Wednesday , June 26 2019

Calling time on Ghosn not a moment too soon

Where did Nissan Motor Co. end and the world of Carlos Ghosn begin? It’s unclear after his decades-long reign.
“I have dedicated two decades of my life to reviving Nissan and building the Alliance,” Ghosn told a Tokyo court on Tuesday in his first appearance since his arrest, according to a prepared statement. He had worked “day and night, on the earth and in the air,” the former Nissan chairman said. In closing, Ghosn said he was innocent of the accusations made against him.
Ghosn’s innocence or guilt is for the court to decide. Still, his fate raises the question of whether his corporate tenure should have drawn to a close even earlier.
A multi-part series on “What Drives Carlos Ghosn” on the company’s website and – which includes his baby pictures – talks about how the executive split his time between four countries. “This kind of lifestyle can take a toll on anyone – both physically and socially. But it’s what’s required of many leaders in the age of globalisation,” it
says. Such personal sharing by the CEO on a corporate website is rare.
The annals of CEO history are filled with stories of legendary men whose misuse of company assets precipitated their downfall. Often, the blurred line between their business and private lives lies at the heart of it. Ghosn became so personally entwined with Nissan that he ended up overshadowing the company, even after moving into the chairman role and appointing his personal choice of Hiroto Saikawa as CEO.
The longer a top executive spends at the company, it seems, the fuzzier those lines become. Consider Ghosn’s explanation about why Nissan covered his collateral on personal foreign-exchange forward contracts during the financial crisis. When the executive realised he didn’t have the resources to put up the amount himself, according to his statement, he was faced with a choice: either resign and use his retirement allowance, or ask Nissan to take on the burden “so long as it came to no cost to the company” as he gathered cash from other sources to pay the company back. He chose the latter. His “moral commitment to Nissan” didn’t allow him to walk away because “a captain doesn’t jump ship in the middle of a storm,” the statement says.
Whether or not Nissan incurred losses is beside the point (Ghosn said it didn’t). That Nissan was even a stopgap option for its top executive’s personal trading losses presents an already-flawed picture.
Other allegations include Nissan paying “huge sums” toward Ghosn’s residences in four cities around the world that weren’t justified by the business, according to Japanese broadcaster NHK. It also reported that Ghosn charged travel expenses for family vacations, amounting to tens of millions of yen to a Nissan unit. These weren’t addressed in the statement.
Long tenures hurt companies, too. A retrospective look at the likes of General Electric Co.’s Jack Welch shows as much. A study found that the longer CEOs are at the helm, the more reliant they become on their internal networks for information and less attuned they are to market conditions. In Ghosn’s case, perhaps blindsided by the status quo, he ignored Nissan’s dismal performance in recent years in its largest markets. He also seemed to have ignored the growing discontent around him.
Planned corporate successions are also rarer than you’d imagine. The rate of CEO turnover at the world’s largest companies because of ethical lapses rose almost 40 percent from 2007 to 2011 and from 2012 to 2016. Meanwhile, the median CEO tenure at large-cap firms in the US is around five years, down from six in 2013. Research has found that replacing CEOs is good for companies. A PricewaterhouseCooper study from 2016 found that Japan and Western Europe had one of the highest CEO turnover rates – 15.5 percent and 15.3 percent. Most CEO changes in Japan are planned.
The power Ghosn wielded was impressive and, to be fair, so was his commitment. Yet as we’ve written before, the company had one of the worst corporate governance records in Japan during his oversight. Critics say this is a reality of Japan Inc. If Carlos Ghosn was such a hard-hitting, internationally renowned executive who did things differently, shouldn’t he have been able to change that?
It’s unfortunate Ghosn departed this way. Perhaps shareholders can extract a lesson in the dangers of letting a legendary leader stay too long.


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

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