Carlos Ghosn: A Quintessential Victim of the Tall Poppy Syndrome
Deru kugi ha utareru is a Japanese proverb; the English translation is “the nail that sticks up gets hammered down.” The proverb implies independent assertion and autonomy and clashes with their belief of modest and self-effacing behavior. In the Anglo-sphere world, it is known as the metaphor, the Tall Poppy Syndrome (TPS) — the Tall Poppy (TP) is cut down so all are uniform. Australia’s egalitarian society leads the English speaking countries in occurrence and recognition but it is well known in Canada, Ireland and England while relatively unknown in the United States.
The Japanese ethos is one of residing in one’s proper space, promoting others’ goals, dependency, socially appropriate actions, reliance, reciprocity and humility (collectivism). This is opposite of America’s ethos of individualism and both differ from Australia’s egalitarianism of getting the same and being treated the same.
Carlos Ghosn (citizen of Brazil and France) seemed destined to be a man of the world. His grandfather emigrated from Lebanon to Brazil at age 13. He became an entrepreneur and headed several companies. His son, Jorge, married a Nigerian-born woman whose family came to Brazil from Lebanon. Carlos was born in Porto Velho but moved to Rio De Janeiro at age 2 when he became ill. At six years, he and his mother moved to Beirut, Lebanon, to be with his grandmother.
Ghosn moved to Paris for preparatory school and college where he obtained an engineering degree in 1978. The tire maker Michelin was his first employer and assigned him to plants in France and Germany. At age 30, he was appointed COO of Micheiln’s South American operations and returned to Rio de Janeiro. There, French, Brazilian and other nationalities formed his foundation of cross-culture management style and diversity.
In 1989, after turning around the South American operations, Goshn was appointed COO of Michelin North America and moved to Greenville, South Carolina. He became CEO of Michelin North America (1990) and oversaw the acquisition of the Uniroyal Goodrich Tire Company.
In 1996, and after 18 years at Michelin, Ghosn became executive vice president in charge of manufacturing at Renault (expropriated in 1945 by President Charles de Gaulle and privatized in 1996) and its South American division. In March 1999, Renault and Nissan (with a debt of $20 billion) formed an alliance and Renault purchased a 36.8% stake in Nissan-this was later increased to 43.4% and Nissan was given 15% (nonvoting shares) of Renault. The French government still owns 15% of Renault. In June 1999, Ghosn became Nissan’s COO and, in June 2001, its CEO while keeping his position at Renault.
Ghosn cut 21,000 jobs mostly in Japan; shut five Japanese plants; sold off prized assets; and reduced shareholders and suppliers. He changed Japanese business etiquette by: terminating seniority and age-based promotion; changing lifetime guarantee employment to a goal; ending keiretsu - group of inter-prizes with interlocking business relationships and shareholding; changing the company language to English; and including European and North America in global strategy sessions. In May 2005, he became president and CEO of Renault as well (first person to run two companies on the Fortune Global 500 simultaneously).
Success. In May 2016, Nissan acquired 34% of Mitsubishi Motors and included them in the Renault-Nissan Alliance. Ghosn also became their chairman. In 2018, the alliance sold 10.76 million vehicles, more than any other car company.
A Crack in Globalism. Nissan sells more cars than Renault. For survival, Renault relies on the dividends of its Nissan shares and the economies of scale. Both countries view their auto plants as vital components of their nation’s manufacturing base. Renault wants a stronger alliance but they also want to influence Nissan’s decision making (code for merger). Nissan initially needed Renault but now Renault needs Nissan which is getting squeezed.
Ghosn defended each company’s autonomy but his contract came due with Renault. The French government, owner of 15% of Renault, pressured him to make the Alliance permanent. In early 2018, he signed a new Renault contract with a moderate financial “haircut” and a charge to make the Alliance irreversible. He was required to show the French government how he would meet their demands by June 15, 2018.
To demonstrate strength, Nissan sought governmental assistance as well. The Japanese government requested from the French government that Nissan remain independent and that all communications pass through them. Pressure from Ghosn and France turned former Ghosn’s former Japanese allies into his enemies (as if they needed really needed a stimulus).
