• SHARE

In the most dramatic twist in the criminal case since his arrest in November 2018, former Nissan Chairman Carlos Ghosn fled from Japan to Lebanon in late December.

Shortly thereafter, he held a news conference in Lebanon and doubled down on his criticism of his treatment in Japan as constituting “injustice” and “political persecution.”

There is much recent commentary on the case, but from the very beginning, there were two diametrically opposing views: (1) Ghosn was a greedy autocrat; and (2) Ghosn was the victim of a coup by Nissan Motor Co. (supported by the Japanese government) to avoid a merger with Renault. The press in Japan has often been critical of Ghosn while the Western media has generally been more receptive to his criticisms. This divergence has continued after his flight to Lebanon.

Unlike other corporate governance scandals in Japan, we still do not have a clear picture of the facts and evidence of the case. Ghosn was ultimately indicted on four counts of financial wrongdoing: two counts of false information disclosure concerning his compensation and two counts of personal misuse of company funds.

Since Nissan employees directly went to the prosecutors, there has been no independent third-party investigation and Nissan’s internal investigation, as well as the prosecutors’ efforts, remains confidential. This lack of information makes it difficult to evaluate the claims of the two sides. Both sides may have some valid points; no party involved in the case has come out looking very good.

Ghosn (and his lawyers) have been successful in focusing international attention on weaknesses in Japan’s criminal justice system that have long been noted by lawyers and legal scholars in Japan.

It should be noted, however, that criminal defendants are in difficult positions in many countries. In fact, Michael Taylor, the ex-Green Beret who apparently masterminded Ghosn’s flight, was reportedly sympathetic to Ghosn based on his own experience of long, harsh detention in jail before trial — in Utah.

Shortcomings in defendants’ rights in Japan’s criminal justice system, however, do not support Ghosn’s broader attacks on Japan as having an unfair and corrupt system. Japan is a modern, democratic country, with an independent, professional judiciary, no “political prosecution” and little corruption.

Broadly speaking, Japan’s lack of corruption is generally reflected in its ranking on Transparency International’s Corruption Perception Index. Japan is ranked 18th out of 180 countries. France is 21st, the United States is 22nd, while Lebanon is 138th, tied with Iran. It is ironic that Ghosn utilized a news conference in Lebanon to launch an attack on corruption in Japan.

And regardless of Nissan’s possible motivations for working with the prosecutors against Ghosn, the critical fact remains that Ghosn was apparently engaged in suspicious activities, which should be subject to investigation. For the two securities disclosure cases, the SEC in the U.S. also brought cases against Nissan, Ghosn and Ghosn aide Greg Kelly; Ghosn settled for a $1 million fine (plus an agreement not to serve as an executive in a U.S.-listed company for 10 years) without admitting wrongdoing and Kelly paid $100,000.

The situation is similar for the two cases involving allegations of Ghosn’s misuse of Nissan’s funds for personal use. During his Jan. 8 news conference Ghosn went to great lengths to emphasize that other individuals needed to sign off on the use of his “CEO reserve fund,” which was used to send questionable payments to distributors (who were also friends of Ghosn) in the Middle East. However, one of the fundamental problems in this case is the apparent lack of a functioning corporate governance system at Nissan.

Nissan could have awarded Ghosn any compensation it wished, including luxury housing. But there are persistent reports that Nissan did not follow proper procedures, including internal authorization and disclosure. Accordingly, there were a number of suspicious activities that would arouse the interest of prosecutors.

Rather than the James Bond-style escape from Japan, I find the most fascinating aspect of this case is how it highlights vastly different perceptions and underlying assumptions between the U.S. and Japan. Leaving aside the narrow legal issues for a moment, Japanese norms combined to help produce a result that surprised Ghosn and also commentators outside Japan.

First is societal expectations concerning executive compensation, with CEOs in the U.S. being paid some 10 times the compensation of their counterparts in Japan (representing the highest and lowest CEO compensation levels among advanced countries).

Ghosn was first admired for his dramatic rescue of Nissan in 1999 (even if Japanese companies would not imitate the drastic layoffs that he utilized), but his reputation began to suffer in 2010 when his individual compensation was disclosed for the first time. His reported compensation was apparently cut in half from the prior year but was still the highest of any executive in the country, being several times that of the chairman of Toyota. This was “greedy” by Japanese standards.

Second is a strong sense of egalitarianism in Japan. Is it acceptable for a CEO to lay off large numbers of workers, thereby improving profitability, and then reward himself with a large bonus? In the U.S., the answer is presumably yes, as CEO performance is linked primarily to shareholder return (and unrelated to workers’ wages). In Japan, the answer is no, as a proposal to raise executive compensation is generally linked in some way to workers’ wages.

Third, Japan is a safe society with a low crime rate and almost nonexistent gun ownership. Within society, police are generally thought to be friendly neighbors whom you can always turn to for directions and other assistance. Prison guards do not carry weapons. Prosecutors pursue only cases for which there is clear evidence, and famously have an over 99 percent conviction rate. Most Japanese like it this way. Anyone prosecuted (or even arrested, for that matter), is generally assumed to have done something wrong.

The result of these norms is that rich, influential people caught up in the criminal justice system receive no special treatment. They are given the same treatment as common criminals — cramped and regimented detention, together with limited legal rights. It is not surprising that this system shows weaknesses in a case where the defendant may be innocent and wishes to assert his legal rights rather than confess and resolve the case.

Treatment in the Japanese justice system may have felt especially harsh to Ghosn, who came from a life of private jets. He forfeited his Japanese bail of some ¥1.5 billion seemingly without a second thought.

The consequences of Ghosn’s flight to Lebanon will likely be far-ranging and long-lasting. Ghosn, who is now a fugitive from justice, may find his reputation in tatters. Weaknesses in Japan’s criminal justice system do not justify either financial improprieties or disregard for the rule of law. In Japan, Ghosn’s flight is taken as proof of his guilt. Outside Japan the picture is more mixed, but Ghosn faces investigations in France over financial improprieties and his international movements may well be restricted.

This case is filled with ironies. The Japanese justice system worked for Ghosn, in that he was freed on bail despite being a flight risk, but Ghosn may have prejudiced the defendant’s chances in the next case.

At the same time, the publicity from Ghosn’s case may yet act to spur criminal justice reform in Japan. Ghosn’s management style at Nissan-Renault was criticized as being autocratic and emblematic of poor corporate governance practices, but without him the alliance may fall apart. Ghosn’s compensation was widely criticized in Japan, but as Japanese companies rapidly internationalize they may gradually be forced to compromise with global executive pay standards.

The dramatic tale of Ghosn’s meteoric rise and sudden fall may be worthy of Shakespeare and is likely to play out for some time, with far-reaching consequences.

Bruce Aronson is an affiliated scholar at the U.S.-Asia Law Institute, New York University School of Law. He is also an outside director at a listed Japanese company, where he serves as chair of the compensation committee. ©2020, The Diplomat; distributed by Tribune Content Agency, LLC

PHOTO GALLERY (CLICK TO ENLARGE)