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Ghosn's Downfall Spooks Foreign Executives About Japan

Feb. 25, 2019
Court case playing out as demand grows for foreign board directors.

The stunning arrest, indictments and long incarceration of former Nissan Motor Co. Chief Executive Officer Carlos Ghosn have given pause to foreign executives considering taking on senior jobs at Japanese companies.

As Ghosn enters his fourth month in jail and awaits a trial still several months away, the imprisonment of the Japanese business world’s most high-profile foreigner may stymie the nation’s efforts to diversify its corporate ranks with overseas talent, according to management experts. Foreign executives may think twice about accepting positions until they see how his case plays out and whether it leads to stricter compliance rules.

“It’s having a chilling effect,” said Yumiko Ohta, a partner in Tokyo with the law firm Orrick Herrington & Sutcliffe who advises clients on corporate governance. “It’s going to be much more difficult to recruit foreign executives into Japan.”

The inability of such a prominent business leader to win his release while awaiting trial could scare some foreigners –- no matter how law-abiding -- from accepting Japan postings and also make international companies more reluctant to post them there, said Johan Uittenbogaard, managing partner with recruiting company Odgers Berndtson in Tokyo.

“There’s another layer of risk,” he said. “You start thinking about it: Even if you haven’t done anything wrong, you can get put in jail for three months.”

Even Ghosn’s defense lawyer, Junichiro Hironaka, raised the issue during a press conference last week in which he said his client is the victim of a conspiracy by his Nissan underlings. Ghosn hired Hironaka this month after his previous legal team twice failed to win bail.

“It’s bizarre to me how this became such an incident,” Hironaka said.

Ghosn, 64, remains in a Tokyo jail, accused of aggravated breach of trust and filing false statements to regulators regarding $80 million in deferred income. He was arrested Nov. 19 and faces as many as 10 years in prison if convicted. He denies all charges, calling the accusations “meritless and unsubstantiated” during a courtroom appearance last month.

“This will become a big problem for Japan and its business,” Hironaka said. “Nissan should have solved this problem internally.”

Japan has a limited history with foreign CEOs. The most high-profile in recent years include Ghosn, Howard Stringer at Sony Corp., Christophe Weber at Takeda Pharmaceutical Co. and Sarah Casanova at McDonald’s Holdings Co. Japan.

A study published in 2015 found only about a dozen examples of foreign CEOs in Japan, said co-author Sheela Pandey, an assistant professor of management at the Pennsylvania State University Harrisburg.

Those “extremely rare” executives typically encounter culture clashes and opposition from Japanese subordinates, and the handling of Ghosn’s case throws up another red flag, she said.

“Foreign CEOs will be reluctant to work in Japan,” Pandey said in an email. “This does not help with becoming more international.”

To be sure, there are still many foreigners who want to work in Japan and won’t be deterred by Ghosn’s case, said Anne Raphael, Paris-based managing partner at Boyden France who helps luxury-goods companies do executive searches.

Foreign executives seeking to work in Japan likely have a special fondness for the country, Raphael said.

“Personal tastes play an important part in foreign executives choosing to work in Japan,” she said.

Still, the concern triggered by Ghosn’s arrest is hindering efforts to hire executives from abroad, said Casey Abel, managing director in Tokyo at recruiter HCCR K.K., which works with clients in the auto industry.

Recently, two foreign candidates for executive positions decided to wait and see how the Ghosn case plays out before accepting offers, Abel said. He wouldn’t disclose the companies or any details about the clients except to say they were vice president-level engineering experts.

“It’s creating trepidation,” Abel said. “I’ve got, right now, 15 people that we’re talking to at an executive level for automotive clients in Japan, and I’ll say two-thirds of them have very pragmatically, directly brought this up as a concern.”

Ghosn’s case also comes at a time of increased demand at many Japanese companies for foreigners to join their boards of directors, said Nobuyuki Tsuji, who manages the Tokyo office for recruitment firm Spencer Stuart. His responsibilities include working with technology, media and industrial companies.

The Tokyo Stock Exchange last year revised its corporate governance code, calling on members to improve the diversity of their boards in terms of “gender and international experience.”

About 8% of publicly traded companies surveyed by the Ministry of Economy, Trade and Industry had at least one foreigner on the board, according to a May 2018 report.

“Even very good executives might have concerns that if something happened -- even not because of wrongdoing by him or her -- there might be a possibility that they would get arrested and not get out,” Tsuji said.

Japanese companies already faced significant obstacles trying to recruit outsiders. Japan ranked 29th out of 63 economies –- behind Cyprus and Estonia -- in terms of its ability to attract and develop talent, according to a survey published in November by IMD World Competitiveness Center in Lausanne, Switzerland.

Asian economies ranking higher than Japan were Singapore, Hong Kong, Malaysia and Taiwan. In terms of its appeal to overseas talent, Japan ranked 28th last year, compared with 10th in 2014, according to the survey.

“Japan needs foreign executives,” said Seth Sulkin, chief executive officer of Pacifica Capital, a real-estate developer in Tokyo. “There really are only two major growth industries in Japan, and that’s inbound tourism-related business, and exports, and you need foreign executives for both.”

By Bruce Einhorn, Lisa Du and Ma Jie

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