The cinematic details are just one reason the Carlos Ghosn story is popcorn-worthy. Who could help but be interested in how the disgraced and indicted former Nissan CEO succeeded at jumping bail in Japan, getting himself smuggled out of the country onto a private jet in an audio-equipment box, and making it to Lebanon, a country where he has strong personal ties and protections against extradition?
But beyond the fun logistical details of the escape, we’re probably also about to get more juicy details about the drama inside Nissan that led to Ghosn’s downfall and arrest. Ghosn says he’s eager to finally name names and declare who set him up as the fall guy in an international dispute over who should control the Japanese automaker.
Ghosn has the unusual distinction of having long served as the head of two major auto companies on two continents at the same time: Nissan and France’s Renault. He achieved business executive celebrity status in the late 1990s and early 2000s by establishing a partnership between the two firms that brought Nissan from the brink of financial collapse. But in recent years, Ghosn believed even deeper links between the two companies would be needed to keep them viable. The French government, which owns 15 percent of Renault, was perceived in Japan as pushing for a full merger, though French officials periodically denied they were seeking one.
Ghosn claims, not implausibly, that he was taken down by Japanese executives and government officials who feared he would shepherd a French takeover of Nissan, leading to the loss of one of Japan’s top national companies. Indeed, the Wall Street Journal reported back in March that Ghosn’s successor as Nissan CEO, Hiroto Saikawa, told a Renault executive as much at the beginning of last year.
A significant problem for Ghosn is that, even if this is all true, that doesn’t mean he didn’t break the law. If you alienate people, they may try to figure out if you committed crimes. If they figure out that you did commit crimes, “but the crimes aren’t really why they were out to get me” is not a great defense.
The criminal accusations against Ghosn are sort of odd: that he awarded himself deferred compensation of which Nissan’s board was unaware, thus causing the company to underreport his pay to Japan’s equivalent of the Securities and Exchange Commission. The deferred compensation awards started in 2010, right after Japan implemented a new law disclosing CEO pay. Ghosn felt he should be paid according to the standards by which international (especially American) auto company CEOs are paid, but the company faced a public relations imperative to follow Japan’s norms on executive compensation, which are considerably more modest. Ghosn is also accused of using company funds to pay for various personal expenses, including the acquisition and upkeep of homes in cities where Ghosn has extensive ties but Nissan does not have major business, like Beirut and Rio de Janeiro.
I’m not sure exactly how the deferred compensation scheme was supposed to work. After he retired, was he going to go to Nissan and say, “I will take my deferred compensation now,” and the board would say, “What deferred compensation?” and he would say, “Oh, the tens of millions of dollars worth of deferred compensation I awarded myself without telling you so we wouldn’t have to report it to the government,” and the board would say, “Oh, well then, here you go”? In the U.S., it is quite common for a board to be excessively close with a CEO and willing to overpay him; it is much more irregular for the board to be literally unaware of what it is paying the CEO.
Shortly before he fled Japan, Ghosn’s defense attorneys were arguing that, in fact, there had been no deferred compensation, but that the amounts recorded each year were just notes of how much less Ghosn was being paid than he truly deserved to be paid, which Ghosn intended to use to bolster his arguments in future salary negotiations. They did not reflect guaranteed payments, and so they weren’t compensation and weren’t reportable. This does not seem to have been the view of Nissan’s auditors, nor is it the view of the U.S. Securities and Exchange Commission, which sought civil penalties related to Ghosn’s allegedly underreported compensation. Both Nissan and Ghosn reached settlements with the SEC without admitting wrongdoing.
But those are details. The broader subtext I read into Ghosn’s defense of himself is that when things were going well for Nissan — when he was the savior of one of Japan’s great manufacturing firms — everyone was willing to look the other way. That this was supposed to be the deal: I save Nissan, you give me lots of money in a way that is out of step with Japanese norms. The deferred compensation scheme, if it existed, was just a tactic in service of that deal. Now, he sees Nissan and the Japanese government as having reneged on the deal by claiming this was never the deal at all. But if that was the deal, it wasn’t a valid one. It ran contrary to Japanese public policy, which was changed during Ghosn’s tenure to force the disclosure of executive compensation in order to discourage extremely generous executive salaries.
Ghosn says he wants a trial to clear his name, but he wants it in Lebanon, where he thinks the justice system will be more fair to him than in Japan. But as Pete Sweeney notes for Reuters, this situation is so hideously embarrassing for all parties involved that I suspect we will see mutual relief that Ghosn’s escape eliminates the need for a trial. The Japanese can say he fled because he knows he was guilty, and they won’t have to litigate the incredibly weak corporate governance that would have made his alleged crimes possible. France and Japan can more easily get on with salvaging the Nissan-Renault alliance without having to fight over Ghosn. And Ghosn can stay out of prison. But we probably will get to see him litigate at least some of this in the court of public opinion.
