Ordinarily, courses that include business &
society (with business & government, and business ethics material
also included as if the three fields were somehow one) have been relegated to
the periphery in American business schools. Perhaps the business sector and its
sycophantic deans have simply assumed that little actual cost comes from business managements deviating from societal
norms and values. Admittedly, such a schism decreases reputational capital, a long-term intangible asset. Even so, the
long-term-oriented and intangible can manifest as immediate jolts to such capital,
with actual, measurable financial costs kicking in. They are triggered by
news-worthy incidents in which a company or even one high-level manager, such
as a CEO, are perceived societally as being in the wrong. The general
perception of wrongness in turn depends on how far a company or manager have
deviated from societal norms and values. Crucially but typically ignored, even
though societal norms and values can absorb certain ethical principles or
theories, business ethics is a
distinct field because reasoning from or to ethical principles or theories lies
at the core there. That is, no philosophical reasoning is involved in business
& society; rather, the norms/values of a business sector, industry, or
company are compared or contrasted with relevant
societal norms and values. In this essay, I analyze the case of Carlos Ghosn,
who was CEO of Nissan, Renault, and Mitsubishi on November 19, 2018 when he was
arrested “on allegations that for years he had withheld millions of dollars in
income from Nissan’s financial filings.”[1]
In 1999, Ghosn came to Japan “to carry out an American-style restructuring of a failing Nissan. The Japanese carmaker had $35 billion in debt, provided lifetime employment to a bloated work force and produced a fleet of the kind of cars you’d dread getting at the rental counter.”[2] He closed factories, cut suppliers, and laid off 14 percent of the workforce. As a VP at Renault, he “had helped oversee a turnaround at the middling French automaker, which had agreed to spend $5.4 billion to buy a 36.8 percent stake in Nissan Motors.”[3] On both counts, he was successful even though the CEO of General Motors at the time said Nissan was fixable.
In 1999, Ghosn came to Japan “to carry out an American-style restructuring of a failing Nissan. The Japanese carmaker had $35 billion in debt, provided lifetime employment to a bloated work force and produced a fleet of the kind of cars you’d dread getting at the rental counter.”[2] He closed factories, cut suppliers, and laid off 14 percent of the workforce. As a VP at Renault, he “had helped oversee a turnaround at the middling French automaker, which had agreed to spend $5.4 billion to buy a 36.8 percent stake in Nissan Motors.”[3] On both counts, he was successful even though the CEO of General Motors at the time said Nissan was fixable.
In Japan, whose culture
generally viewed outsiders with distrust, Ghosn “achieved a status bestowed on
only a handful of chief executives. . . . In 2004, Emperor Akihito awarded him
a Blue Ribbon Medal for his extraordinary contributions, making him the first
foreign business leader to receive the honor.”[4]
Ghosn, “a brash Brazilian-born and Lebanese- and French-educated engineer,” had
been accepted in one of the most closed societies in the world.[5]
Accolades aside, this made him extremely vulnerable should he intentionally or
unintentionally violate a major societal norm or value. “From the start, he faced
distrust from the Japanese policymaking and business establishment. The very
idea of an outsider’s bringing free-market capitalism to Japan’s
quasi-socialist corporate culture jabbed at historical wounds” even though
Ghosn was not an American.[6]
In other words, in “representing” a foreign economic system that a victor in
World War II wore like a crown for the world to admire (even where it didn’t),
Ghosn inadvertently put himself in a long-simmering wound in Japan. Not that
any ethical principle had been violated; rather, his subtle predicament was
predicated on a divide between a strongly valued societal norm and him as well
as the company he ran. At the firm level, his “splashy—some would say
autocratic—presence was out of sync with modest Japanese culture.”[7]
As one Nissan employee put it, “No one dared to say anything that would
confront [Ghosn’s] opinions.”[8]
So a cleft between business and society can affect the degree to which a
business leader’s style is accepted organizationally. That he cut 21,000 jobs
but spent more than $200 million for Nissan to be a sponsor of the Rio Olympics
in 2016, and that he hopped between homes paid by Nissan and flew in company
jets would likely put him out in virtually any society in the world only gave
the Japanese fetter for distrusting the foreigner in spite of his early
contributions to Nissan and thus Japan’s economy.
