News from and on Japan, November 2018

King Carlos Ghosn and the greed by le Cost Cutter, immigration in Japan, and Japan’s criminal justice system

The big news in November 2018 was the unexpected arrest of one of corporate Japan’s absolute icons: Carlos Ghosn. 
Japan is the country of evolution, not revolution and it has been said that true changes in Japan only happen with a foreigner as catalyst. Well, commodore Matthew Calbraith Perry with his “black ships” who forced Japan in 1853 – 1854 to open up was definitely one of them, same for general Douglas McArthur in 1945. Carlos Ghosn, nicknamed Le CostCutter, who single-handedly saved Nissan from bankruptcy, might have been one of them, were it not that hybris made him fall from heaven.
Or was it?
In this one-to-last News From and On Japan I will try to elaborate on this drama, that has impact in many ways: corporate governance, payment of directors, acceptance of foreigners at the helm of Japanese corporations, the perception of Japan’s legal system – and even the Japanese – French connection. The other big topic is Japan is the new immigration regulations, another focus of this newsletter.
  • Politics: 
    • Reuters claims that the seeds for the current developments in the Carlos Ghosn saga were sown when in 2015 then French Economic Minister Emanuel Macron stepped in the Renault-Nissan alliance. “In April 2015, as a 37 year-old economy minister with then-unknown presidential ambitions, Macron ordered a surprise government stake increase in Renault, designed to secure double voting rights for the state. The overnight move profoundly rattled the Japanese end of the Renault-Nissan alliance. In the ensuing eight-month boardroom fight between Macron’s ministry and Hiroto Saikawa – Nissan’s second-in-command at the time (and now #1) – many now see the seeds of today’s crisis. When Ghosn’s Gulfstream touched down in Tokyo on Nov. 19, prosecutors were waiting. Nissan, the company he rescued from bankruptcy and had overseen for almost two decades, outlined allegations of financial misconduct against its chairman and said governance had been eroded by Renault’s control. Saikawa has since contested Renault’s right to appoint executives and directors under the alliance master agreement, in correspondence seen by Reuters. … ‘President Macron himself has skin in the game,’ Max Warburton, an analyst with New York- based asset manager AllianceBernstein, said this week. ‘He must recognise that his decision in 2015 to increase the French state’s holding in Renault … likely impacted Japanese perceptions of the alliance and heightened concerns that Nissan was ultimately within the control of the French government.’
      At the G20 in Buenos Aires PM Shinzo Abe and President Macron will meet to discuss this subject. Kyodo news agency quoted a senior Japanese official as saying Abe stressed the importance of all three companies “maintaining their stable relationship”. But the fate of the group should be decided by “private businesses”, and that “governments should not commit to how the alliance should operate going forward“, the Japanese premier said, according to the official quoted by Kyodo.
    • Early November the Abe government approved legislation that will open the door to as many as half a million foreign workers by 2025, in what some are calling the end to Japan’s traditional opposition to large-scale immigration, writes the Guardian. The bill is expected to pass by the end of the year and will go into effect next April. Although the legislation was approved in very short time, the debate on immigration rages on. But what are the main characteristics of this new immigration policy? The Nikkei explains them in five statements. There are opponents as well, incl. some foreigners living in Japan such as old Japan-hand Peter Tasker. “Why large-scale immigration would be bad for Japan – Abe’s expansion of foreign worker schemes risks creating social and political tensions”, is his statement in – again – the Nikkei. 
      In due time there must be an interesting side-effect. When you enter a Japanese convenience store, a run-of-the-mill restaurant in Tokyo or even when you look to the workers in the construction industry, you will notice that you are served by Bangladeshi, Thai, Nepalese or people from Uzbekistan. And they all speak Japanese! Assuming that they will return to their home-countries after five years, they will bring their linguistic capabilities with them. So, imagine you enter a small village in Kazakhstan and as soon as the restaurant owner learns that you speak some Japanese, you will be served in that language. Japanese as a lingua franca, who would have thought about this?
    • In anticipation to the G-20, where Donald Trump will repeat his mantra to PM Shinzo Abe about the trade deficit, the Japanese government announced to buy no less than 100 extra F-35’s, on top of the 42 already procured. It is a quick way to fix the trade deficit with the USA. The additional order will costs JPY 1 trillion, or EUR 7.8 billion. Prime Minister Shinzo Abe will surely explain Japan’s increasing effort on defense spending to U.S. President Donald Trump in Argentina beginning. (Nikkei.)

  • Economy:
    • The IMF warned Japan that it will face a 25% drop in GDP over the next 40 years when it does not take adequate measures to cope with its graying population – 28% of the population is already over 65 years old. So, structural reforms like equal pay, more transparent corporate governance and trade liberalisation are requested, reports Nikkei. 
      And there is something more worthwhile reporting: Japan is more and more becoming a “super-solo” society where communication with others is of less value than the confirmation of yourself vis-a-vis yourself. France-Presse quoted an article by about a society where you do increasingly “things solo”. And let’s face it: if 1 + 1 is 2 or 2.5, 1 remains just 1.
    • Q3 showed a shrinking economy in Japan, now blamed on “natural disasters” that resulted in less exports , according to the Financial Times. Gross domestic product fell at an annualised pace of 1.2 per cent in the three months through September, according to a preliminary reading from Japan’s Cabinet Office, shrinking again after only one quarter of growth. “But with most analysts convinced that there was a significant drag from July’s severe flooding in western Japan and September’s magnitude 6.6 earthquake in Hokkaido, there is little to alarm the government or the Bank of Japan. The growth figure came in below a median forecast of a 1 per cent annualised drop from economists polled by Reuters. However, consumption is expected to accelerate ahead of next year’s rise in sales tax from 8 to 10 per cent.”
    • Sad story in the Washington Post on the exploitation of foreign workers in Japan, in particular those who work under Japan’s Technical Intern Training Program or TITP.  “An investigation by the Labor Ministry in 2017 found that employers were breaking the rules at more than 4,000 locations – more than 70 percent of those investigated – through long hours, inadequate safety standards or low pay. … “In the name of technical training, this program has used foreigners as cheap and disposable labor to fill the labor shortage,” said Shiori Yamao, a leader of the opposition Constitutional Democratic Party of Japan. “We should revise this program design for the sake of national dignity.”

