If there is one story in the automotive industry from the past quarter of a century that defied the odds, it was the alliance between France’s Renault and Nissan, just 20 years ago a failed Japanese automaker on the brink of bankruptcy. Even famed car guy Bob Lutz commented, about Renault’s plan to invest over $5 billion into Nissan by purchasing a controlling stake in the company, that the company might as well just buy gold bullion and drop it into the deepest trench in the Pacific Ocean. Instead, Renault sent its cash and Carlos Ghosn to Japan to engineer Nissan’s financial turnaround.
To say he was successful would be an understatement. Ghosn closed unprofitable factories, slashed the corporate head count, dropped unreliable parts suppliers, and helped launch the electric vehicle era. And within six years of achieving the Japanese miracle, he was made CEO of parent firm Renault.
He was recently given a new contract that extended past the company’s normal retirement age, so he could take the two automakers’ alliance and turn it into a permanent, full-fledged merger. But then, on the final step in his 20-year quest to create one of the great global automakers and retire to any one of the homes he has spread out across numerous continents, Carlos Ghosn wound up spending his days in a cramped jail cell in Tokyo. Indicted on misstatements of his earnings in corporate filings. Bummer.
The Wall Street Journal carried the best synopsis of Ghosn’s fall on Monday. Born in Brazil to Lebanese parents, he was sent to live in Beirut with his mother and grandparents when he was 6, and in a time when Beirut was still considered the Paris on the Mediterranean. And, while grapes may have been too expensive a luxury for the boy in Lebanon, he managed to attend two engineering schools in Paris, finding work at Michelin when he graduated. In 1996 he was hired by Renault and so quickly demonstrated himself a capable leader that he was sent to Japan to save Nissan just three years later.
Today it is Nissan that is the strongest partner in the alliance and apparently resentful of that fact; Nissan now supplies most of the profits, yet gets ordered around by its weaker French cousin. Ironically, employees at Renault in France grumble that Ghosn always favors Nissan.
Other key points during Ghosn’s reign at Nissan: He had finally turned that company around and made it a world-class manufacturer of vehicles. Further, at least up to this point, Renault Nissan and not Tesla is the top seller of electric cars worldwide. But there is always a danger, when someone comes from a childhood of near poverty; it creates massive insecurities, which in turn can be the negative stimulus that so often drives some mentally gifted individuals to do extraordinary things as an adult.
Such a background can also create a desperate need for possessions. Add to that mix, as Bob Lutz said on the day Ghosn was arrested, no one is immune to CEO disease. As he elaborated, if someone is the President of the United States, his worst impulses or decisions would be held in check by the media’s pointing out their flaws. A CEO, on the other hand, is surrounded by individuals who constantly tell him or her how great they are and how every decision they make is brilliant.
Maybe that’s not completely true — it wasn’t for Richard Nixon — but the troubled mindset that kept him from being a truly great president for the ages seems to be the same in both men. After all, like so many people do, Nixon and Ghosn were running from demons in their past, and that led them to make some truly tragic personal decisions.
It’s important to remember that all of the facts in Ghosn’s case have not been disclosed, and he should be considered innocent until proven guilty. But we now know that this case began earlier this year, when Hidetoshi Imazu, a veteran of Nissan’s manufacturing division and currently the compliance auditor for its board of directors, questioned what a Nissan-owned subsidiary in the Netherlands, Zi-A Capital, was doing with its money. This had been brought to his attention by the outside auditing firm, Ernst & Young; that firm had also questioned how Nissan was handling the accounting for Ghosn’s deferred pay, which seems to have formed half of his annual compensation. (And is so far the only thing he’s been indicted for.)
Of course, ultra-highly paid executives often take huge amounts of their incomes in deferred pay or stock to minimize their current tax liabilities. But corporations still have to schedule that compensation in their filings, whether it’s paid out in the current fiscal year or not. This appears to be the reason Nissan also was indicted for filing false financial statements.