The triggering incident that
brought down Ghosn’s reputational capital in a flash stemmed from a divergence
between how he had handled the matter of his compensation (i.e., business) and
how CEO’s in Japan were supposed to handle it (i.e., society). “In Japan,
salarymen slave away at the kaisha (or company) with a sense of communal pride
almost as important as the salary.”[9]
In 2017, Ghosn made $16.9 million ($8.4 million from Renault, $6.5 million from
Nissan, and $2 million from Mitsubishi), which was nearly 11 times what the
chairman of Toyota, the world’s largest automaker at the time, earned.[10]
Astonishingly, Ghosn had “made the case to the public that he was underpaid.”[11]
Even at the annual meeting in June, 2018, he said the company remained
“financially very disciplined” in rewarding senior management.[12]
Asked at the time by the Financial Times if he was overpaid, he laughed and
replied, “You won’t have any C.E.O. say, ‘I’m overly compensated.”[13]
Breaching yet again a valued societal norm in Japan, his “brazenness rankled
employees and the public in Japan.”[14]
So when a whistle-blower in
Nissan said in October, 2018, that the CEO had been instructing Greg Kelly, a
top aide and a board member (which represents a conflict of interest) to split
Ghosn’s compensation between that which would be paid in the current year and
reported in the annual report and securities filings, and that which would be
paid only after the CEO will have left the company. Nissan went to prosecutors
to allege that Ghosn had been underreporting his income since 2009. The company
added that Ghosn and Kelly had developed future plans to pay Ghosn a further
$124 million in cash and other financial instruments—some as compensation for
an advisory position after the CEO’s retirement. The issue was that of committed compensation (yet not to be
paid in the year committed) not being reported in securities filings (as well
as the annual report). Stakeholders, and the Japanese public at large, could be
harmed by not knowing the full amount of the company’s long-term liabilities.
While such harm (as well as
the economic inequality even in the CEO’s current compensation) could be useful
in an ethical analysis, but in this business-and-society analysis, the issue
comes down to whether Ghosn’s deviations from valued societal beliefs and norms
added to the severity of the government’s response in going after the gilded
CEO—a foreigner nonetheless and thus at bottom to be distrusted in Japan. The
issue is not whether Japan’s norms are ethical; rather, in this analysis they
are taken as given so a qualitative measure of Ghosn’s deviations can be made
and related even causally to the outcome (i.e., the arrests without bail, as
well as the extent of the blow to the man’s—and perhaps even his company’s
reputational capital). It is indeed easy to conflate such an analysis proper in
the field of business & society with that of business ethics, for we tend
to apply should or should not to valued norms whether in
business or society. Whereas existing norms (and cultural beliefs) are descriptive, ethical principles are normative. The two fields do share a
border, however, as in asking whether a cleft between the norms (and related
policies and conduct) of a business and of societies in which it conducts
business is ethical or not. In going from the descriptive to the normative,
ethical analysis is necessary, so I would classify this matter to lie within
business ethics, drawing on the descriptive in business & society.
To be sure, legal analysis of
the acts of Ghosn and Kelly would carry us a considerable distance in getting
to bottom of this case study. Just when the Japanese police were going to
release the CEO on bail, they rearrested him “on new charges that he shifted
personal losses during the 2008 financial crisis temporarily onto Nissan’s
books.”[15]
The matter of an associated deviation from societal values may not be a
material factor due to the crime itself, which rendered it offensive in
virtually any civilized society at least at the time. This crime arguably goes
beyond the failure to include committed but not paid out compensation in
financial reports to the government (and in company annual reports). The impact
of business & society as distinct from legal analysis was likely more
significant in the failure to disclose committed compensation because Ghosn had
at least gone through the company (admittedly via Kelly) in structuring his
compensation. It was not as if he would get the total committed compensation in
the years committed. In other words, going against valued societal norms can
render a person or company particularly vulnerable, other things equal.
Business managers—even CEOs—may
not recognize their own vulnerability and that of the company at which they
work. For one thing, we humans tend to discount low-probability, high-cost
events, especially if they are not expected in the short term. The immediacy of
quarterly earnings (whether for their impact on managerial compensation or
investors in the stock market) is typically of much greater concern. The design
of Capitalist economy systems that emphasizes the short term is likely due in
part to the fact that human beings (homo
sapiens) have been “hardwired” through almost 2 million years to be
oriented to immediate cravings such as hunger and sex (i.e., survival) and
threats (i.e., to avoid getting eaten). Almost all of the natural selection, which
gradually changes a species, took place during the hunter-gatherer stage of
humanity; agriculture has only existed for the last 9,000 years. In other
words, immediacy being foremost is a
result not just of economic, political, and social systems giving it emphasis,
but also of the context (i.e., hunter-gatherer) of human natural selection. As
the context today is greatly different, perhaps systems should be designed that
emphasize the long-term so as to counter how our species has evolved.
On the impacts of human evolution (and other sciences) on modern management, see William C. Frederick, Natural Corporate Management, available at Amazon.
For cases of unethical business, see Skip Worden, Cases of Unethical Business, available at Amazon.
On the impacts of human evolution (and other sciences) on modern management, see William C. Frederick, Natural Corporate Management, available at Amazon.
For cases of unethical business, see Skip Worden, Cases of Unethical Business, available at Amazon.
1. Amy Chozick and Motoko Rich, “The
Rise and Fall of Carlos Ghosn,” The
New York Times, December 30, 2018.
2. Ibid.
3. Ibid.
4. Ibid.
5. Ibid.
6. Ibid.
7. Ibid.
8. Ibid.
9. Ibid.
10. Ibid.
11. Ibid.
12. Ibid.
13. Ibid.
14. Ibid.
15. Ibid.
