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Faculty Viewpoints

What Does Carlos Ghosn’s Escape from Japan Say about the State of Global Commerce?

On December 30, Carlos Ghosn, the former chairman and CEO of Renault and Nissan, fled from Japan, where he faced criminal charges, to Lebanon. Yale SOM’s Jeffrey Sonnenfeld writes that while global executives may be cheering Ghosn’s dramatic escape, they should worry about the trends behind his legal peril.

Carlos Ghosn leaving the Tokyo Detention House in April 2019. Photo: The Asahi Shimbun via Getty Images.

Carlos Ghosn leaving the Tokyo Detention House in April 2019. Photo: The Asahi Shimbun via Getty Images.

  • Jeffrey A. Sonnenfeld
    Senior Associate Dean for Leadership Studies & Lester Crown Professor in the Practice of Management

This article was originally published in Chief Executive.

Many top business leaders quietly cheered Carlos Ghosn’s daring escape from Japanese detention last week, as the most convoluted business drama of the past year turned into the Butch Cassidy and the Sundance Kid or Bonnie and Clyde story of our brand-new decade.

It’s not hard to see why. Setting aside the cinematic drama of Ghosn’s escape, the saga of his legal perils is filled with worrisome trends for global executives. Amid a surge of nationalism around the world, trade battles over tariffs, taxes, forced tech transfer, intellectual property, data privacy, government subsidization, currency manipulation, labor conditions, and sustainability goals are exploding. The newest feature appears to be the governmental practice of global executive hostage taking to enhance negotiations. Canada arrested Huawei’s chief financial officer Meng Wanzhou in December 2018 amid a trade battle between China and the U.S. China has recently grabbed two Canadian executives and two U.S. executives in retaliation. Volkswagen, Fiat Chrysler, Peugeot, Toyota, and other car makers are draping themselves in national flags amidst merger deliberations and scandal defenses. There will be major implications for corporations and governments as we slide down this slippery slope.

Still, even amid these sordid episodes, Japan’s treatment of Ghosn stands out for its brazen ruthlessness, even more so because it happened in one of the world’s most advanced democracies. After being arrested in an airport setup along with one of his deputies for allegedly illegally bloating his compensation package by millions of dollars, Ghosn was stuffed into solitary confinement without heat or internet and only limited access to his attorneys. He was banned from contact with his family. When he came into court, he was in leg irons. Eventually, after 100 days of imprisonment without charges, in a series of 22-day periods of incarceration linked to narrowly sliced allegations, he was released on bail for $14 million.

Last week he’d had enough. He jumped bail and was spirited out of the country—as he claims, “not fleeing justice but escaping injustice.”

If there’s one thing Ghosn is certainly guilty of, it’s irritating the top echelon of Japanese business, despite his white-knight rescue of Japanese automaker Nissan from collapse. He led the 1999 Renault bailout of Nissan, ultimately becoming the CEO, simultaneously, of two companies—before Steve Jobs, Elon Musk, and Jack Dorsey made a foldout business card fashionable. That gave Renault a 43.5% controlling stage in Nissan, with Nissan getting a modest 15% reciprocal stake in Renault. If that didn’t inflame Japanese pride enough, Nissan’s resurgence under Ghosn’s tough medicine (e.g., 21,000 layoffs, violating the culture of continuous employment) led the Japanese automaker to surge past its French owner.

Meanwhile, Nissan engineers complained that Renault relied too heavily on Nissan’s superior technology, while Nissan executives complained that Renault hads no presence in Nissan’s largest market, the U.S. To add insult to injury, French president Emmanuel Macron’s government, which has a 15% stake in Renault, pressured Renault to fully merge Nissan into Renault.

At the same time, Hirutu Saikawa, Ghosn’s successor as CEO of Nissan—whom Ghosn intended to fire—was widely considered a failing CEO as the hostility with Renault grew. Saikawa ducked accountability for Nissan’s alleged falsification of emissions data and led the company from $7 billion of profits to its first losses in years and a one-third drop in its stock price.

Ironically, a company investigation revealed that Saikawa was overpaid by $841,000 via stock appreciation rights, according to Bloomberg News, and was terminated along with three other Nissan officials. Adding to the drama, Hari Nada, a high-level executive who was the initial whistleblower on Ghosn’s compensation, was the whistleblower in this case too. The difference here is telling: Saikawa was fired, not arrested—let alone forced into solitary confinement in an unheated jail cell.

For that matter, Japanese executives from Takata, criminally indicted in the U.S., have fought extradition despite documents proving their complicity in manipulating test data to conceal the failure of their airbag systems. At least 20 deaths and 200 injuries have been attributed to this misconduct, as has the recall of 70 million vehicles made by 19 automakers—as well as Takata’s bankruptcy.

“Who won’t think twice before taking an assignment in Japan, now that the justice system there has been revealed to be so unfair to foreigners?”

Similarly, despite the negligence of top officials surrounding Tokyo Electric Power Company’s Fukushima Daiichi nuclear disaster in 2011, which led to more than 1,000 deaths, none were jailed during the investigation and all were acquitted this fall.

This is not to say that Ghosn always made the right calls and very well may have diverted funds his way—perhaps with the board’s knowledge, as he alleged, and which he may never received, as he also claimed. Ghosn certainty has a soaring ego, contributing to scores of hagiographies celebrating his leadership. “Having known Carlos Ghosn for a number of years and having observed his personality over the decades, [I’ve seen] him become more and more imperious,  clearly suffering from CEO disease where he showed all the signs of believing himself to be  omnipotent and infallible,” says his one-time rival, former GM executive Bob Lutz. “He exhibited traits of someone who takes himself too seriously… I would be extremely surprised if this the result of a carefully planned conspiracy and he was in fact totally innocent.”

But ego is hardly a crime (especially among big-company CEOs) and Ghosn is entitled to the same due process as any other person. Moreover, his inability to get what anyone in America would recognize as a fair process is a much bigger issue for business than just the fate of Ghosn, or any of the other individual cases around the world.

Who won’t think twice before taking an assignment in Japan, now that the justice system there has been revealed to be so unfair to foreigners? Will Japan deny all executives bail in the future? What will be done with a second Nissan executive, Greg Kelly, still held hostage in Japan with Ghosn these past 13 months? What are the next paths countries such as China and Japan and other nations may take in holding business leaders in harsh conditions without charges or counsel, in systems far more reminiscent of kidnappers or pirates than modern states?

And finally, what does all this mean for global business and the rising tide of prosperity it has created for more than 75 years? That last one is pretty easy to answer: nothing good.

Department: Faculty Viewpoints