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.

On the Arrogance of False Entitlement: A Nietzschean Critique of Business Ethics and Management

Nietzsche is perhaps most stunning in his eviscerating critiques of modern morality and, relatedly, Christianity. His pessimistic attitude toward modern management is less flashy, but no less radical, for the business world would look very different were it populated by Nietzschean strength rather than so much weakness that in spite of which—and because of which, seeks to dominate even and especially people who are stronger. Accordingly, this book provides formidably severe critiques of both business ethics and management and sketches Nietzsche’s notion of strength as an alternative basis for both. Nietzsche’s notion of the ascetic priest as a bird of prey with an overwhelming urge to dominate eerily similar to both the business manager and the ethicist. Therefore, the last two chapters are on Nietzsche’s unique take on Christianity, and John D. Rockefeller, a devout Baptist ostensibly compatible even with being an acidic monopolist. 

On the Arrogance of False Entitlement: A Nietzschean Critique of Business Ethics and Management is available in print and as an ebook at Amazon. 

Labor and Stockholders: Applying Locke’s Notion of Property

John Locke’s view on how something becomes a person’s property could fundamentally alter labor-management negotiations in companies. Moreover, our assumption that management participates in the discussions may be upended. The key, I contend, lies in how we classify labor. I submit that the paradigm that has been handed down to us is deeply flawed in its fundamentals, and yet strangely we do not even question its contours.

In describing his notion of property, Locke begins with the state of nature, wherein “every Man has a Property in his own Person. This no Body has any Right to but himself.”[1] Unlike Thomas Hobbes, Locke did not think that rights depend on the existence of government. From a person’s body, Locke goes next to its labor, as properly one’s own. It follows, Locke contends, that “(w)hatsoever then [a person] removes out of the State that Nature hath provided, and left it in, he hath mixed his Labour with, and joyned to it something that is his own, and thereby makes it his Property. It being by him removed from the common state Nature placed it in, it hath by this labour something annexed to it, that excludes the common right of other Men. For this Labour being the unquestionable Property of the Labourer, no Man but he can have a right to what that is once joyned to, at least where there is enough, and as good left in common for others.”[2] The caveat at the end means that as parcels from the commons are belaboured, the resulting private property should not exhaust the commons itself, which nature provides to all. Yet even when all land, for example, has been claimed by individuals and government, surely Locke’s claim still holds that in mixing with an object, the labor of one’s person, being his or her property already, extend the property to the object too.

Yet what if another person already owns the object? Locke assumes the laboring person snatches it out of the state of nature, where anyone can appropriate the object with one’s own labor. If the basis of Locke’s theory of property is not the state of nature itself, but, rather, that a person’s own person and labor are one’s property—whether in the state of nature or in an arranged society—then a right of property is still in the mixing of a person’s labor in an object. In cases in which the object is already owned by another and he or she consents to the labor of another being mixed with said object, then either the laborer has an ownership share or he or she contracts with the pre-existing owner to sell the share.

Hence, companies, whether owned by private interests (capitalism) or a government (socialism), contract with employees essentially to purchase their property rights that naturally accrue as their respective laboring mixes in with the means of production. I distance the labor from the means of production because the latter do not gain a property right in working on an object, for it makes no sense to say that a machine has its machine and work as property. The implications of this distinction are nothing short of huge with respect to the assumptions we make about business and capital.

In financial reporting, labor is classified as an expense to be deducted from revenues to arrive at profit. The returns to a company’s owners (e.g., stockholders) come off after the profit, rather than being an expense of doing business. If Locke is correct that labor also gives rise to a property right, then the sale of the stake is also extra-business, rather than a mere means of production. That is, the cost of labor should rightfully be classified with dividends after profit.

By implication, rather than negotiating the sale of the labored property as if it were an expense, the talks would be between owners. For one group of owners, that of capital, to say, “We can pay more, but we’ll have to cut expenses” would be a category mistake. So too, would the common (and convenient) assumption, “If we pay you more, we’d have to raise prices and we’d lose business.” Within the property classification, buying up the labor-property shares would come out of dividends, rather than to be made up for by intra-business revenue or expenses. This “third rail” is never brought up as even an alternative—the capital-owners’ dividends presumably being off the table. Such a narrowing of a debate goes a long way in getting what you want in negotiations. John Locke might just say, not so fast!

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1. John Locke, The Second Treatise of Government, section 27, in Locke, Two Treatises of Government (Cambridge University Press: Cambridge, 2003), p. 287.

2. Ibid., p. 288.

Who Won the Kentucky Derby?

This might seem like a simple question. California Chrome won the race in 2014. That is to say, the horse by that name won. As the Derby is a race, a jockey would have played a decisive part in the win. The aptitude may well be in the horse, but the racing skill lies with the person perched on the animal. So the jockey, Victor Espinoza, won the race. If his role was essentially that of coaching or directing the horse, which unlike a racing car is a living creature with a brain to boot, then could the argument be made that the horse’s trainer—in this case Art Sherman—also won? Although Sherman quipped during a post-race interview that he had felt like he was on the horse for the last 75 years, surely a distinction can be drawn between a player and a coach. After all, Babe Ruth hit all those homeruns—not his coach. To win a race, the winner must presumably be in the race—and not vicariously. Least of all can it be said that the “horse’s owner”—an expression like “slave owner” in that a living being is “owned”—won the race. Otherwise, a person could simply wave money around in lieu of actually running to qualify for an Olympic context in track and field. To give wealth such power—coming at the expense of reason itself—would surely point to a rather distorted set of societal values. I contend that both NBC Sports’ post-race coverage and the Derby’s trophy ceremony reflect and in fact affirm the hegemony of business values in American society.

Just before interviewing the jockey, a NBC Sports journalist prefaced, “We interviewed the owner, then the trainer, and now the jockey.” Lest it be pointed out that the jockey had been busy, the trophy ceremony followed the same pattern. Kentucky’s head of state handed to trophy to Steve Coburn, who with the other owner, Perry Martin, were all too pleased to speak on their win. In fact, the governor made it quite explicit by announcing, “To the Martins, to the Coburns, our victor.” The horse and jockey were not even in the camera shot. Wealth had won the race without breaking a sweat. Next came the trainer’s turn, and then, last and apparently least, the jockey.

Imagine running a race, and winning it only to watch the metal being given to your sponsor. “To Coke, our victor.” In enabling a runner, horse, or jockey to train, a sponsor is not the winner (for otherwise the sponsor would be enabling itself). While it is understandable that wealth is highly esteemed in the business sector, the imposing of this “top dog” in society itself distorts non-business activities into the prism of commerce. In the context of managerial capitalism, particularly where managers style themselves as “coaches,” it is no accident that coaches and trainers in sports come to be treated  as ends rather than means—as the winners rather than as facilitators on the sideline. It is important to remember that Art Sherman was not on the horse that won the Derby in 2014.  

In short, the priorities evinced by NBC Sports and the Derby reflect those in the business world at the expense of the world of sports; overreach can thus be seen rather clearly. Put another way, the horse race provides us with a snapshot of just how much American society has formed around the ideological crucible of Wall Street. At least from the jockey’s standpoint, the over-reach both in terms of ownership and managerialism violates the ethical principle of fairness (i.e., the trophy should have gone to the jockey, as he is the person who actually raced). Sadly, the exaggeration or over-reach was already so engrained in American society even before the race that I bet few if any Americans even noticed how very odd the trophy sequence is.