Light and Darkness brought by Carlos Ghosn
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Summary of Nissan Revival Plan
Light and Darkness
brought by Carlos Ghosn
Carlos Ghosn arrived in Japan from France’s Renault SA with the task of rebuilding Nissan Motor Co. Not only did he achieve a rapid turnaround in Nissan’s performance, but his charismatic management style changed Japanese corporate culture. However, that global figure was arrested in November by the Tokyo District Public Prosecutors Office and removed as Nissan chairman. This special page reviews the “Light and Darkness” brought by Ghosn during his 19 years in Japan.
The emergence of Carlos Ghosn on the Nissan stage brought reform not only to the Japanese automaker but to the wider Japanese corporate culture as well.
The dispatched executive
Nissan Motor Co. was on the brink of bankruptcy with about 2 trillion yen ($17.6 billion) in interest-bearing debt in March 1999, when it entered a capital partnership with major French automaker Renault SA.Renault sent Carlos Ghosn to Nissan to serve as chief operating officer. At that time, Ghosn was a vice president at Renault, where he had made a name for himself in a drastic restructuring program, similar to what he accomplished at the U.S. subsidiary of French tire manufacturer Michelin.In an August 1999 interview with The Asahi Shimbun, Ghosn emphasized that he would consider himself a failure if he could not rebuild Nissan within five years.In a veiled swipe at Nissan’s management style, Ghosn said Japanese companies for too long had not taken seriously the burden of interest-bearing debt, and he stressed he would do everything he could to reduce the debt held by Nissan.
In October 1999, Ghosn announced his “Nissan Revival Plan,” a major restructuring program put together after Nissan and Renault agreed on the capital partnership.One pillar of the plan was to significantly reduce manufacturing capacity by closing three auto assembly plants and two parts manufacturing factories and laying off 21,000 group employees, or about 14 percent of the total work force, over three-and-a-half years.Ghosn also said he would revamp Nissan’s financial condition by selling off assets, such as real estate.Ghosn declared that through those efforts he intended to bring about Nissan’s complete recovery.Nissan then began its first step toward rebuilding under Ghosn, who said that nothing was taboo for that goal.
Former site of Murayama plant
V-shaped recovery
Carlos Ghosn often spoke about “commitment” when pushing through his reform efforts at Nissan, pledging to fulfill his objectives or take responsibility.“Commitment” became synonymous with Ghosn’s management style, and the first goal he set for himself was to have Nissan turn a profit for the fiscal year ending in March 2001. He pledged to quit the Japanese automaker if that goal was not met.Other Japanese executives soon began to copy Ghosn’s management style.
Nissan Motor Co. performance before and after Ghosn appointment
*Figures taken from 2001, 2002 Nissan Motor Co. Annual Report
In its consolidated financial statement for the year ending in March 2000, Nissan recorded a net loss of 684.4 billion yen, mainly because of the poor performance of its main auto operations as well as the recording of an extraordinary loss from the various restructuring measures implemented.But Ghosn remained confident, saying he had eliminated Nissan’s negative legacy and that the net loss was only a temporary setback.In June 2000, he was promoted to company president while retaining his post as chief operating officer, giving him greater control of Nissan.Ghosn’s emergency surgery on a company that appeared to be on its death bed began to show results.For the year ending in March 2001, Nissan made a complete turnaround, recording a net profit of 331.1 billion yen.At the news conference announcing the V-shaped recovery in Nissan’s profit status, Ghosn said he had achieved his first commitment.In 2002, Ghosn declared the Nissan Revival Plan had been achieved a year earlier than initially scheduled. All interest-bearing debt was paid off in 2003.Ghosn’s achievements as a strong-armed corporate manager reverberated through Japan and around the world.
Ghosn brought back popular models of the past
At the 2001 Detroit Motor Show, Ghosn announced Nissan’s resurgence and declared that the Z model (Fairlady Z) would be revived. The following year, it was put on sale after a full-scale model change and became a symbol of Nissan’s resuscitation.
The Skyline GT-R was forced to stop production because it could not meet exhaust standards, but its successor model, the GT-R, was made available from 2007 and became so popular that customers had to wait months before actually acquiring one.
Changing Japan’s corporate culture
The effects of Ghosn’s management style were not limited to the automobile sector. His methods would also dramatically change Japanese management in industries that support the auto industry.In 1999, Nissan entered negotiations with steel companies and parts manufacturers seeking reduced prices for supplies. One condition given by Nissan was to increase the volume of orders by reducing the number of its suppliers.The negotiations were seen as an important way to slash Nissan’s procurement costs. But for the suppliers, the so-called Ghosn shock had major ramifications.
