The lonely star of Carlos Ghosn

The lonely star of Carlos Ghosn

by Pininvest Analysis

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A year can be a long time - or comes to pass in a flash

A long time for Mr. Ghosn, disgraced titan of the global car industry, under arrest in Japan since November 19, 2018

A flash for the much vaunted Renault-Nissan Alliance which crumbled the moment prison doors slammed shut

Standing awkwardly shoulder to shoulder with Nissan management, Mr. J.D. Senard, Renault's new top man, might have been hard pressed to hide the truth - the Alliance had been the artefact sprung from the mind of one man and was no more

An artefact  is "something observed in an experiment that is not naturally present but occurs as a result of the preparative procedure"

How the Alliance was built up in the face of reluctant Japanese partners and of messy interference of the French government is - in a sense - the story of Mr. Ghosn's life

The end of the Alliance could prove costly - if the collapse of Nissan's  and Renault's share prices,  both down 30% year-on-year, is any guide 




Arx tarpeia Capitoli proxima

"It is not far from the Capitol to the Tarpeian Rock”

The Capitol was the smallest of the Seven Hills of Rome and the most important as nexus of religious power of the Roman Republic

But if the Capitol was the supreme symbol of honor, on the other side of the hill, at a short distance, the Tarpeian Rock was the cliff from where the condemned were thrown to their death

Rarely in recent times has the Latin proverb been more relevant than to conjure up the brutal downfall of Carlos Ghosn, one day the feted executive of the global car industry and the next, one afternoon in November 2018, on the tarmac of Tokyo’s Haneda airport, the man, all alone and under arrest


To explain the very unfortunate course of events, there may be more to go by than usually assumed

The background of Mr. Ghosn paints the picture of a perennial outsider, Brazilian-born of Lebanese ancestry and French national, and it could be posited that his willful ability to question conventional business practice and to break institutional molds might have been key to his achievements

Mr. Ghosn appeared to be quite happy to entertain a media-friendly image of the determined professional willing to make hard choices in the interest of his company, earning him the slightly awed moniker of ‘le Cost-Killer’ in France and Japanese comics chronicles of his life

From the top of his carrier, Mr. Ghosn might have looked down on such flattery with some irritation as the tensions between Renault and Nissan, surfacing day after day, were pushing his overarching control to the limit

The intent to stage the Alliance between the two car manufacturers as defining symbol of Mr. Ghosn's brilliance has been both a necessity to secure his grip and a conceptual flaw


The pivot skewing the Alliance

Acquisition of a 36.99% stake in bankrupt Nissan (1999), the audacious gamble of Mr. Ghosn’s predecessor at the helm of Renault , Louis Schweitzer, was supported – and presumably approved – by the French government, majority shareholder of the company at the time

One may ponder if the takeover risk was not mitigated in Mr. Schweitzer’s mind by the quality of the executive line-up to take on the challenge, led by Mr. Ghosn who never shirked hard choices, with the closure of the Belgian Renault plant at Vilvoorde (1997) under his guidance to prove the point

After an initial public offering in 1994 reducing the stake of the French state to 53%, Renault was privatized in 1996; government ownership was brought down to 46% and, by stages between 2002 and 2014, lowered to 15.01%

The much reduced stake did not keep the French government from asserting its political interest, never shirking from a legal reset when the optics seemed convenient on the domestic front as Mr. Macron, Minister for Economics Affairs in April 2015, demonstrated in his muddled attempt to double the voting rights of the government, rolled back in 2017  ('the Future of the Renault-Nissan Alliance'  tells the story)

One may venture that the magnitude of the Nissan challenge , loaded with a $20 billion debt at the time, was never properly evaluated by the French politicians and their civil servant advisers – and, in fairness, who could besides Mr. Ghosn and his team

Under this assumption, this author (familiar with the corridors of French public affairs) implies that, if the challenge was only half-understood (or not at all), the successful restructuring of Nissan was taken by the French politicians in their stride, with kudos all around

Happy to vaunt the cumulative turnover of the Renault-Nissan Alliance, securing a sizable share of the global automotive market under the French flag, the French government blissfully ignored – or just papered-over – the raw deal cementing the preeminence of Mr. Ghosn

Mr. Ghosn who considered himself, not incorrectly, as the true and only architect of this successful outcome, stood with a firm hand on the tiller as the ultimate arbiter of the delicate balance between Japanese and French stakeholders, possibly hoping to secure his legacy

Weak-kneed but not blind to Mr. Ghosn’s persona, the French went along with the arrangement, preferring to leave Mr. Ghosn to his devices, even when the latter’s grip on power bordered the absurd – with cumulative CEO and Chairmanships at the helm of the two and then the three firms (when Mitsubishi joined the Alliance in 2006)

Warning lights were ignored again when Mr. Ghosn proved unable to put forward a brilliant successor in the person of Mr. Tavarès, who departed from Renault in 2013 after falling out with Mr. Ghosn and went from strength to strength at the helm of competitor Peugeot

Despised by Mr. Ghosn, and even if they came to recognize their poor expertise in global manufacturing, the French politicians did not take Mr. Ghosn’s high-handedness kindly and took pot shots when given the chance

