, as well as charges that he has been using company assets for his own personal use. These are practices, especially using company assets for non-business use, that have taken down other CEOs who come to blur the lines between company assets and privileges of position with their personal lives and wealth.
Along with Ghosn, Nissan board director Greg Kelly was also accused by Japanese authorities of misconduct and wrongdoing. Ghosn, 64, is CEO of the Nissan-Renault-Alliance, a structure in which Nissan and Renault own substantial stakes in one another and Nissan owns a controlling stake in Mitsubishi, with Ghosn the architect behind all three companies. With Ghosn apparent ouster upon us, much speculation will be directed upon the future of the Alliance.
Nissan issued a statement that it was being recommended that Ghosn and Kelly be removed from their positions.
Ghosn sits at the top of a complicated corporate structure as CEO of the Renault-Mitsubishi-Nissan Alliance. Renault took a stake in Nissan in 1999 with control over management because the company was reeling from long-time mismanagement. But Ghosn stepped down as CEO of Nissan last year while remaining head of the Alliance.
As CEO of the Alliance, a post he said he would hold through 2020, Ghosn throws a big shadow. He has been long known as an alpha-CEO with his hands on the chess pieces of all three companies, often to the resentment of the executives he puts in place.
Observers had mixed reactions to the news. "Really shocked about Mr. Ghosn, but I've started to hear rumblings that he won't be terribly missed. He had an awful lot of power and control for many years,” says Rebecca Lindland, senior analyst at KBB.com.
“Mr. Ghosn’s compensation long was the subject of criticism and jealousy by people at Nissan,” said Michelle Krebs, director of automotive relations at Autotrader.com. "Japanese executives and employees do not make the kind of money that executives elsewhere do. So this was always an issue. It probably would have been ignored except that the automaker is not doing as well as it was."
Ghosn is specifically under suspicion of under-reporting his corporate salary by about $44.6 million in violation of the Financial Instruments and Exchange Law, the Tokyo District Public Prosecutors Office revealed today.
One former employee of Nissan who asked not to be named because he still does business with the automaker speculated that Nissan’s Japanese managers targeted Ghosn with information to the Japanese authorities because they were anxious to move out from under Ghosn’s authority. “The Japanese never loved this arrangement, but they had to take it because Nissan was a wreck, but that’s 20 years ago, and the company is successful now and a lot of senior executives and even Japanese government officials would like to put Ghosn in the rearview mirror.”
Dr. David Cole, chairman emeritus of the Center for Automotive Research, has advised many CEOs in the auto industry, and he says time has probably caught up with Ghosn. "He takes a more king and subjects approach to managing than the coach of a team," says Cole. "He has managed an incredibly complex political web of people and operations for almost two decades."
Investors are not reacting well. Shares of Renault dropped 10% on the news. Nissan shares fell 9%.
Nissan issued a damning statement about Ghosn and Kelly. "Based on a whistleblower report, Nissan Motor Co., Ltd. (Nissan) has been conducting an internal investigation over the past several months regarding misconduct involving the company's Representative Director and Chairman Carlos Ghosn and Representative Director Greg Kelly. The investigation showed that over many years both Ghosn and Kelly have been reporting compensation amounts in the Tokyo Stock Exchange securities report that were less than the actual amount, in order to reduce the disclosed amount of Carlos Ghosn's compensation. Also, in regards to Ghosn, numerous other significant acts of misconduct have been uncovered, such as personal use of company assets, and Kelly's deep involvement has also been confirmed."
Ghosn’s operational skills have been highly valued. At Nissan, he transformed the company, blew up jobs and old factories that previous managers were reluctant to. Some posited that the company required an outsider who had no political or personal ties inside it to attack waste and inefficiencies, and a foreigner was better able to go against Japanese social mores that make radical restructuring difficult.
But some developments at Nissan show that perhaps Ghosn has become spread too thin. Last October, Nissan has to stop production at all of its factories in Japan after it became known that it had been falsifying emissions and fuel economy tests–similar practices that have cost Volkswagen more than $18 billion in fines and lawsuits.
Ghosn’s management savvy has been studied by business schools as he has been able to combine the operations of two major car companies without it blowing up. This stands in contrast to failed mergers like BMW’s acquisition of Rover and Daimler’s acquisition of Chrysler, as well as the inability of Ford to assimilate its acquisitions of Jaguar and Volvo.
With the takeover of Mitsubishi, which was encouraged by the Japanese government to save yet another Japanese automaker reeling from years of mismanagement, the Alliance is on a roll to sell some 11 million vehicles this year. That’s more than GM, VW Group or Toyota.
Ghosn, who was at Renault when the Nissan deal was struck, was instrumental in creating the scheme by which Renault and Nissan own substantial stakes in one another so that both companies would be compelled and motivated to cooperate. And the two companies have flourished under Ghosn and the structure, maintaining distinction among the companies’ brands, creating huge savings on purchasing and technical development. Ghosn added to the Alliance by having Nissan own 34% of Mitsubishi.
Ghosn's compensation has long been complicated. He draws salaries from Renault, Nissan and now Mitsubishi. He has been at odds with the French government over his compensation at Renault. French President Macron, back in 2016 when he was Finance Minister, compelled Renault to dial back Ghosn’s salary. Shareholders have voted against Ghosn’s proposed pay packages in recent years. At Nissan, Ghosn makes considerably more than most Japanese auto executives, so there is said to be resentment among both Nissan insiders and his Japanese peers at other companies who have much influence with the Japanese government–arguably more than Ghosn has.
A scandal that brings down powerful people like Ghosn brings with it catcalls from people they have left in their wake. Ghosn's ex-wife, Rita Ghosn, posted this message to social media on Monday: "All narcissists are hypocrites. They pretend to have morals and values that they really don't possess. Behind closed doors, they lie, insult, criticize, disrespect and abuse. They can do and say whatever they want, but how dare you say anything back to them or criticize them. They have a whole set of rules for others, but follow none of their own rules, and practice nothing of what they preach."
Ghosn's future will be in the hands of Japanese and French lawmakers and law enforcement.