Japan’s “keiretsu” corporate structure
Nissan asked steel manufacturers to cut their prices for steel plates. The cost competition triggered by the Ghosn shock led to reorganization of the steel sector, symbolized by the 2002 establishment of JFE Holdings Inc. through the merger of Kawasaki Steel Corp. and NKK Corp.Ghosn’s management style also cut into the “keiretsu” system of Japanese industry in which large groups are organized around major companies, often through cross-shareholdings.With Ghosn as president, Nissan withdrew the capital it had invested in many of its keiretsu affiliates, forcing those companies to expand their transactions with other automakers or to become subsidiaries of foreign companies.The keiretsu pyramid in the auto sector, with automakers at the pinnacle and parts manufacturers spread out below, allowed for cooperation in development and manufacturing. But it also required a close relationship between the parent company and lower-tier affiliates. That system was once the target of criticism from abroad because it symbolized the closed nature of the Japanese market.But Ghosn’s emergence forced major changes in the keiretsu system from within.
Other companies copied Ghosn's management style
In addition to dissolving the keiretsu structure, other moves spread to overcome the traditional Japanese management style. More major companies began appointing foreigners to serve as president, while other companies made English their official language.Many companies also reviewed the pay and promotion system that had been heavily tilted toward seniority and began focusing on job performance in determining salaries.
The negative aspects of Ghosn’s management style led to prosecutors extending their investigation to the Nissan chairman himself.
The discarded ones
The “Nissan Revival Plan” that Carlos Ghosn put together as chief operating officer was an unprecedented restructuring program that closed five plants, reduced the work force by 21,000 and reviewed transactions with affiliated companies.Ghosn had already earned the nickname of “cost cutter” for turning around companies, such as Renault SA and Michelin, through thorough rationalization.At an October 1999 news conference, when he announced the Nissan Revival Plan, Ghosn tried to gain understanding through the use of his less than fluent Japanese.“I know how much effort and pain must be endured and am painfully aware of the need for sacrifice,” he said.The restructuring plan shocked many within Nissan as well as those outside the company because the automaker had already closed a major auto assembly plant in Zama, Kanagawa Prefecture, in 1995.
Work force reductions included in Nissan Revival Plan
Some employees agreed to transfer to the automaker’s Murayama plant in western Tokyo after the closure of the Zama plant. But in 1999, the Murayama plant itself became subject to closure under the Nissan Revival Plan, meaning some employees again felt the pain of losing their jobs.“Although the closure of the Zama plant involved a large amount of pain, we ended up agreeing to the request of the company,” a high-ranking official of the Nissan labor union said at the time. “We tried to extend as much cooperation as possible in the aftermath, but that could not stop (a further closure).”One has to wonder how those who agreed to endure the pain of corporate reform now feel about Ghosn after his arrest on suspicion of under-reporting his executive salary on Nissan’s annual securities reports.
Awkward trilateral alliance
Ghosn was sent to manage Nissan 19 years ago. Since 2005, he has concurrently served as chief executive officer of both Renault and Nissan, performing the role of an “adhesive” to bring the two companies closer together..Attempted reorganizations among automakers are often said to fail because each company has a strong sense of wanting to develop unique technology and maintain its corporate identity.
However, Ghosn has been praised for his skill in maintaining the capital and business partnership between Nissan and Renault and turning it into a global alliance.Ghosn’s fall has led to revelations of pent-up dissatisfaction within Nissan over Renault’s leading role in the automobile alliance that now also includes Mitsubishi Motors Corp.Nissan managed to overcome its past management difficulties through the capital injection from Renault, but the French automaker’s own performance in recent years has not reached the levels of Nissan.Still, Renault continues to hold a 43-percent stake in Nissan with voting rights, while Nissan only has a 15-percent stake in Renault and with no voting rights.Because of Renault’s large shareholding, Nissan, which has greater sales and profits than Renault, has sent a significant part of those profits to the French company in the form of dividends.For those reasons, Nissan executives have long wanted to correct what they consider an unequal treaty with Renault. That is one reason the French government, which owns a 15-percent stake in Renault, has been closely following any attempt by Nissan to review the capital relationship.On Nov. 30, Prime Minister Shinzo Abe met with French President Emmanuel Macron in Buenos Aires on the sidelines of the Group of 20 summit in response to a request from the French government.The fact that the two leaders discussed the future of the trilateral alliance demonstrates that the relationship between Renault and Nissan is now turning into a diplomatic issue.
Doubts about personal use of company
About 300 reporters gathered at Nissan’s global headquarters in the Minato-Mirai district of Yokohama at 10 p.m. on Nov. 19 for a news conference. The only Nissan representative was President and CEO Hiroto Saikawa.“An internal company investigation has found that Nissan Chairman Carlos Ghosn led the way in three major questionable acts,” Saikawa said.He said the three acts were: 1) entering a reduced executive salary in the company’s annual securities reports; 2) using company investment funds for private purposes by coming up with false objectives; and 3) using company expenses for private purposes.
