Analysis of The Ethical Implications of Carlos Ghosn’s Leadership at Renault and Nissan

Introduction

Mr. Ghosn, at 64 years of age, has bagged plenty of achievements in his pocket to boast. Having saved Japan’s second largest automaker from the brink of doom in 1999, he has become somewhat of a cultural icon and a hero to the Japanese nationals. The gravity of his feat is exemplified through this as the highly inclusive Japanese culture does not let foreigners invade its territory very easily. Even at this age, he keeps up with his determined work ethic moving from country to country to oversee the large empire he is in charge of. He is the current CEO and Chairman of Renault in France, and Chairman of Nissan and Mitsubishi in Japan. The latter company, Mitsubishi, was acquired by Nissan in a move orchestrated by Ghosn himself in what may secretly be his third consecutive turnaround success of yet another struggling automaker.

In every company he had been tasked with saving, Mr. Ghosn had to make complex decisions in his tried and tested formula for success, the implications of which could be within the interests and scrutiny of ethics in leadership. In examining the ethical implications of his leadership, the scope of this article is contained within his tenure at Nissan, where the most implications of the ethical issues – diversity, cultural conflicts, affirmative action, compensation, and downsizing – appear the most.

Early Life

Carlos Ghosn was born in Brazil to a family of Lebanese descent at Porto Velho in 1954. His childhood shifted from Rio De Janiero, Brazil to Beirut, Lebanon and finally to Paris, France where he graduated with a university degree in engineering from Ecole Polytechnic in 1974. His grandfather was a flourishing businessman who had headed several countries in varying fields. Carlos Ghosn had followed in the spiritual footsteps of his grandfather. He worked at Michelin for 18 years, training and gathering experience at various Michelin facilities in Germany and France, and was appointed as COO of Michelin’s South American Operations and tasked with turning around their Brazilian operations. This would be the beginning of his series of successful transformations of multinational business organizations. His penchant for taking on new cultures worldwide, which was in part cultivated by his growing up in several different cultures and localities, compelled him to take on the large Japanese company, Nissan, when the opportunity arose. He then went on to serve in Renault as vice executive in 1996, and managed to return the struggling company to profitability. He did this through various downsizing and cost cutting measures earning him the nickname “Le Cost Killer”. Through a joint alliance of Renault and Nissan, Ghosn had one more role in addition to his responsibilities to Renault. As the new CEO of Nissan in 2001, he turned Nissan from sinking debts of about $20 Billion, to one of the most profitable Japanese companies. In 2016, Nissan, headed by Ghosn, successfully acquired Mitsubishi as the latter company entered hot water over its emissions cheating scandal, thus resulting in the Renault-Nissan-Mitsubishi alliance, making it the third largest automaker group in the world.

Management Practices

As a manager, Ghosn understood the need to embrace and deal with cultural conflict in a positive and productive manner. When he came to Japan, Ghosn knew that cultural conflict was inevitable when he saw the strikingly different corporate culture of consensus, complacency and tunnel vision within Nissan’s management. He had to address these issues without exhibiting any notion towards the employees that he was importing and enforcing his own culture amongst them, as it would lead to the backfire of the massive turnaround plan that he had envisioned for Nissan. Ghosn focused on three major philosophies: transparency, execution and communication. These philosophies transpired into replacing of the long standing tradition of seniority rule to the performance oriented hierarchy, cultivating a sense of taking responsibility instead of blaming one another, and the development of cross functional teams, a setup Ghosn liked as it had brought him past success. In order to bring about profitability, he focused on four main areas: product line development, brand image improvement, investment in research and development, and cost reduction. In terms of cost cutting, Ghosn noted a lot of unnecessary expenditure and tied up capital. He shut down several factories, curled back on unnecessary assets, and eliminated the traditional keiretsu practices of investing in other companies to bolster relations, a move that had freed up enormous capital. But perhaps his most scrutinizing move was the massive layoffs (about 14% of the entire Nissan personnel) that garnered harsh criticism from the media and disappointment from the Japanese government. He was also scrutinized for demoting or firing upper management for not meeting targets and quotas. “Le Cost Killer” had struck again. The ethics of these management decisions are going to be looked into in detail in regards to Diversity, Compensation and Downsizing.

Ethical Implications

Cultural Conflict

One of the first things Ghosn did at Nissan was to challenge some of the cultural practices that made Nissan inefficient. He divested Nissan’s shares in keiretsu (a Japanese term meaning bonding between companies) investments, set targets for the engineering teams, increased funds for R&D, and implemented CFTs which reviewed practices within the company that could be improved or eliminated to save costs. By giving the teams certain goals, he elicited greater performance out of the employees across all departments, favored communication and cohesion among departments and ended the blame game culture rife within the company. Performance oriented attitude and decisions of Ghosn also conflicted with the culture of prioritizing senior employees despite their performance, however the change was well as he took a bottom-up approach, working with all employees using a similar MBO approach, communicating and listening to employee concerns and making them believe that the decisions were ultimately for the greater good of the company that they held dear. As a result, his decisions were respected and employees accepted the changes to the usual way of doing things.