And the chance to show off their polished image of careful tenders of the ‘public interest’ was given to the French government with the fight around compensation – and high pay-out expectations voiced by Mr. Ghosn as ultimate recognition of his contribution

A damp squid if there was one, Mr. Ghosn dropped some of his official demands, while benchmarking his ‘true’ value to the solicitations of American car makers who had attempted to poach the star of the industry

It remains unclear why Mr. Ghosn did not follow through on the highly attractive pay packages on offer in America, which, as we know now, would have saved the day…

It can be assumed Mr. Ghosn felt entitled to complement his formal pay and bonus, with the US offers in his line of sight, as a sweet revenge against bone-headed civil servants and small time politicians. The bonus plan, made public by Reuters in 2017, can be understood in this context

We would not know…

We only suggest that later-day Mr. Ghosn had entered by that time the select circle of global executives who, foremost in America, have become extremely wealthy, turning million-dollar salaries into billions by way of stock compensations and other bonus arrangements

What we do know is that Mr. Ghosn had more of an entrepreneurial strain than many of the enriched managers he rubbed shoulders with at Davos and elsewhere– and could, in his own mind, easily justify what would be ‘fair’ compensation

A personal pivot unwittingly skewing the Alliance


A conceptual flaw

Running circles around beleaguered Nissan and its army of suppliers, Mr. Ghosn did not expect, nor care about earning much love from his Japanese subordinates

Trampling the pride of many, gaining ambiguous recognition for his efforts in Japan when Nissan returned to profitability in short order, Mr. Ghosn made a compelling case of turn-around

We venture however that the Japanese firm went from strength to strength after restructuring because Japanese management had a point to make to the French team, quickly perceived as overconfident interlopers

credit BBC (25 Nov. 2018)

By growing the brand in the US and in China, by car sales numbers and by profitability, Nissan outshone Renault with strong presence in the world’s premier markets, the US and China, of which Renault remains painfully absent

With their reputation restored, the Japanese management can be forgiven to be somewhat ‘puffed up’ by their achievement, increasingly contentious in the Alliance committees set up to share expertise and wondering what exactly was the French contribution to team work – and, possibly behind closed doors, what jet-setting Mr. Ghosn brought to Japan

If our assumption is even half-correct,  Mr. Ghosn's ways to share the wealth with well-funded bonus plans, as revealed by Reuters in 2017, and to align Nissan's interest with his own, was deeply flawed, misreading management's commitment to Nissan's success entirely

Overpayments of his successor at the helm of Nissan, Mr. Saikawa, have been made public and the later's resignation in September '19 attests how disparaging  and un-Japanese the practice was for the beneficiaries

It would not be surprising if outrage at the secret pay-outs prompted an informant to refer the case to the Japanese prosecutors, infering that a much wider net could potentially be cast over Nissan's top management with  death-defying consequences for the company - only the prosecutors and Mr. Ghosn will know


All of which did nothing to address the conceptual flaw of French dominance anchored on a 43.4% stake with voting rights (after exercise of additional subscription rights), putting the 15% Nissan stake (without voting rights) in the shade

Conceivably, a pure financial arrangement between the two companies – with rich dividend paydays for Renault – could have put the two manufacturers on their separate courses, with case-by-case sharing of platforms and parts procurement, by mutual agreement 

But, on Renault's terms, the Alliance expected much more from the Japanese… the financial benefits of partial ownership of Nissan by Renault and common car platforms and the sharing of expertise in the most sensitive of areas, R&D

While financial benefits are a fact of life, and common car platforms not unusual even amongst independent brands, R&D has become a competitive advantage with the looming vehicle electrification, an advantage Nissan’s engineers will have been loath to share wholeheartedly

Glad-handing his Japanese partners, the new Chairman (by name only?) Mr. J.D. Senard presumably attempts to cool tempers after much drama, but the departure of a number of high ranking executives from Renault's management is an ominous signal

In our uninformed view, the Alliance limps on in name only, the committees hardly share anything and regarding R&D, mainly a Japanese charge, Renault may not be privy to much at all anymore


Everyone is waiting

Mr. Ghosn is waiting in the small apartment, assigned as his temporary lodging – shamefully abandoned by the French authorities who benefited much from his leadership. Whatever the flaws of Mr. Ghosn may have been, they were no reason to aggravate his predicament

Mr. Senard is waiting – with urgency – to break a deadlock as French domestic political considerations obligate President Macron to hold on to the 15% stake of the French state in Renault, a major sticking point in the view of Nissan before any further talks

The Japanese government may not be formally involved, but the bad optics are a very public disaster, with undue harshness for a top manager who happens not to be Japanese where the shenanigans of Japanese executives have usually been punished with leniency

Japan will be looking for a way out, possibly with some urgency if indeed Nissan's top management has also benefited from secret bonus schemes

The French government is divided about the legitimate concerns voiced by Mr. Senard regarding state ownership but, as we discussed, the unbalance between Renault and Nissans is the conceptual flaw of the Alliance and the real stumbling block to advance very theoretical merger talks


Ultimately, the option to downsize the ambitions of the Alliance by concentrating on an industrial partnership between the two companies is worth a thought, admitting that true sharing of R&D is a fool’s errand...


We are waiting too