Nissan's CEO Caught in the Crosshairs of Business and Society in Japan

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 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.

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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.

The Natural Wealth Model of the Modern Corporation: A Basis for Sustainable Organization

Going to the Humanities to construct a sustainable organization based on ecological theory, this essay presents a theory of the firm that is at odds with the profit-maximization premise. I draw on the notion of the natural wealth of the Golden Age as depicted by such ancient Western poets as Ovid and Hesiod—who assumed such wealth to be devoid of greed—as a basis for sustainable organization from ecological theory to produce an alternative theory of the firm.

The essay is at "The Natural-Wealth Model of the Modern Corporation."

Religion and Business Clash at a Church’s Food Pantry

The sacred and the profane are like oil and water—oil for anointing and water for cleaning. The viability or value of the sacred does not depend on denigrating that which is exogenous to it. In other words, praising the sacred does not require trashing the world. Being in the world but not of it does not imply that the world is necessarily bad. From this perspective, the sacred and profane can both be viewed as viable in their own rights, respectively. The inevitable distance that distinguishes them so starkly is breached only with great difficulty, even if pressed out of sheer practicality. For example, a theological interpretation undergirding a religious organization’s food pantry can clash with a business calculus such as would be held by an auditor pouring over the numbers and procedures. As theology and business enjoy their own, sui generis (i.e., of its own genus or type) bases of justifications or rationales, unraveling a clash can be notoriously difficult for want of a common denominator.

One pantry, which I will call here “Food Pantry of the Church of the Ossifier,” faced a challenge when the local food bank, which distributes meat to the local pantries, informed the pantry’s director, Sue, that the amount allotted would decrease on account of supplier issues. Specifically, as the price of meat increased, grocers had more of a financial incentive to more efficiently manage their respective inventories—with less left over nearing expiration dates. Translated into the Ossified Pantry’s terms, only 80 out of 430 families would get meat on the first and third Wednesdays of each month. In Sue’s words, “Meat is in short supply as donations to the food bank.  Walmart, . . . etc are not putting as much meat out in hopes to not have as much given away.  It cuts into their profit margins and everyone is being for frugile.”

The gap can be narrowed on both the demand and supply sides of the equation. On the supply side, one of the pantry’s volunteers, a former certified public accountant (CPA), contacted Sam’s Club for funding. The company had been instrumental in setting up an infrastructure locally for getting food from grocery stores to the food bank for further distribution to the pantries. Furthermore, each Sam’s Club store gave out gift cards to local charities, which could apply for the limited funds every other month. Charities could also apply to the corporation for grants ranging from $250 to $2,500 annually. The volunteer provided Sue with the information and she applied for both programs in the hope of being able to buy meat to supplement that which the food bank could supply. In addition, she asked the store manager about a possible discounted price. She could offer incentives such as free advertising in the church bulletin and at the pantry itself, as well as inclusion among the list of donors featured on a wall in the church lobby. From this side of the equation, business and religion look like country cousins—not marriage material but close enough to help each other out on a regular basis.

The intractable distance becomes apparent on the demand side. Sue allowed food recipients to pick up for other families too, under the assumption that some families cannot get to the pantry. Some recipients picked up for four or five families. From a CPA’s standpoint, the 430 families served figure—which the food bank uses as a basis for determining the pantry’s allocation (government funders would also use the figure)—would be a highlighted item for sampling and procedure-assessment. That is to say, the potential for cheating under such an arrangement was such that an auditor would want to test its validity rigorously. In fact, such a policy might have to go for the figure of families served to be said to be accurate enough for third-party reliance. Even with a record of the families in absentia, those families may not actually have received any of the food said to be picked up for them.

Sue’s theological basis for the policy is eons away from an auditor’s foundation. Compounding the difficulty in reconciling Sue’s perspective with that of an auditor, Sue held some non-theological assumptions regarding business that are vulnerable to criticism from a business standpoint. Even so, because her theological assumptions are beyond a business critique may have given her a misplaced confidence that her business assumptions too are beyond such a basis of critique. Her theological and business assumptions in her own words come in five points.

1.  People will scam us - that is a given and something that I can't control - if they really want to cheat they will.  Thieves are so smart and creative.

2 If they cheat they will have to explain it to God, I won't.  I hope that God is merciful.

3.  I do have a paper trail.  There have been a few times when I find out someone is cheating and when I confront them about it, I tell them they are not welcome to come back.  

4.  Occasionally I will make a phone call and spot check on the ones who pick up multiple families.  Most of them have asked me for permission to do so and I believe a lot of them do it to save on gas.  I have to trust that it is true or else God will take care of it.  God often tells me not to worry as He will take care of things and so I do just that.  

5.  Lastly this is God's work not mine.  It is never about the volume but about the one who needs us most.

Regarding Sue’s first point, just because theft cannot be completely eradicated does not mean that managers cannot do anything to reduce it. Sue’s assumption that a thief’s desire to steal necessarily means the thefts will occur is fallacious. Even if thieves are smart and creative, managers can be too. The passivity in Sue’s assumption likely comes from her theological tenets.