It is alleged, however, that the kid in Lebanon who couldn’t afford grapes had used Nissan’s Netherlands-based technology slush fund to buy homes in Rio, Paris, and Beirut.
And this is where you question Ghosn’s personal judgment as to how he believes money should be spent on him and his family. First, Beirut is not the Paris of the Mediterranean anymore. In fact, by 1983 he already had five years under his belt at Michelin when truck bombs killed 307 individuals, including 241 U.S. Marines, during Lebanon’s civil war. So it’s strange to reflect that he allegedly used $15 million of Nissan’s money on an old colonial mansion in Beirut, then managed to get a larger apartment for himself in Paris for a mere $4.1 million. Not to mention that Ghosn managed to induce Nissan to cough up $64 million for a new Gulfstream 650 two years ago, to make his international runs more comfortable.
As for that borderline personality disorder that Lutz claims afflicts many highly paid CEOs? In the seven weeks prior to Ghosn’s arrest in Japan on November 19, according to aviation logs, Nissan’s Gulfstream took off from Beirut eight times. But that’s slightly misleading; as it turns out, that Gulfstream may have flown Ghosn to his home in Lebanon, but the security situation there is still so uncertain that, once he deplaned, the jet was to fly to Cyprus for safekeeping until he recalled it to Beirut for his next trip.
Nissan managed to get the locks changed on the mini-mansion in Beirut and the condo on the beach in Rio, but court filings allowed the Ghosn family to retrieve their personal belongings from both homes. His kids are complaining about how unjust this all is, pointing out how much money he made Nissan while he was saving the Japanese automaker. Possibly they missed the key legal points, or maybe they don’t know that breach of fiduciary duties and theft by bailee are criminally immoral. But it’s that type of entitled whining that is the reason angry populists believe a 100% estate tax is long overdue.
Laid out for all to see is a possible case of a narcissistic personality disorder — it checks off many of that problem’s symptoms, anyway. According to the Mayo Clinic, the disorder’s symptoms include:
· Having an exaggerated sense of entitlement and self-importance;
· Being preoccupied with fantasies about successes, power and brilliance;
· Behaving in an arrogant manner, expecting special favors and unquestioning compliance from others; and
· Insisting on having the best of everything.
· Oh, one last little bit: People with this condition also have secret feelings of insecurity, shame, and vulnerability, and they fear public humiliation.
As previously stated, many individuals from less fortunate circumstances spend their entire lives running from the demons in their past. On the other hand, such individuals often grow up to be persons of great accomplishment, and Carlos Ghosn is the poster child for that statement, too. He helped clean up Renault, he saved Nissan, and for two decades he maintained the world’s only successful large-scale auto alliance.
But that may not last. Nissan apparently had a change of heart back when Emmanuel Macron was the Finance Minister of France: In a power play against Ghosn, Macron raised the nation’s stake in Renault to double its voting block. This is one of the reasons individuals at Nissan started pushing back against Renault’s total control of their company.
Additionally, there is Nissan’s legitimate resentment at becoming the cash cow of the two firms, although that diminishes the point that Nissan likely would have failed without Renault. There’s all sorts of business logic to keeping this alliance alive and all sorts of egos and bad feelings that may work against its viability.
As for Carlos Ghosn, who knows where this ends? Maybe he gives up all of his homes and deferred compensation for a lighter sentence and a plea deal, and leaves. Maybe he does hard prison time. But the future historians of the auto industry will have to rewrite the chapter on Ghosn’s brilliance to include the personality disorder that took him from running Renault-Nissan to thinking he owned the Japanese joint. One thing is for sure, this is the most fun we’ve had following a celebrity locked up in Japan since Paul McCartney was busted for pot there in 1980.
Ed Wallace is a recipient of the Gerald R. Loeb Award for business journalism, bestowed by the Anderson School of Business at UCLA, and hosts the top-rated talk show, Wheels, 8:00 to 1:00 Saturdays on 570 KLIF AM. Email: email@example.com