Ghosn Episode: Death of global harmonisation?

Last week Carlos Ghosn, one of the most celebrated business leaders in the automobile industry until a few days back, was arrested in Japan. Allegations of financial misconduct are being investigated. The fast-moving events have been stunning as Ghosn has been kicked out of his leadership positions both in French Renault and the Japanese Nissan. A little bit of background will help us in appreciating the facts better.

Ghosn is a Brazilian and has worked primarily in his early professional career in tyre industry in the United States. A few years before the turn of the century, he moved on to the French car company Renault and showed brilliant performance in making it profitable. Renault is a more than hundred-year-old company and was not doing well in the 1990s when Ghosn took over.

That decade was very important for Renault as the company was privatised in 1996 to give it a fresh lease of life after the sweeping changes in the world triggered by disintegration of the Soviet Union, reunification of Germany, success of the Uruguay Round of talks resulting in the formation of the World Trade Organisation (WTO), the era of globalisation, etc. That was the time of positive thinking, openness, outward-looking attitude, embracing others and getting oneself assimilated in them, and the sheer thought of a bright future lying on the other side of the new century gave big dreams to the eyes of almost everyone.

Thus, Nissan — the Japanese car company — joined hands with another Japanese company, Mitsubishi, and the French Renault in 1999 to bring together the best of their competencies and thrive on shared excellence.

The synergy between them was supposed to enhance their technical and management prowess, however, it was a step taken by Nissan in desperation to save itself from becoming extinct and being completely taken over by either an American or European car maker.

Nissan was making losses and it appeared impossible at that time that it could have survived. Ghosn came as the knight in shining armour and made the tall promise of turning around the company in a very short period of time. Remarkably, he kept his promise. The company turned profitable, but the old Japanese style of managing the company had to be sacrificed. There was a ruthless pruning of jobs and drastic changes made in the job security of employees, among other controversial and harsh measures taken by Ghosn.

Nothing succeeds like success. One after the other Ghosn kept giving wonderful results both for Nissan and Renault. He became the first person to head two companies at the same time, both being in top 500 companies of the world, and also, one being in western country like France and the other in Japan, an eastern economic superpower with a very different work culture and outlook towards life. The only reason which explains Ghosn being able to continue in both the places was the sheer acceptance by people tens of thousands of miles away due to unforeseen openness by businesses everywhere, particularly the companies in the Orient. This was not an insignificant development.

The mood continued to be buoyant for almost two decades when, of late, voices of protectionism and self-interest are on the rise drowning the global voices for togetherness and inclusion.

The tariff between the US and China, and the rest of the world, the Brexit saga, weakening of the processes at the WTO, especially its dispute settlement mechanism and similar incidents are eroding the trust which had grown and developed in the last two decades or so.

Coming back to Ghosn, it is also being talked about that the entire exercise might be a corporate coup of sorts by insiders supported by competitors or some other related reasons. The truth will come out only after proper investigation, but, as of now, Ghosn is not in the driving seat. Waves of protectionism and anti-globalisation might have hit him hard. The world needs to take due note of it.

The author is a professor at IIM-A, akagarwal@iima.ac.in