What MBAs Need to Know About “CEO Disease” & Carlos Ghosn's Escape
Lights, camera, action! Coming soon to sold-out movie theaters, it’s the action-packed, thrilling big-budget blockbuster saga of Carlos Ghosn. Our story’s hero is the most famous auto executive in the world—the rock star CEO of Nissan, Renault, and Mitsubishi—who now appears to have beaten both the rap and the ride.
After Japan alleged financial “improprieties” and incarcerated Ghosn for over a year, a crack multinational strike force led by a former Green Beret smuggled our tale’s protagonist to freedom on New Year’s Eve of 2019. And the tearjerker reunion with Ghosn’s wife Carole at Beirut’s airport is sure to be one of Hollywood’s most memorable screen kiss happy endings.
But Ghosn’s saga won’t only amount to the greatest screenplay to grace Hollywood in years. This cautionary tale should serve as a warning to every MBA student around the world not only about the risks of accepting assignments abroad in nations like Japan, but also about the consequences of a mysterious affliction they may face known as “CEO disease.”
Ghosn’s Real-Life Fugitive Drama
It’s not surprising that Ghosn’s story has garnered tremendous press coverage in the United States. After all, America loves outlaw sagas like his, with a long and celebrated tradition of fugitive adventures that run through the history of our nation’s entertainment. For example, the David Janssen TV series The Fugitive topped ABC’s ratings from 1963 to 1967. The thriller won five Emmy Awards and was remade into a film starring Harrison Ford in 1993. And the brilliant 1960’s outlaw classic starring Warren Beatty and Faye Dunaway, Bonnie and Clyde, remains required viewing in the introductory film courses at many American universities.
But this might be one of the first instances where a multicultural, jetsetting CEO who’s fluent in five languages serves as the inspiration for a Hollywood fugitive’s role. Born in Brazil, and after growing up in Lebanon and earning his engineering degree from the École Polytechnique near Paris, Michelin recruited Ghosn for a series of plant manager jobs. Then, the tire manufacturer appointed him chief operating officer for its struggling South America division, where he earned a well-deserved reputation for fierce cost-slashing. After turning around that operation, Ghosn took over Michelin North America as CEO, restructured it, and bought Uniroyal.
Seeking a turnaround specialist, Renault poached him, and as its first CEO he radically and rapidly restructured the newly privatized French automaker into a profitable operation. Flush with cash, Renault went shopping for a good investment. It quickly found a severely distressed asset that was $20 billion in debt, tottering on the edge of bankruptcy, and which at the time offered little besides a great global brand: Nissan.
“Cross-Functional Team Building”
Renault made an offer Nissan could never refuse. Only days before an anticipated bankruptcy filing in March 1999, Nissan accepted Renault’s offer to buy about 40 percent of the Yokohama-based company—a deal that came at a tremendous non-financial cost. A bailout by a French conglomerate dealt a stinging blow not only to Nissan’s pride, but to Japan’s national pride as well.
Astute readers should by now recognize Ghosn’s pattern. Here was a serial turnaround specialist comfortable with cross-cultural dynamics who loved challenges. He was also skilled at implementing a management technique that he had originally perfected at Michelin in Rio De Janeiro: cross-functional team building. This management style exploits diversity in all its forms as a valuable business asset to promote creativity.
Ghosn would deliberately structure teams that included personnel from disparate functional areas. He would set up teams that encompassed people who in a lot of manufacturers rarely, if ever, communicate with each other. His teams would combine powertrain engineers with designers, or sales executives with manufacturing supervisors. He would assign professionals who spent their entire careers in Yokohama to fly to meetings with team members based in key markets like the United States and Europe. And Ghosn would deliberately structure teams where professionals from underrepresented groups, like women and people of color, routinely interacted with executives from privileged backgrounds.
At Nissan, like at Michelin and Renault, the effect on the workforce was electrifying. With the boost in morale came productivity, cost-savings, and—for the first time in years—even profits. Intractable problems that had dogged Nissan for years were being solved, sometimes in only weeks. One such problem involved the company’s dull “econobox” designs exemplified by the dated Sentra economy model which had been selling poorly. Ghosn’s teams scrapped those hard edges in favor of stylish and sporty new aerodynamic curves. With the Xterra sport utility vehicle, his teams then created an all-new product targeting a lucrative market Nissan had curiously never entered. What’s more, his teams once again attacked markets the firm had dominated in the 1970s but lost to competitors, like the market for fast sports cars. And they started work on Nissan’s first all-electric vehicle, the Leaf.
However, not everybody at Nissan and in Japan seemed thrilled about the way Ghosn had aggressively promoted diversity; after all, the nation is an ethnically 98 percent Japanese society with a long history of firmly-entrenched business traditions. He implemented several steps directly antagonistic to those old ways. One such step involved dispensing with the company’s seniority system, enabling executives to promote younger managers predominantly based on talent. In another step, he did the unthinkable in Japan—he closed five factories, which suddenly threw 21,000 employees out of work in a society that demands lifetime employment.
