Collateral damage in Tokyo

TOKYO — By any measure, the downfall of Nissan Chairman Carlos Ghosn is an historic upheaval. But the scandal in Tokyo could have ongoing ramifications for the automaker, its management and Japan itself.

Ghosn's Nov. 19 arrest under an accusation of financial impropriety — he has not yet been charged with a crime — already has derailed at least one Nissan marketing initiative and fanned international intrigue in diplomatic circles in Paris and Tokyo.

Going forward, his ouster could trigger an executive shake-up at Nissan if Ghosn loyalists are purged or choose to leave on their own. Other Nissan executives may be felled by compliance sweeps as Nissan investigates how Ghosn's alleged malfeasance slipped through the cracks for so many years.

The accusations that Ghosn concealed his compensation plan from public disclosure documents also could ignite a wave of investor rights activism or even complicate the Japanese industry's fitful steps to globalize. The public uproar over Nissan even has reignited renewed scrutiny of corporate governance in Japan and the country's ruthlessly efficient legal system, with its 99 percent conviction rate.

"There are a lot of unintended consequences," said Christopher Richter, senior auto analyst at CLSA Asia-Pacific Markets. "This is firing quite a bit of debate."

Ghosn's ouster did not merely dethrone one of the industry's most storied executives. It cast new doubt on the future of the auto empire he spent two decades cementing together as the Renault-Nissan-Mitsubishi alliance. Ghosn, 64, was confined to a small cell in a meagerly heated Tokyo detention center along with Nissan director Greg Kelly, 62. Nissan CEO Hiroto Saikawa, 65, has called the American executive Kelly the "mastermind" who finagled an alleged scheme to underreport Ghosn's compensation by some $80 million over eight years.

One of the first casualties of "Ghosn Shock" — as the scandal is called in Japan — was the debut of Nissan's extended-range Leaf electric vehicle. A year into its second generation, the Leaf has been scheduled to offer a second version that uses a bigger battery with longer range. That package was deemed critical to winning over U.S. EV buyers focused on range performance.

Nissan had planned a festive unveiling of the longer-range Leaf at the Los Angeles Auto Show last month. But following Ghosn's arrest, Nissan scrubbed the event.

The automaker says it will nonetheless start sales of the new model next year as planned. But the cancellation quashed a key opportunity to generate buzz ahead of the launch. It also highlights how the Ghosn saga can sap momentum from the company's core business of selling cars.

Ghosn Shock is now testing diplomatic relations on the international stage. French President Emmanuel Macron petitioned Japanese Prime Minister Shinzo Abe for a sit-down to discuss the affair at Group of 20 summit this month in Buenos Aires, Argentina.

The French government is the biggest shareholder in Renault, which in turn owns a controlling 43.4 percent stake in Nissan. Macron is seen as a driving force behind moves to bind the two companies in an irreversible partnership, a push that's viewed suspiciously in Japan.

At the brief meeting, Abe told Macron that the Japanese government would not get involved in the jousting and that Japan's legal process must be allowed to run its course, Reuters reported, citing a French government official. But Abe also appeared concerned about French moves to extend influence over Nissan and said the three-way alliance, which includes two Japanese carmakers as junior partners, should not be fiddled with, Japan's Asahi newspaper said.

"The future of the alliance is not something a government should become involved in, and I am expecting the parties involved to have a discussion in a manner constructive and satisfactory to each other," Abe was quoted as saying by a Japanese government official speaking to Asahi.

Shock waves also could ripple across Nissan's executive ranks, analysts say. People seen aligned with Ghosn or Renault, the company that sent Ghosn to run Nissan 19 years ago, could come under pressure amid the growing rift.

An entire generation of executives was hired into the company or cultivated by Ghosn. They include Chief Planning Officer Philippe Klein; Chief Performance Officer Jose Munoz; Chief Quality Officer Christian Vandenhende; Executive Vice President Daniele Schillaci, head of global sales and marketing; and Denis Le Vot, chairman of North America.

At the same time, ongoing investigations into Nissan's auditing process could expose other executives to liability if they are found to have dropped the ball in flagging suspicious transactions.

"Nissan will probably be penalized as a company for not finding that wrongdoing," said Koji Endo, a senior auto analyst at SBI Securities Co. "If that's the case, some of the current management might have to step down. Also, many of them were appointed under Ghosn or sent by Renault. Maybe they are not really comfortable at this point."

Ghosn's arrest also threatens to derail Japan Inc.'s furtive attempts to diversify its boardrooms. Japanese companies long have been criticized as insular, hive-minded, old-boys clubs run by men, and almost exclusively Japanese men. But recently, in a nod to the need for more global perspective, some Japanese companies have risked dabbling with non-Japanese CEOs.

Ghosn pioneered the way by parachuting into Nissan in 1999 and saving it from bankruptcy.

Other high-profile foreigners have followed. Britain's Howard Stringer, for one, was tapped to lead electronics and entertainment giant Sony Corp. And Frenchman Christophe Weber heads pharmaceutical giant Takeda. But the road is often bumpy.

In 2011, British-born Michael Woodford was famously ejected as the CEO of optical equipment maker Olympus Corp. after just two weeks at the helm. His crime? Exposing years of corruption meant to conceal more than $1 billion in losses and dubious financial transactions.

Ghosn has yet to be formally charged. But he is already being tried in the Japanese media.

Newspapers dutifully report that the embattled auto executive asserts his innocence to prosecutors. But they are quicker still to publish the steady drip of leaks about the allegations, thoroughly tarring Ghosn's reputation and making any comeback here all but impossible.

"It feeds a narrative in Japan that foreigners have a short-term outlook and are only in it for the money," said George Olcott, a guest professor at Tokyo's Keio University who sits on the boards of many big Japanese companies. "I fear they will try even harder to justify not hiring a non-Japanese. That will slow down Japanese competitiveness in many ways."

Succumbing to such stereotypes could backfire as Japanese automakers and suppliers scramble to expand their expertise in the next-generation technologies key to tomorrow's cars. Japan suffers a critical shortage of technicians in such fields as software and artificial intelligence.

Tapping talent from such places as India, Ukraine and beyond is a must, Olcott said.

Ghosn Shock also shines an unflattering light on the Japanese way of doing other things.

"How did he manage to do it?" the Mainichi newspaper's editorial board asked about the accusation that Ghosn hid more than half his compensation for eight years.

"This means that other Nissan executives failed to monitor and correct Ghosn," the Mainichi said. "We want the investigators to carry out a thorough probe to get to the bottom of the case."

The arrest itself has spurred criticism.

Outsiders say it reveals the raw nature of Japan's justice system — from its lengthy detentions without charge to its practice of conducting hours of daily interrogations in the absence of defense lawyers. Tokyo's zealous prosecutors, say some, are throwing the book hard at Ghosn as a test case of the country's newly adopted plea-bargaining system.

Nobuo Gohara, a former prosecutor in Japan, believes Ghosn's treatment is out of proportion.

"The Tokyo district public prosecutor's way of doing things looks to me very violent," he said. "If this were a Japanese CEO instead of Mr. Ghosn, this sort of thing wouldn't happen."

High-profile Harvard University law professor Alan Dershowitz also slammed Ghosn's treatment in an editorial for The Hill. Dershowitz charged that Ghosn's arrest was not about criminal activity but rather "a high-stakes economic and ethnic dispute between Japanese xenophobes and a foreign executive."

Such hardball tactics undermine the very legitimacy of Japan's legal system, he said. "I would advise a client to be wary of doing business in a country that has so little respect for basic principles of due process and the rule of law."