Even as Carlos Ghosn sits alone in a tiny cell, with just 30 minutes of daily exercise to break the monotony of detention, Japan has found it hard to muster a shred of sympathy for a man hailed as a colossus of the global car industry until his rapid downfall just five days ago.
But however badly the affair reflects on the former chairman of Nissan as a business leader, his arrest last week over allegations of “significant financial misconduct” raises equally serious questions about the health of Japan’s corporate culture.
Critics have attributed the scandal to the executive’s imperious personality and the lure of personal enrichment, after prosecutors arrested Ghosn on allegations of understating his income in financial statements by ¥5bn (£35m) over a five-year period.
But that is only part of the story, according to Sarah Parsons, managing director of Japan In Perspective, a business consultancy supporting Japanese firms in the UK. “While corporate governance scandals are not unique to Japan, there are certainly unique cultural factors that mean bad business behaviour is allowed to fester in Japan,” she says.
Parsons blames poor corporate oversight and the dominance on Japanese boards of company “insiders” – almost always middle-aged men who have formed impenetrable networks during careers spent working for the same company. Instead of exercising vigilance against potential wrongdoing, employees – even those at senior level – are expected to maintain harmony and avoid gaining a reputation as a troublemaker.
“Given the strict hierarchies in Japanese society, expecting individuals to blow the whistle on their peers – or, even worse, their seniors – is a cultural no-no,” Parsons says. “The consensus-driven and long-winded nature of Japanese decision making has in some cases led to a lack of willingness to be accountable and a tendency to avoid the consequences until forced.”
Michael Woodford understands that better than most. Seven years ago he was lauded by some as a champion of corporate transparency when, soon after becoming the first foreign chief executive of Olympus, he exposed systematic accounting fraud at the Japanese medical imaging company. His colleagues, however, viewed him with contempt – a pariah who in his role as chief whistleblower had breached Japan Inc’s code of silence.
As it turned out, the Olympus scandal was a mere foretaste of what was to come. Four years later, Toshiba, which makes items ranging from laptops to nuclear power plants, revealed that it had hugely overstated its operating profits, ultimately by almost $1.2bn (£940m). Last year the car parts maker Takata filed for bankruptcy protection after deadly faults in its airbags triggered the industry’s biggest-ever safety recall.
More recently, Kobe Steel admitted falsifying data about the strength and durability of its aluminium and copper products, which are used in the transport and defence industries. And last month, KYB, a Tokyo-based hydraulics firm, admitted falsifying inspection data for equipment used to protect hundreds of buildings from major earthquakes, including venues for the 2020 Tokyo Olympics.
There is much that differentiates the Ghosn case from other Japanese business scandals. The evidence against him was reportedly built around information from a Nissan whistleblower – proof, according to some observers, that western-style post-Olympus checks of power are beginning to take hold in Japan. In addition, the allegations centre on an individual rather than a company-wide attempt to cover up wrongdoing. But despite Nissan’s attempts to contain the fallout from their former chairman’s disgrace, questions were being asked about its internal governance, even as its chief executive, Hiroto Saikawa, portrayed the firm as a victim of “the dark side of the Ghosn era”.
“Corporate governance was clearly dysfunctional in Nissan when Ghosn was almighty,” says Koichi Nakano, a professor of political science at Sophia University in Tokyo. “The board members were not acting responsibly when the alleged offences were committed, and they are still not acting responsibly now by placing all the blame on Ghosn.”
After digesting the tumultuous events of the previous few days, Japanese newspapers were united in their disgust at the Ghosn allegations, but hurled similar invective in the direction of the Nissan executives who have now turned on their former chairman.
The Asahi Shimbun urged Nissan to fully disclose the results of its internal investigation into Ghosn and Greg Kelly, an American representative director who has also been arrested over the affair. “The company is in danger of falling into dysfunction unless it does its best to disclose whatever it can to its shareholders and comes up with measures to deal with the current crisis,” the newspaper said.
Attempts by Japan’s prime minister, Shinzō Abe, to introduce measures designed to improve corporate governance and shore up Japan’s reputation among overseas investors have had mixed results. Since he began revamping the corporate code in 2014 – the “third arrow” of his Abenomics growth strategy – there are signs that firms are being more responsive to long-ignored activist shareholders, and there are more outsiders sitting on company boards.
But the changes have done little to address either the culture of secrecy or the strict hierarchical management structures that encourage misconduct, says Jeff Kingston, director of Asian studies at Temple University in Tokyo.
“Corporate governance in Japan remains elusive because corporate culture here remains parochial and dominated by insiders,” he says. “Boards provide spotty oversight because they embrace an averted-eyes approach to their duties in the ‘get along, go along’ ways of Japan Inc.
“It’s laughable to imagine that Abe’s hesitant small steps towards improved corporate governance are what brought Ghosn down.
“Ghosn’s hubris, his hogging of the limelight, and his massive compensation angered other Nissan executives, who waited for the right time to take their revenge.”
As the appetite wanes for heaping scorn on Ghosn for his personal shortcomings and his disdain for the “Japanese qualities” of modesty, restraint, teamwork and egalitarianism, the focus is expected to shift to the criminal investigation and what, if anything, Japan’s corporate world is doing to salvage its battered reputation.
Part of the solution, says Parsons, lies in making Japanese company boards more diverse. “Any real movement to change the corporate culture so more women can operate at a board level with equal levels of authority would certainly create a seismic shift in the way Japan does business,” she says.