Nevertheless, the financial results were tremendous. Ghosn took his new Nissan from $20 billion in losses to $2 billion in profits in 2001. The firm stayed profitable for most of the next 20 years, when in April 2018, Ghosn gave up responsibility for day-to-day operations management while retaining his title as the firm’s chairman.
Then, that November, there came the knock at the door.
From Capture to Incarceration
On the day of Ghosn’s arrest, the hand-picked replacement whom he had appointed as Nissan’s CEO, Hiroto Saikawa, called a press conference during which he enumerated a list of allegations. Chief among these appears to be a flimsy accusation that Ghosn had underreported deferred income—income that he had not yet received—on his Japanese income tax returns.
Another curious allegation comprised several instances of his misappropriating Nissan’s corporate funds for personal use. The most noteworthy of these vague charges appears to be a $50,000 rental fee for the use of the French government’s historic Palace of Versailles for his wedding and reception. Ghosn claims that fee was supposed to have been waived as a wedding gift from the French government, which continues to own 15 percent of the shares in Nissan’s parent, Renault.
It is not entirely clear what legal justification, if any, exists for Ghosn’s subsequent criminal treatment. Sofia University law professor Stephen Givens, a cum laude graduate of Harvard Law School who has practiced corporate law in Tokyo for decades, told CNBC that embezzlement or misappropriation of a corporation’s funds is typically not criminalized but handled through civil litigation. Moreover, it also remains unclear what Japanese law Ghosn may have broken. Japanese prosecutors have never publicly disclosed evidence supporting their claims that Ghosn committed a crime.
But Ghosn claims that while he remained in an unheated jail cell in solitary confinement for the first four months without charges filed, prosecutors would question him for as many as 10 to 12 hours a day, trying to extract a confession.
A $14 million bail agreement negotiated with prosecutors then placed him under house arrest within his Tokyo home while he was continuing to await trial. Yet during the 12 months he remained in custody, Ghosn was forbidden to see his wife and family, blocked from accessing the Internet, and rarely allowed communications with his Japanese attorney. In most developed nations in 2020, these conditions would be considered human rights violations. Professor Steven Davidoff Solomon at the University of California at Berkeley’s School of Law told Business Insider that “the restrictions they were putting on him were extraordinary for someone who is not a terrorist and not accused of a violent crime like a mass murder.”
According to Professor Givens, Japanese law provides the right to a speedy trial. However, Ghosn had learned that his earliest trial date would be mid-2021, about two-and-a-half years following his arrest. By late 2019, both Ghosn and his wife had become convinced that he would never receive a fair trial in Japan. Although ostensibly a democracy following legal reforms mandated in 1947 during the United States occupation after the World War II, it is well known that these days Japan’s conviction rate is 99 percent—about the same rate as in Russia and China. At age 65, Ghosn was almost certain to spend the rest of his life in a Japanese prison.
Because of Ghosn’s lack of electronic surveillance in one of the most technologically advanced countries in the world, one wonders if prosecutors with bigger fish to fry may have left holes in their security coverage of Ghosn, hoping that he would flee. Not wearing an ankle monitoring bracelet that’s commonly required of even petty criminals in the United States, on the evening of December 30, 2019 Ghosn simply walked out of his Tokyo apartment and got into a waiting car.
Carlos Ghosn’s daring escape was underway.
Ghosn’s Daring Escape
After a quick stop at a nearby hotel, the car drove to a train station where, in full view of security cameras, Ghosn boarded a bullet train bound for Osaka.
Upon arrival, he met several men who drove him to a hotel. One of those men is believed to be Michael Taylor, who is a former Green Beret (the United States Army Special Forces) with close ties to Lebanon and who now runs a security consulting business based in Harvard, Massachusetts.
After the meeting, Ghosn did not walk out with the men. Instead, the men wheeled outside two double-bass-sized musical instrument tour cases. They loaded the trunks into a truck they then drove to the private jet terminal at Osaka’s Kansai International Airport.
At the empty airport just before midnight on December 30, the cases were too large to fit through X-ray security scanners, and were waived through the checkpoint. The two men then loaded the trunks into the cabin of a private jet bound for Istanbul, and upon arrival, loaded the cases into a second private jet’s cabin. Moments later, that aircraft departed Istanbul for Rafic Hariri International Airport in Beirut.
Meanwhile in Lebanon, Carole Ghosn’s phone rang. The voice on the line intoned, “Mrs. Ghosn, I have a pleasant surprise for you. A car will be at your house in twenty minutes to take you to the airport.”
Just as dawn was breaking on New Year’s Eve, Ghosn walked down the jet’s stairway, set foot on Lebanese soil, and for the first time in 14 months, kissed his wife.
Blindsided by “CEO Disease?”
One of the most curious questions about the Ghosn affair concerns how Ghosn could have been so blindsided as to not have seen this episode coming.