Compensation

The compensation structure within Nissan was an important structure to reform in order to get the performance that Ghosn wanted out of Nissan. By eliminating the seniority rule, he established employee performance as the prime indicator for both promotion and compensation. While this resulted in cultural disapproval at first, as mentioned earlier, the move from an ethics standpoint can be seen as fairer in comparison to the older practice. Under Ghosn, Nissan’s gender disparity has continued to decrease with the latest figures showing that women on average earn 15% more than men, however men make up for it by earning more bonuses. Under his leadership, Nissan continues to close the gap in gender based pay and increasing its women workforce.

Affirmative Action

In the beginning years at Nissan, women held fewer managerial posts at Nissan, even though it was still higher than Japan’s average. His team of executives launched several programs, that included manager mentorship programs, technical education programs, “Ladies First” dealership programs, and many others specifically catered only for women, in order to bring more women into its workforce. As a result, whilst the industry average for female participation remained steady, Nissan’s female participation increased, especially in managerial roles as it reported in 2017, that 10. 1% women held managerial roles in comparison to just 1. 6% in 2004.

Diversity

Diversity is the inclusion of differing cultures, ethnicities, races, affinity orientations, genders, religious sects, abilities, social classes, ages and national origins of the individuals of a firm. According to Ghosn himself, the success of Nissan over the years and also the success of the Renault-Nissan alliance have been successful due to the alliance’s ability to unlock the potential of its cultural diversity. In Nissan, 20 of the the top 52 executives represented 10 nationalities outside of Japan. Ghosn believes that as Nissan does business all over the world, it incorporates the expertise and knowhow of people from its diverse workforce to be able to cater to a diverse customer range and remain profitable. It was also his leadership decision to set up the Diversity Development Office at Nissan which reported to him and was tasked with accelerating female participation in the workplace further achieving his diversity goals and indeed meeting the requirements of a diverse workforce in a company.

Downsizing

Following plant closures, the workforce at Nissan was reduced too. Some 21, 000 personnel, approximately 14% of Nissan’s employees were laid off, in order to curb costs. Even line and mid-level managers across all departments were not exempt from the layoffs if they failed to perform. While downsizing is not unethical to begin with, especially when viewed through the lenses of utilitarianism where Ghosn had acted for the greater good of all employed at Nissan, an analysis in accordance to the EPIC framework can identify some, if any, gray lines where it could be considered wrong or uncalled for. From an employee’s viewpoint, the framework is as follows:

1. Empathy – the decision would definitely seem unempathetic to the workers who were fired despite meeting standards.
2. Patience – Nissan had been struggling for years and had already employed several cost cutting features to no avail, and so Ghosn’s decision to lay off redundant employees came after much waiting.
3. Integrity – Nissan’s culture had always been about loyalty within its ranks and an assurance of a job in return. For the workers, it could be argued that they had been betrayed to this end. For the white collars, the story can be different, as they had mostly been fired for their inefficient practices and disregard for innovation or taking charge as required.
4. Courage – Downsizing was not the only change as the entire company had been restructured and changes were made at every front. Ghosn displayed courage in carrying out every part of his plan accordingly and not standing back at the face of criticism when it came to downsizing. Downsizing was only one of the objectives to the final goal.

Conclusion

Carlos Ghosn appreciated different cultures, was a man of multiculturalism and sought ways to incorporate the good of other cultures and earn the respect and trust wherever he worked. He gave his subordinates the vision to work towards, and communicated every requirement. He introduced diversity in a very homogenous Japanese company, increased female participation, strived for fair compensation of his workforce and remove the malpractices that slowed his companies down. Some of his decisions, although seemingly lacked empathy and challenged culture, were respected by most employees as they saw the results and as he had worked with a bottom-up approach with his employees. In these ways and more, he had displayed the most professional ethical conduct as should be expected from a manager, without any of the excess. Thus he can be seen as the ethical role model for managers and corporations alike, as they try juggling business efficiency with morality. In his long and fruitful career, Carlos Ghosn had done what few leaders could have done before. He did not inculcate the world with iPhones like Apple’s Steve Jobs, he did not bring pioneering solutions to consumers like Amazon’s Jeff Bezos, or Google’s Larry Page and Sergey Brin, and nor did he woo crowds with a vision for an environment friendly ethical world like Elon Musk. Instead he stayed at the backwaters, moving as one with his employees and the companies he had served with a mission to save them. He infused practicality within morality and found a balance for the two that spelled a recipe for success.