Fraud, as with any unethical act, will invariably be discovered no matter the size of the organization or the rank of the person being caught. The consequences of an unethical choice can be many, but at its core, there is shame and guilt. Nissan CEO was detained for fraud.
Carlos Ghosn, Nissan Motor Company
The Japanese system of justice is somewhat unique. They can hold a suspect for up to 20 days without an official indictment. Carlos Ghosn, the chairman of Nissan has already been detained for 10 days, and the Japanese government is about to add 10 more.
He is in jail after being arrested for fabricating income statements, perhaps in the several of millions of dollars as well as using Nissan Motor assets for personal use. The board of the company is voting to determine whether he will be dismissed. Understanding the Japanese code of honor, and the collective Japanese aversion to anyone who would bring shame on an organization, I would certainly guess in favor of the company removing the chairman sooner, rather than later.
Between 2011 and 2015, Ghosn is supposed to have under-reported nearly $45 million in income. Ghosn was being paid between $8.5 million and $10 million per year (from Nissan alone) and of course, this does not cover benefits such as stock options and other sources of income. Ghosn is obviously a wealthy man, having been in place as chairman since 1999.
Under Japanese law, Ghosn can be fined close to USD $90,000 or imprisoned for up to 10 years or both. The maximum penalty, upon conviction for violating the financial laws, the suspected allegation, is 10 years in prison, or a 10 million yen ($89,000) fine, or both.
Nissan has been rocked by scandals in the past such as emissions claims and product quality but this is the first time a scandal of this type has rocked the highest levels of management.
The Shame of the Trojan Horse
Around 1998, Renault SA (the French auto conglomerate) bought a large stake in Nissan, currently 43 percent. Inside the Trojan horse was auto executive Carlos Ghosn.
Ghosn made his way from Europe to Japan in 1999 and became CEO of the Nissan Motor company. He saved Nissan from near bankruptcy. In 2005, presumably on the basis of his performance with Nissan, Renault made him their CEO as well. Then in 2016, he also assumed the position of chairman of Mitsubishi Motors.
It is pretty heady stuff, being CEO of three automobile/SUV companies. As this case of fraud becomes more open to scrutiny, it is remarkable that his flagrant attempts to cheat the tax system was going on for a five-year period.
One of the conclusions of the under-reporting of tens of millions of dollars of income was that Ghosn had accumulated too much power with no checks and balances and that Nissan itself had an accounting system that was difficult for auditors to navigate.
When news of the scandal erupted shares of Nissan dropped by 5 percent, but it has since been recovering.
The ethical case
Opportunity to commit fraud exists in any size organization providing a lack of oversite, the need to commit fraud and a healthy dose of rationalization.
In Ghosn’s case, we can argue, of course, that he was empowered to commit fraud because there was no one powerful enough to stop it. However, that is rationalization in and of itself. It was the organization that quickly needed to spot the under-reporting of income and the alleged use of “ill-gotten gains” for personal reasons. Is Nissan Motor the unethical party here? Absolutely not. However, through a lack of controls, they lowered the expectations to an exception.
Why would a man of immense wealth such as Ghosn want to cheat even more? Unethical behavior does not know wealth; it does know bad choices. While it would be presumptuous of me to definitively suggest a pattern, my feeling is that on his way up the corporate ladder, this is hardly his first unethical choice. Without ethical training and expectations for ethical behavior, mistakes of this nature will keep repeating.
As for Ghosn’s rationalization, as the leader of three automotive companies, traversing the globe, making billion-dollar decisions and having a staff at his call, he was lured into believing his self-importance. In his mind, he was above ethical behavior. He believed he was a privileged class. In jail, fired and disgraced, he will now confront this privilege and understand its fleeting nature. Nissan CEO was detained for fraud.