The theology surges in on the second point. Sue is saying that she is not obliged to provide a defense for the cheaters when God judges them.[1] Her assumption itself takes it as a given that the stealing will take place. Furthermore, her passivity or noninvolvement in the divine judgment may be a reflection (or projection) of her assumed passivity in her first point. Put another way, her assumption that the lying will take place may be based on her more foundational assumption that she has no involvement in God’s judging the cheaters.

A business practice may thus stem from a theological interpretation. Problematically, that the latter is beyond critique from a business standpoint may be used to assert that the resulting business practice is also beyond critique (and thus control) from a business basis. In cases in which the person has substantial power in the business, the business practice may go uncontrolled even though business principles have jurisdiction. Should the person’s boss have the wherewithal to stop the offending practice, the theological auspices could legitimately stand in the way if the business is part of or sponsored by a religious organization.

In her third point, Sue defends her practice of multiple-family pick-ups on the basis of business principles. She points to a paper trail, yet having the names and contact information of the families receiving the food at home is not sufficient to prevent fraud. A recipient could simply collude with a friend willing to act as a front. Asking for permission and using gas as a rationale, which Sue cites in her fourth point, can be part of the ruse even if the proactive gestures reduce the likelihood that cheating is going on in such cases.  

Sue assumes that because she has uncovered only a few cases of fraud by making a few spot calls, a small number of stealth instances remain among the 430 families being served. Of course, a colluding friend of an in-person recipient would naturally lie, though speaking with kids could uncover problems. Even so, a CPA would advise more than a few spot calls. Considering Sue’s passivity toward the matter of cheaters in general, the assumption that she has actively caught most if not all of the outstanding cases is vulnerable. In fact, the opposite assumption has more support. That her passivity is informed by her assumption of God’s agency makes her assumption of infrequent fraud particularly shaky.

In her fourth point, Sue bases her assumptions that a paper trail and a few spot calls are sufficient and that only a few cases are actually fraudulent anyway on her more fundamental (to her) theological assumption that God would take care of any problematic cases unknown to her. From a theological standpoint, this assumption is problematic, for if God would eradicate any cheating then wouldn’t God stop evil from happening? If not, then God is not omnipotent (i.e., all powerful). That injustices do in fact happen in the world is typically explained theological as an unavoidable consequence of God giving us free will.

Sue’s claim that God tells her not to worry (i.e., to passively accept that God will stop the cheating) opens the proverbial can of worms. In her fifth point, she concludes that taking care of any cheating is God’s work, presumably because God has told her this. From a religious standpoint, verifying Sue’s claim that God as “spoken” to her is fraught with intractable difficulties. However, that Sue does not question the “fact” that God has spoken to her may itself undermine her claim. Put another way, her unwillingness to question what she perceives to be the case flies in the face of the human experience, which is based in human nature itself. 

Given the conditionality inherent in Creation, Sue overplays the certainty card. Abraham struggles with God’s command that he sacrifice his only son even as God promises that his seed will populate the world. In Kierkegaard’s terminology, Abraham embraces the absurd in the realm of the finite.[2] Sue’s certainty belies her broader claim of being a person of faith. It is possible, even likely, that she had unconsciously chosen her theological assumptions to mollify her managerial challenges in formulating and implementing a system of accountability. 

Her compromised system can indeed be subjected to a business critique and correction, even if such oversight is hampered by the religious auspices of the pantry—being that it is part of a religious institution. To be sure, the business oversight can make use of the problematic elements in Sue’s theological basis, yet this presumes that managerial oversight is vigorous among religious functionaries.

Therefore, even though the gap in supply and demand occasioned by decreased supply at the local food bank could be narrowed by corporate giving and greatly reducing the instances of multiple-family pick-ups—such as by reducing the number of families a recipient can cover to one and asking volunteers to make the deliveries on their way home to cover as many cases as possible (especially the hitherto multiple-family pick-ups!)—the role of Sue’s theology on the demand side of the equation could keep the gap unnecessarily large. 

Moreover, both the pantry and the church’s administration could develop a reputation locally for ineptness in being disorganized. A boat with many leaks does not inspire much confidence. The rigidity alone with respect to plugging the leaks is easily offensive and naturally frustrating. Even though theology and business are worlds apart in their respective rationales, the flash-points need not be so intense and harmful. 

To the extent that some recipients get more meat than others, the shortfall hurts the people in need while enabling the gluttony of others; this is not exactly about the ones who need the pantry most. Hence Sue’s theological approach to caritas seu benevolentia universalis (i.e., higher-aimed human love, that is, universal benevolence) is vulnerable to her own criterion. Regarding the nexus of business and religion more generally, using the criteria of each on its own domain can work wonders in reducing otherwise inexorable difficulties from the interaction of the two domains.

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[1] Notice that Sue assumes that God will judge them. This assumption has historically given confidence to people that unjust people leading a happy life would nonetheless “get theirs” eventually. Nietzsche interprets this desire of after-life retribution as being sourced on the urge of some of the weak to dominate even the strong out of resentment and for the pleasure that can be extracted even from such wan power.

[2] See Soren Kierkegaard, Fear and Trembling (London: Penguin, 1985), pp. 65, 75.