  • Corporate:
    • Let’s talk Ghosn, as his downfall sheds light on various elements in corporate Japan that are worth looking at. 
      Three days after Mr. Ghosn’s arrest I met by chance in Tokyo a private investigator who has been involved in this case. Why was one of the best paid executives in the automotive sector with an estimated net worth of USD 100 mln not content with his remuneration? I asked him. “A lack of corporate governance at Nissan – and perhaps in Japan at large”, was his reply. “The man felt he was on top of the world, and the deficient governance at Nissan helped him.”
      Mr. Ghosn (together with his lieutenant Greg Kelly) is detained over allegations of financial misconduct including under-stating his income by around 5 billion yen ($44 million) over five years, but looking to Reuters’ Factbox, his pay was USD 16.9 mln in 2017 for his pay from Nissan, Renault and Mitsubishi Motor combined, and that was behind GM Mary Barra’s pay of USD 21 mln, but more than that of Ford’s Jim Hackett and Bill Ford’s remuneration; remuneration of Dieter Zetsche of Daimler Chrysler and Harald Krueger of BMW are way behind Mr. Ghosn. Attached also a list of big earners of Japanese companies, incl. former Sony CEO Kazuo Hirai (USD 24 mln in his last year). (As a side note, CNBC reported that the Nissan probe found that ousted Chairman Ghosn failed to disclose no less than USD 80 million in deferred pay.)
    • Japan is sometimes called “the last socialistic country”, certainly in keeping up the idea that in a society where everybody is “middle-class”. So exorbitant pay-checks for its corporate executives are out-of-the-question (even with the highly paid executives in the Nikkei article above.) This is illustrated in this Financial Times article that explains how in 2009 Japan’s Financial Services Agency head Shizuka Kamei – a former policeman, cabaret singer and outspoken scourge of highly paid executives – introduced a rule that sent shockwaves across corporate Japan. Companies had to declare the salaries of executives earning more than JPY 100 million or USD 882,000. “Mr. Kamei’s strategy, which was rushed into effect very rapidly, reflected a righteous public disgust at high salaries and meant that no chief executive wanted to stand out. Companies received orders to look into strategies to make the CEO’s salary look modest, while maintaining its actual level.
      “First it was a couple of companies asking almost out of interest, and then as more of them talked to one another, there was a big rush of inquiries about schemes that might be used either to split out salaries or defer part of it,” said one accountant based in Tokyo at the time. “There was a very clear theme of wanting to look like the most modest CEO on the block.” Accountants at dozens of companies received orders to look into strategies to make the CEO’s salary look modest, while maintaining its actual level. For Nissan, this was especially troubling – and finally Nissan established a company in Amsterdam, called Zi-A Capital BV. “Mr. Kelly, a senior vice-president at the time, had explained to Nissan’s executive committee that the company would be used for venture capital investment. Although Zi-A was a non-consolidated subsidiary that was outside Nissan’s auditors EY’s mandate, the auditor came across the company while auditing another Nissan subsidiary and questioned what investments the affiliate was making. The questioning was dropped after Nissan replied that Zi-A was a company for Mr. Ghosn to make ‘strategic investments in technology’. But prosecutors are investigating whether Zi-A, which received an investment of more than EUR 70 million from Nissan, was used to purchase personal residences in Lebanon and Brazil in 2011 and 2012, the person familiar with the investigations said.” Moreover, there are rumours that Mr. Ghosn’s sister was on the Nissan pay-roll as well for no activities.

  • Society:
    • Carlos Ghosn’s detention also tells much about the Japanese juridical system. When Carlos Ghosn’s private jet touched the ground on November 19 at Haneda, his next stay was at a detention centre in northern Tokyo in conditions far removed from his flashy lifestyle. But, says  Colin P.A. Jones, a professor at Doshisha Law School in Kyoto, “the real significance of his arrest will likely prove to be in subjecting Japan’s criminal justice system to intense global scrutiny. You can’t use a reporting violation as a pretext for detaining a famous Brazilian- Lebanese-French business leader associated with multiple global automotive brands in an unheated cell for weeks with limited access to lawyers and almost no contact with family members before formally charging him with a crime without generating some negative press.
    • The Japan Times also carries a picture of Mr. Ghosn’s cell, while the New York Times explains that under Japanese law, prosecutors can detain suspects for up to 22 days without filing charges, and can legally question them without a lawyer present.
    • Let’s conclude this News from Japan in light verse: if there is a lack of time or money and you really want to fly away from your worries, you also can virtually fly with First Airlines, “the world’s first virtual airline facility”, based in Ikebukuro, in the Northern part of Tokyo (and actually not too far from Mr. Ghosn’s detention center.) The simulation offers trips to New York, Paris, Hawaii, or even a travel back in time. Looks great to me, and perhaps to Carlos Ghosn as well.
Best regards, enjoy the December month,
Radboud Molijn
Global Bridges BV for DUJAT / Dutch & Japanese Trade Federation