Ghosn arrest provides pause to foreign executives considering Japan postings

Imprisonment of the Japanese business world’s most high-profile foreigner may stymie the nation’s efforts to diversify its corporate ranks

(FILES) In this file photo taken on November 8, 2018 Chairman and CEO of Renault-Nissan-Mitsubishi Carlos Ghosn looks on during a visit of the French President at the Renault factory, in Maubeuge, northern France. Two lawyers defending former Nissan chief Carlos Ghosn on charges of financial misconduct submitted their resignations on February 13, 2019, their law firm said in a statement. - 
 / AFP / Ludovic MARIN
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The arrest, indictments and long incarceration of former Nissan chief executive Carlos Ghosn have given pause to foreign executives considering taking on senior jobs at Japanese companies.

As Mr Ghosn enters his fourth month in jail and awaits a trial still several months away, the imprisonment of the Japanese business world’s most high-profile foreigner may stymie the nation’s efforts to diversify its corporate ranks with overseas talent, according to management experts.

Foreign executives may think twice about accepting positions until they see how this case plays out and whether it leads to stricter compliance rules.

“It’s having a chilling effect,’’ said Yumiko Ohta, a partner in Tokyo with the law firm Orrick Herrington & Sutcliffe who advises clients on corporate governance. “It’s going to be much more difficult to recruit foreign executives into Japan.”

The inability of such a prominent business leader to win his release while awaiting trial could scare some foreigners – no matter how law-abiding – from accepting Japan postings and also make international companies more reluctant to post them there, said Johan Uittenbogaard, managing partner with recruiting company Odgers Berndtson in Tokyo.

“There’s another layer of risk,’’ he said. “You start thinking about it: even if you haven’t done anything wrong, you can get put in jail for three months.”

Even Mr Ghosn’s defence lawyer, Junichiro Hironaka, raised the issue during a press conference last week in which he said his client was the victim of a conspiracy by his Nissan underlings. Mr Ghosn hired Mr Hironaka this month after his previous legal team twice failed to win bail.

“It’s bizarre to me how this became such an incident,” Mr Hironaka said.

Mr Ghosn, 64, remains in a Tokyo jail, accused of aggravated breach of trust and filing false statements to regulators regarding $80 million in deferred income. He was arrested on November 19 and faces as many as 10 years in prison if convicted. He denies all charges, calling the accusations “merit-less and unsubstantiated” during a courtroom appearance last month.

“This will become a big problem for Japan and its business,’’ Mr Hironaka said. “Nissan should have solved this problem internally.’’

Japan has a limited history with foreign chief executives. The most high-profile in recent years include Mr Ghosn, Howard Stringer at Sony, Christophe Weber at Takeda Pharmaceutical and Sarah Casanova at McDonald’s Holdings Japan.

A study published in 2015 found only about a dozen examples of foreign chief executives in Japan, said co-author Sheela Pandey, an assistant professor of management at the Pennsylvania State University Harrisburg.

Those “extremely rare" executives typically encounter culture clashes and opposition from Japanese subordinates, and the handling of Mr Ghosn’s case throws up another red flag, she said.

“Foreign CEOs will be reluctant to work in Japan,’’ Ms Pandey said. “This does not help with becoming more international.”

To be sure, there are still many foreigners who want to work in Japan and will not be deterred by Mr Ghosn’s case, said Anne Raphael, a managing partner at Boyden France in Paris who helps luxury-goods companies conduct executive searches.

Foreign executives hoping to work in Japan are likely have a special fondness for the country, Ms Raphael said.

“Personal tastes play an important part in foreign executives choosing to work in Japan,’’ she said.

Still, the concern triggered by Mr Ghosn’s arrest is hindering efforts to hire executives from abroad, said Casey Abel, managing director in Tokyo at recruiter HCCR KK, which works with clients in the automotive industry.

Recently, two foreign candidates for executive positions decided to wait and see how the Mr Ghosn case plays out before accepting offers, Mr Abel said. He would not disclose the companies or any details about the clients except to say they were vice president-level engineering experts.

“It’s creating trepidation,” Mr Abel said. “I’ve got, right now, 15 people that we’re talking to at an executive level for automotive clients in Japan, and I’ll say two thirds of them have, very pragmatically, directly brought this up as a concern.”

Mr Ghosn’s case also comes at a time of increased demand at many Japanese companies for foreigners to join their boards, said Nobuyuki Tsuji, who manages the Tokyo office for recruitment company Spencer Stuart. His responsibilities include working with technology, media and industrial companies.

The Tokyo Stock Exchange last year revised its corporate governance code, calling on members to improve the diversity of their boards in terms of “gender and international experience’’.

About 8 per cent of publicly traded companies surveyed by the Ministry of Economy, Trade and Industry had at least one foreigner on the board, according to a May 2018 report.

“Even very good executives might have concerns that if something happened –even not because of wrongdoing by him or her – there might be a possibility that they would get arrested and not get out,’’ Mr Tsuji said.

Japanese companies already faced significant obstacles trying to recruit outsiders. Japan ranked 29th out of 63 economies – behind Cyprus and Estonia – in terms of its ability to attract and develop talent, according to a survey published in November by the IMD World Competitiveness Centre in Lausanne, Switzerland.

Asian economies ranking higher than Japan were Singapore, Hong Kong, Malaysia and Taiwan. In terms of its appeal to overseas talent, Japan ranked 28th last year, compared with 10th in 2014, according to the survey.

“Japan needs foreign executives,’’ said Seth Sulkin, chief executive of Pacifica Capital, a real estate developer in Tokyo. “There really are only two major growth industries in Japan, and that’s inbound tourism-related business and exports, and you need foreign executives for both.’’