Bases of trilateral alliance and homes used by Ghosn around the world
Saikawa did not reveal details about those acts at the news conference, but a number of suspicions have arisen during subsequent interviews with various sources.Expensive homes that Ghosn has used in such areas as Beirut and Rio de Janeiro were purchased through an overseas subsidiary of Nissan.A local real estate expert told an Asahi reporter that the value of the Lebanon home was at least about $5 million (about 560 million yen).
Residences in Rio de Janeiro, left, and Beirut used by Carlos Ghosn
Another revelation was that Nissan paid about $100,000 (about 11.3 million yen) annually to Ghosn’s older sister under a contract for “advisory work” although there are no signs that she ever did any work.Other suspicions emerged following Ghosn’s arrest.He is suspected of not including in the annual securities reports about 4 billion yen from his right to collect bonuses tied to Nissan’s stock price as well as having Nissan cover losses incurred through personal investments.“He had become too much of an overwhelming presence, and that led to the mixing of private and public purposes and the use of the company for his personal ends,” a Nissan executive said.
Sudden arrest
Suspicions
Ghosn’s arrest sent shock waves not only through Japan but also around the world. However, action against him started behind the scenes more than six months earlier.In March, a Nissan whistle-blower raised complaints about Ghosn’s questionable financial dealings. The information was passed on to prosecutors, and an investigation started in line with the June start of a plea-bargaining system in Japan.The special investigation division within the Tokyo District Public Prosecutors Office focused its attention on the suspected concealment of huge amounts of remuneration.
From financial results for fiscal 2009, companies listed on stock exchanges are required to include in their annual securities reports the names of executives and the amounts they received if their annual remuneration is 100 million yen or more. In Nissan’s annual reports, Ghosn was listed as having an annual remuneration of about 1 billion yen.But suspicions have been raised that Ghosn also reached an agreement with Nissan for an additional 1 billion yen annually that would be deferred until he left the company and was meant ostensibly as an adviser’s fee and other fees.Prosecutors obtained an arrest warrant for Ghosn, accusing him of violating the Financial Instruments and Exchange Law by under-reporting his remuneration by about 5 billion yen in Nissan’s annual securities reports for the five-year period between fiscal 2010 and 2014.
How long will he be detained?
They arrested Ghosn on the evening of Nov. 19 after waiting for the arrival of his business jet at Tokyo’s Haneda Airport.Suspects arrested by the special investigation division are normally detained for 20 days.During that period, the suspect is questioned almost daily. If an indictment is handed down, the detention period could extend even longer, especially if Ghosn continues to deny the allegations.There have been cases in the past of suspects being detained for more than 100 days.Work to dig out the truth of whether or not Ghosn actually tried to use the Nissan that he rebuilt for his personal means has only just begun.
Future of trilateral alliance
On Nov. 22, three days after Ghosn’s arrest, Nissan President Hiroto Saikawa convened an emergency board meeting that decided to remove Ghosn as chairman and derive him of the right to represent the company.On Nov. 26, Mitsubishi Motors Corp., another member of the trilateral alliance, held an emergency board meeting where a similar decision was reached.However, Renault has taken a different approach from the Japanese automakers.At a Nov. 20 board meeting, Renault stopped short of removing Ghosn as chairman and CEO. Instead, the French automaker named Thierry Bollore, the chief operating officer, as acting CEO to take over Ghosn’s day-to-day responsibilities.While Nissan executives feel the fall of Ghosn provides an opportunity to reduce the influence of Renault, it remains to be seen if those executives will see their wish fulfilled.The first major hurdle for Nissan will be deciding on Ghosn’s replacement. When Nissan and Renault entered the capital partnership in 1999, they agreed that important corporate posts would be filled by people from Renault.It remains to be seen whether Nissan can select a successor to Ghosn who can actually reduce the influence of Renault.Another hurdle will be completely removing Ghosn from Nissan. The company is seeking to oust Ghosn as a board member and plans to hold an emergency shareholders’ meeting to pass a resolution for that purpose.But Renault, which has a 43-percent stake in Nissan with voting rights, could oppose the resolution.Nissan’s biggest hurdle will be reviewing the capital partnership with Renault.Underscoring the gap that exists between Renault and Nissan, Bollore said in a statement that he would continue to focus on the mission of protecting the interests of the Renault group as well as the sustainability of the trilateral alliance.
When Macron and Abe met in Buenos Aires, the French president asked that the alliance be maintained. The future of the alliance is still very cloudy, especially with the two governments now involved in the issue.