The Financial Times had reported that Ghosn was working on a merger between Nissan and Renault. But many with the Japanese firm had ardently opposed the merger because they were concerned that its role would be secondary, even though Nissan created far more in profits and shareholder value. Writing in Chief Executive, Dean Jeffrey Sonnenfeld of the Yale School of Management explains,
If there’s one thing Ghosn is certainly guilty of, it’s irritating the top echelon of Japanese business. . . Nissan engineers complained that Renault relied too heavily on Nissan’s superior technology, while Nissan executives complained that Renault has no presence in Nissan’s largest market, the U.S. To add insult to injury, President Emile Marcron’s government, with a 15 percent stake in Renault, pressured Renault to fully merge Nissan into Renault.
Nonetheless, despite the fractious conflict swirling around him, Ghosn claimed to have been completely caught off guard. According to the New York Times, at a press conference in Beirut in January 2020, he told hundreds of reporters he had no idea his arrest was coming. He likened his arrest to Pearl Harbor, the sneak attack by Japan that drew the United States into World War II:
I was arrested on November 19, 2018. I didn’t suspect anything. Some people asked me, oh my God, you didn’t look at this? You didn’t comprehend this? You didn’t suspect this?
And I say, you know what happened in Pearl Harbor? Did you see Pearl Harbor happen? Did you notice what happened in Pearl Harbor?
And I didn’t notice it, because it’s true that when it’s planned and it’s confidential and it’s secret, well, it happens. And you’d be surprised, and I was surprised.
One auto industry expert attributes Ghosn’s huge blind spot to a unique affliction of executives known as “CEO disease.” This former General Motors vice chairman, Robert Lutz, speculated to CNBC how the syndrome may have impacted Ghosn:
. . .having known Carlos Ghosn for a number of years, and having observed his personality over the decades, [I’ve seen] him become more and more imperious. [He’s] clearly suffering from CEO disease, where he showed all the signs of believing himself to be omnipotent and infallible. That type of personality does tend to pretty easily slip over the line and do things that the rest of us would not do because they think they’re so important and so well-connected and of such vast importance to the economy that nobody would ever call them on it.
And I’ve observed this a number of times in my career, that these people who received nothing but adulation from the media, and from inside their own company, never receive any negative feedback. They tend to develop this God complex and believe that they are above the law to some extent.
So I’m not saying he’s guilty as charged but I’m saying that I know the profile. I’ve seen it many, many times before.
Oddly enough, the writer who decades ago originally coined the phrase “CEO disease” is an expert already well-known to readers of BSchools. He’s none other than John Byrne, probably the world’s foremost authority on business schools as the editor of Poets & Quants and the former executive editor at Businessweek. In March 1991, he wrote this feature article that appears to contain the first reference to CEO disease, and it contains a passage that was prophetic for Ghosn:
There are, of course, events that have nothing to do with the CEO’s hubris that conspire to make the No. 1 job tougher. Information once readily available to him as a senior executive often becomes filtered. Few subordinates want to deliver the bad news. And a powerful CEO, by his very nature, often discourages such behavior. Former Texas Air Corp. CEO Frank A. Lorenzo’s reputation as a tough boss so intimidated top executives that they dared not defy him. “When Frank was in a meeting, the whole chemistry of it changed,” says one former colleague. “Once they saw which way he was going, a couple of people would hop on it, and the train was rolling.”
After his arrest, stories started surfacing about Ghosn’s harsh management style that in some ways placed him in the same league as Lorenzo. For all his reliance on diversity and cross-functional teams, at the helm Ghosn ruled as a top-down, authoritarian leader. Lutz explained how Ghosn was famous for repeatedly demanding Nissan America achieve at least 12 percent market share, but in many ways, that caustic approach backfired: “When you have a hard-line dictatorial CEO, people start making up numbers and hiding the facts.”
A Happy Ending for Ghosn?
Because Lebanon has no extradition treaty with Japan and doesn’t honor deportation requests for its citizens, once Ghosn stepped onto the tarmac at Beirut’s airport, he was again a free man. He will be at risk for kidnapping and bounty-hunting, and will need 24-hour private security at his Beirut home and everywhere he goes for the foreseeable future. But as long as he stays inside Lebanon, he remains free.
Carlos Ghosn’s ordeal appears to be finished, but back in Asia, the ordeal continues for Nissan, and for Japan.
According to Professor Givens, Japan’s second-largest auto manufacturer has lost about $12 billion in market capitalization because of Ghosn’s arrest and incarceration. Moreover, sales have been terrible ever since the story broke.
Late in January 2020, Nissan announced extreme austerity measures that, according to Reuters, may force more layoffs and eventually destroy the company that Ghosn resurrected from bankruptcy and rebuilt. As a result, the Japanese economy is bracing for its first real slowdown in years.
At a time like this, what could be better for Japan’s movie audiences than a suspense thriller complete with a surprise capture, a daring escape, a big-screen kiss, and a happy ending?