The head of the Renault-Nissan alliance of carmakers Carlos Ghosn was one of the most powerful people in the business world. In little over a year he went from feted CEO to fugitive. Here’s how it happened.
Former auto manager Carlos Ghosn was among the most powerful people in the corporate world. But questions about his compensation at carmaker Renault-Nissan led to his downfall, the destruction of his superhero-like image and eventually made him a fugitive. Here are the most important questions around his rise and fall.
How did Ghosn become so famous?
Ghosn is one of the most prominent figures, if not the most prominent in the auto industry. He worked as an engineer at tire maker Michelin for 18 years before starting at Renault in 1996. He made a name, or rather nickname, for himself when he led a massive restructuring. From now on, he was “Le Cost Cutter.” Ghosn took the sword to Japan in 1999 when Renault went in to save faltering Japanese carmaker Nissan. Ghosn slashed 21,000 jobs, shut factories, cut purchasing costs and reinvested the savings into 22 new cars and trucks in only three years. Nissan’s revival made Ghosn somewhat of a national hero. He even inspired a manga, a type of Japanese comic book.
Who was Ghosn for Renault-Nissan?
Carlos Ghosn is widely credited as the crucial link in the French-Japanese car alliance. While other mergers in the industry, like the one between Germany’s Daimler and US carmaker Chrysler, didn’t survive, he kept Renault-Nissan alive. He steered the company through the 2008 financial crisis, falling European car sales and some corporate scandals. There was also a tragic spate of suicides at the firm in 2011.
In 2016, the prospering alliance added a third partner, Mitsubishi. A year later it sold 10.6 million vehicles, more than its eternal rivals for car industry supremacy, Volkswagen and Toyota. Ghosn acted as CEO of Renault, chairman of all three companies and head of the group. But his generous remuneration for the pivotal role repeatedly caused controversy both in France and Japan.
What explains the tension between Ghosn and Nissan?
Ghosn’s rise and fall at the company is a story of power and control. When Renault rescued Nissan, the French carmaker acquired a 43% share in Nissan, giving it considerable management powers. The French government, which is Renault’s largest shareholder, also gained significant influence.
By contrast, Nissan was granted only a 15% stake in Renault without voting rights. But in recent years, Nissan has regained its former financial strength as Renault has begun to struggle amid slumping car sales in Europe. Nissan’s turnaround led the company’s former CEO Hiroto Saikawa to push for stronger powers in the alliance, while Ghosn sought closer integration between the two carmakers. As a result, Nissan excecutives became increasingly worried Renault might swallow its Japanese partner.
In a statement Ghosn made on video after his arrest, he blamed mismanagement at Nissan for the rise of the accusations and claimed a few Nissan executives had feared for their jobs.
What are the charges?
Carlos Ghosn was charged in Japan with under-reporting about $80 million in compensation between 2010 and 2014 at Nissan. In September, Ghosn settled with the US watchdog SEC over claims he hadn’t properly reported $140 million at Nissan. Prosecutors also allege Ghosn misused company funds for his own benefit and the benefit of his family and friends. That includes funneling $5 million from Nissan into accounts he controlled that are rumored to have been used either to fund an investment company of one of his sons or to buy a yacht for a company owned by his wife. Ghosn denies all accusations.
How is the company doing without him?
The arrest of Carlos Ghosn jolted the partnership on both sides. Without Ghosn at the helm, Renault and Nissan were the worst performing car stocks in 2019. According to the Bloomberg World Auto Manufacturer’s Index, Renault stocks shed 23 percent and Renault slashed its financial guidance in October. Nissan lost 28 percent in value and has seen an exodus of executives. That included former Nissan CEO Saikawa – a vocal critic of Ghosn’s alleged wrongdoing during the time of the arrest – who himself had to step down amid a scandal over excessive pay. Company profits were the lowest in a decade and the company plans massive job cuts.
How did Ghosn escape Japan?
Meticulous planning over months was behind Ghosn’s Hollywood-worthy escape that could have easily put him back in a cell. After spending more than 100 days in jail, Ghosn had been released on bail to live in a heavily secured rented house in Tokyo, waiting for the trial that kept being pushed back. New Year’s is among the most important holidays in Japan where little of the police body would be at work. A private security firm hired by Nissan had recently stopped surveillance after complaints about human rights violations. It was the opportune time. Reports from Japanese media suggest Ghosn took a bullet train from Toyko to Osaka where he boarded a private jet bound to Turkey in a suitcase meant for audio equipment. From Istanbul he then took a commercial flight to Lebanon where Ghosn has citizenship.
What’s Ghosn’s issue with Japan’s legal system?
Ghosn has said he fled the country to escape a “rigged” judicial system of “hostage justice” and has complained before about his detention in an unheated cell. Amnesty International has long criticized that some confessions in Japan are brought about by force, harsh prison conditions and without access to a lawyer. Japan’s situation is indeed unusual in its drawn-out pretrial detentions, long trial delays and strict bail conditions. Ghosn had paid the highest bail fees in Japanese history: 1 billion yen ($9.2 million, €8.25 million) for his first bail and another 500 thousand yen when he was arrested again on other charges. An arrest in Japan is more or less the same as being found guilty. Over 99 percent of cases brought forward by prosecutors end in a conviction.
Is Ghosn Safe in Lebanon?
Lebanon doesn’t have an extradition agreement with Japan nor does it generally extradite its citizens. However, Lebanese lawyers are now going after Ghosn not for his financial wrongdoings, but for business deals with Lebanon’s arch enemy Israel. Ghosn had traveled to Israel on business, which is an offense for Lebanese citizens that could land him up to 15 years in prison. France’s junior economy minister recently said it would not extradite Ghosn should he arrive in the country. Ghosn is also under investigation in France, but has not yet been charged with any crime in the country.