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Ghosn saga a lesson for everyone at the helm
IN the autumn of 2015, Carlos Ghosn more than likely overlooked Japan's National Tax Agency obtaining information on roughly 550,000 overseas accounts as part of a growing scrutiny of wealthy residents. It is quite possible his accounts were amongst this dataset. His lawyers may have realised this, albeit far too late, when Ghosn was arrested on Nov 19, accused of falsifying financial reports in under-reporting his income.
While these charges are serious, Al Capone aside, it is exceptionally unusual that tax evasion charges are used as a pretext for repeated detention pending the judicial process. Yet, here we are. While the former Nissan chairman and his lawyers strenuously deny any wrongdoing, Ghosn has had his detention extended to Jan 11. On Tuesday, his lawyer said Ghosn could be in jail for another six months.
If tax evasion is indeed a pretext for Ghosn's detention, let's examine some potential geopolitical reasons for the Japanese authorities to take such a course of action. Could it be that Ghosn's status as a foreigner is at issue, or is it more the foreign entities he represents, in addition to Nissan, including the French government's 15 per cent stake in the Renault-Nissan-Mitsubishi Alliance.
Making acquisitions abroad has rarely, if ever, posed a problem for Japanese companies. Sony was one of the initiators of this in its acquisition of CBS and Columbia Pictures in the 1980s. More recently in 2018, Takeda acquired Shire, a UK pharmaceutical firm, for US$62 billion to take the title of the largest ever foreign acquisition by a Japanese firm.
However, when it comes to foreign acquisitions of Japanese entities, things are somewhat different. Japan is still very much a cloistered business culture that does not deal well with foreign influence on traditional hierarchies.
The largest inbound deals in 2018 were driven by private equity firms, such as Bain Capital for Toshiba Memory Corporation and KKR for Calsonic Kansei, Hitachi Koki and Hitachi Kokusai Electric. Apparently, these investments are easier to accept as they are financial in nature and don't significantly disrupt the prevailing corporate culture.
When it comes to industrial acquisitions, they have traditionally occurred when a Japanese company files for bankruptcy, as was the case with Takata Corp in 2017, subsequently acquired by Key Safety Systems.
The same was true of Nissan's rescue by Renault in 1999. However, perhaps the prevailing view that Carlos Ghosn wanted to transform the Renault-Nissan Alliance, latterly the Renault-Nissan-Mitsubishi Alliance, into a takeover controlled by France was a bridge too far, and perhaps even a humiliation for Japanese business people and politicians. When the rational and economic principles collide with national-identity politics, the latter invariably prevails. Another contingent point is that of nationality. Greg Kelly, Ghosn's close associate and ostensible right-hand man, was detained with his boss. Of course, it is Ghosn who is accused of under-reporting his income, but Tokyo Prosecutor's Office accuses Kelly of aiding and abetting Ghosn. The Prosecutor's Office had requested the same extended detention for Ghosn and Kelly, indicating that it viewed them as two sides of the same coin. Yet, Kelly has been released on bail, while Ghosn languishes in the Tokyo Detention House before the opportunity to defend himself in court.
It has not been revealed why Kelly was released on bail and Ghosn wasn't. Surely it would have been possible to release Ghosn with the same conditions as Kelly, not giving him a possibility to leave the country but permitting him to build his defence from outside jail. Since there is no explanation forthcoming as to why Ghosn and Kelly are being treated so differently, speculation and conspiracy theories are rife.
One of them is particularly interesting. The media present Kelly as an American with an American lawyer, while Ghosn is presented as a Brazilian-born French man of Lebanese descent, holding three citizenships and with a defence team comprised of several nationalities. One view is that no one country has stepped up to defend Ghosn because he holds several nationalities - contrary to Kelly who holds solely American citizenship.
The United States wields more power in defending its citizens abroad than any other country. Running a close second, China exercises considerable influence in ensuring the welfare of its citizens, as we have seen recently in the case of Meng Wanzhou, the CFO of Huawei. When she was arrested in Canada at the request of US authorities, China protested vehemently. Perhaps coincidentally, or not, two Canadian citizens resident in China were arrested shortly afterwards. Since then, Ms Meng has been released on bail but faces extradition to the US. No such robust intervention has been mounted by any country for Carlos Ghosn. While French president Emmanuel Macron has pressed Japanese Prime Minister Shinzo Abe and the Japanese government for the evidence against Ghosn, it appears their primary concern is more the continuation of French business interests and less the welfare of Ghosn.
The Ghosn saga has lessons for people working as CEOs in foreign countries. Since the early 1990s, companies and business people have believed that under the canopy of globalisation, companies can be multinational and virtual, having no nationality, moving people and goods from one part of the world to the other seamlessly; and benefiting from legal loopholes in minimising revenues and tax payments. This was before Donald Trump's election and the wave of populism emerging not only in Europe, but also in Latin America and Asia.
Nationality is back on the agenda for companies and business people. This means that companies cannot escape their nationality and fly a flag of convenience. Nationality can work in a company's favour at times but at other times it comes with a cost.
There are therefore two questions for foreign CEOs The first: Can this happen to me? Meaning, can I be a victim of a geopolitical battle and lose everything by being arrested and jailed? The second: Will my company or country defend my interests? These are crucial questions for all foreign CEOs.
Carlos Ghosn was once venerated in Japan as the saviour of Nissan, a god in the world of Japanese corporate culture. If this could happen to him, it can happen to anyone.
- The writer is academic director of the Executive Master of Business Administration (MBA) programme and a teaching professor in the Management Department at ESSEC Business School. His research interests are focused on geopolitics of Central and Eastern European countries and especially the Balkans, international marketing, politics, commerce and Islamic business.