Lacta alea est (The die is cast). In early 2018, a group of Nissan executives began secretly investigating Ghosn’s jet setting lifestyle. Ghosn had moved to Japan in 1999. The company paid $8,900 monthly for his leased apartment. In 2005, he became CEO of Renault and, in 2006, a Nissan subsidiary purchased a 4,300 square foot apartment in Paris for $4.1 million; three years later another 1,200 square feet were added. There was also an Amsterdam apartment, monthly rent of 8,000 euros, financed by Nissan but used exclusively by Ghosn. In 2012, a Nissan shell company purchased two homes for Ghosn’s disposal at no charge to him: a $ 5.7 million four bedroom beachfront apartment in Rio de Janeiro and an 8.75 million mansion with $6 million renovation in Beirut. These latter two homes were unknown to most in the company and purchased by Nissan through shell companies which were set up to invest Nisson capital. By 2009, Ghosn was making more than $15 million, more than twice the other nine top executes’ wages combined.
In 2010, Japan changed corporate-disclosure rules to require executives receiving more than $800,000 to report their compensation. Ghosn thought it best to avoid repercussions and asked Nissan to pay him around $7.8 million (half the sum of Ford’s CEO), which still caused a furor, and postpone (hide) a $2 million payment. Greg Kelly, in charge of the CEO’s office and human resources, handled this and it was estimated that perhaps half his pay was deferred as years went by.
In 2010, in order to continue to make up for Ghosn’s lower reported income, Mr. Kelley and his staff created Zi-A Capital, a venture investment firm (guise) with $82.2 capital in the Netherlands. This company or one of its shells purchased the Rio and Beirut properties and provided them to Ghosn at no cost. Other perks flowed through these shells but the most costly were the private jets. The latest was a $64.5 million Gulfstream G650.
Cutters. In 2014, Hidetoshi Imazu joined Nissan’s board as a compliance auditor. He failed to comprehend Zi-A Capital’s mission. He sought the assistance of Hari Nada who was in charge of global compliance as well as a director of Zi-A. They contacted Zi-A director Toshiaki Onuma who handled deferred compensation. Together they were able to identify monies that Nissan was spending on Ghosn as well as his deferred compensation which approached $80 million.
A separate investigation found Ghosn approved funds totaling $35 million to Suhail Bahwan Automobiles in Oman. Renault also discovered total payments of $11.2 million to the same firm. Investigators felt these funds were written off as marketing expenses but that some of the money was used to purchase a $10 million yacht for Ghosn and some was sent to fund Good Earth Investments, a Ghosn Lebanese firm. Good Earth then invested $30 million in Shogun Investments LLC, an investment firm partially owned by Ghosn’s son. Some investigators suggest that Shogun’s principal owner is a senior director at Suhail Bahwan Automobiles and the funds to start Shogun came directly from him.
Egregious Behavior. Nissan found evidence of Ghosn’s hidden pay, a lavish lifestyle financed by Nissan without its consent, and potential financial misconduct. When added to worker discontent over his management style, Nissan’s subsidizing Renault, and his role in the potential take over by Renault, there was no place to hide let alone find support. Employees felt anger and betrayal. His personal behavior was in sharp contrast to his management’s cost cutting strategy to boost the bottom line and the Nissan way of transparency and frugality.
Tall Poppied. On Nov. 19, 2018, Ghosn was arrested and locked in a cell at a Tokyo detention center. He was charged with underreporting his income more than $80 million and moving trading losses temporarily onto Nissan books. Since then, he has been in and out of jail two times. On April 4, 2019, he was arrested again and charged with misappropriating funds. This charge arrises from Nissan funds sent to the Oman distributor and the rerouting of some of the funds to Ghosn. He has resigned his chairmanship positions at the three auto companies. Renault launched their own investigation into Ghosn’s financial payments and cancelled his retirement compensation. He still holds board seats on all three auto companies since he can only be removed by shareholders votes.
Ghosn’s fall is classic. Someone climbs the ladder of success and becomes a Tall Poppy. Egregious behavior often leads to a downfall. Ghosn was familiar with and compared (upward envy) his wages to the American and European pay model. Their base pay is only a small part of the annual pay while other perks, especially stock options, make up the bulk of salary. Japan’s business culture believes in lifetime employment. CEOs typically come from the employee pool with 25 year’s experience which reinforces job security over higher pay. American CEOs earn an average of $12 million a year, nearly four times the amount Toyota’s CEO makes which is above the Japanese CEO norm of around $1 million annual pay. Ghosn must have felt he deserved to be paid on the American-European scale. Unfortunately, his means to achieve his appropriate wages were dubious.
Envy is frequently found in cutters of TPS but may be found in the TP whose egregious activity is motivated by envy. Cutters (malignant or bad envy) often think the TP’s status is not deserved and cut down the TP to an appropriate size. In Ghosn’s case, the status seemed warranted but the cutters were angered over Ghosn’s envious egregious behavior and felt justified in cutting him down. At best, his status is now equal to all the other nails.
