Abstract
This paper focuses on the investigation of the corruption scandal that occurred with the former CEO of Nissan in Japan. In 2018, the financial misconduct cases were revealed, and Carlos Ghosn was accused of underreporting his income. Later, the inappropriate use of the company’s resources was also discovered and served as another reason for his detention. The key objective of this paper is to discuss this case in terms of business ethics and understand the meaning of Ghosn’s behaviors. It is also expected to consider the Japanese context that was the background of this situation. Another objective of the paper is to formulate relevant recommendations for Nissan and the business ethics field as a whole.
The method of the literature review was used to collect and analyze pertinent information. Namely, the scholarly sources and credible media portals were chosen to obtain data that reflects both Nissan’s and Ghosn’s positions as well as the theoretical foundation of business ethics. The findings of the investigation show that Ghosn’s financial misconduct is evident as he used some resources for individual purposes, even though he denies any allegations. The principles of honesty, integrity, and commitment to corporate goals were violated. It is also found that the Japanese culture of insider prevailing might partially cause this misbehavior since it seems that the company wanted to act without Ghosn. The recommendations for Nissan include the reconsideration of their corporate culture towards becoming more open to new people and ideas. In general, business ethics principles need to be developed and improved across companies to minimize financial misconduct issues. The promotion of ethical commitment and transparency is one more recommendation that should be implemented by businesses.
Introduction
Financial dishonesty and misconduct pose significant threats to any business. Carlos Ghosn, an influential top manager and ex-CEO of Nissan, was arrested because of financial misconduct in Japan in 2018. The scandalous news led to a panic on the stock exchange, and Nissan’s shares crashed rapidly, which also affected other automobile companies. Today, the company prepares for difficult times and reputational losses, which can no longer be avoided, even if the most serious accusations are not confirmed. Currently, Ghosn has already been interrogated by the police, and an investigation against him is underway. This paper aims to study the identified scandal from the point of business ethics to explore key issues and suggest possible solutions.
Theoretical Framework and Topic Statement
To understand the ethics of this case, it is important to briefly discuss the conflict background. The 64-year-old top manager was accused of financial misbehavior, using his position. To do this, he deliberately distorted the data on the amount of his remuneration, which he received from the Alliance brands, such as Nissan, Renault, and Mitsubishi. Ghosn was also criticized that for 20 years of working with the Alliance, he received almost unlimited power, and his salary reached $ 17 million in 2017 (Leggett and Palumbo). Ghosn and Kelly, who is the former executive, were suspected of intentionally underestimating the size of their tax evasion fees. It is estimated that they underestimated this data by about 50 billion yen from 2011 to 2015 (about $ 446.4 million). Presumably, Ghosn used for personal purposes a third of these funds, including the purchase of an expensive yacht and investment in his son’s enterprise in the United States. In addition, the investigation states that Ghosn deliberately underestimated Nissan’s revenue in tax reporting documents over the years in order to transfer its own financial losses to the company.
The official response from Nissan’s global office was immediate. They stated that the company had long been aware of Ghosn’s illegal actions. The internal investigation against him, as well as the member of the board of directors, Greg Kelly, had been conducted for the past several months. This investigation revealed that over the years, both Ghosn and Kelly intentionally undervalued Ghosn’s earnings. It also turned out that Ghosn made many other violations of the corporative ethics, including using the company’s funds for personal purposes, of which Kelly was also well aware (Leggett and Palumbo). All information about the investigation was submitted to the prosecutor’s office, and the company’s official press release declares that they are ready to provide all possible assistance to the authorities. Nissan deeply apologized to the shareholders and said that the company will remove Ghosn from the post of head of the brand.
At an emergency press conference, Nissan officials did not even try to mitigate the blow to their disgraced leader in any way. On the contrary, they said that they were deeply disappointed with what happened. Nevertheless, the company recalled that Nissan is still not personally Ghosn. When journalists asked about the blow to the brand’s image, they said that what happened was primarily a blow to Ghosn’s reputation. In other words, Nissan’s officials claim that Ghosn but not Nissan faced damage to reputation.
In turn, Ghosn denies all allegations against him and views himself as a victim of a conspiracy and the so-called backstabbing. The trial of his case is expected to begin in Japan in 2020. Ghosn considered himself a citizen of the world, who received the largest managerial compensation in the world in the amount of € 10-12 million annually and conducted business around the world (Leggett and Palumbo). Although, under Japanese law, any income received in other countries is subject to mandatory declaration and taxation. In addition, it turned out that previous management sometimes used the company’s assets for personal purposes. It is especially emphasized that this is not about theft, but about unauthorized use.
This paper uses the theoretical framework of business ethics as the foundation for discussing ethical matters in Ghosn’s behaviors. The ethics of business relations is a system of rules based on generally accepted human values ​​and uniting members of one company (Vasudev 97). Namely, business ethics implies respect not only for the interests of employees but also for the target audience, partners, and even competitors. Financial misconduct is understood as the waste of finances of the company and their improper use. As for corruption, it is the misuse of influence that violates the responsibilities and brings additional, unauthorized benefits. The current evidence shows that reports about misconduct in the field of finances increase (Vasudev 97). Therefore, there is a need to study such cases as Ghosn’s ethics, which will help in the prevention and early identification of similar cases in the future. The following research questions were posed to guide this investigation:
- Were the behaviors of Ghosn and Kelly ethically appropriate or not?
- What was the role of the Japanese context in Ghosn’s financial misconduct?
- What are possible decisions to take to avoid such cases in the future?
Methodology
The main objective of this research paper is to answer the questions that are identified in the previous section. To achieve this, the critical literature review method was chosen. The academic resources, such as digital databases, were accessed online, and pertinent data was collected. In addition, The New York Times, Bloomberg, and Reuters were used as the sources of the latest information regarding the case. The scholarly books and articles were used to locate Ghosn’s misconduct in terms of business ethics. Relevant theories and concepts allowed evaluating this case from the point of ethics and address the questions stated. After the collection of the necessary information, it was properly analyzed and structured, and the key findings are presented in the results section. Furthermore, the discussion section provides a detailed analysis and a clear understanding of the topic of research. The critical analysis was taken as the foundation for making recommendations specific to the discussed case and business ethics in general.
Results
Arrested for financial misconduct, Ghosn was released on bail on March 6, 2019: in total, he spent 108 days in prison. The ex-head of the automobile concern, along with his alleged accomplice, Kelly, was first arrested in November last year. The prosecutors accused them of not declaring part of their income, which was received in the form of remuneration ($ 80 million) from 2010 to 2018 (Kelly and Takenaka). Later, the ex-head of Nissan was accused of misappropriation of funds. According to some reports, he transferred from the so-called presidential fund about $ 32 million to the representative of the concern in Oman. At the same time, about 5 million dollars were spent on the purchase of a yacht, which was used for personal purposes.
The internal investigation of Nissan revealed the personal use of corporate finance by Ghosn and Kelly. A new meeting of board decided that the further stay of these persons in Nissan is not possible. The Alliance declares that more checks will be organized to detect any corruption cases in the management of the corporation. It should also be stated that Ghosn denies all accusations against him and claims innocence (Kelly and Takenaka). Namely, he believes that all his actions were taken in honor of the company. It is mentioned that the alleged ex-leader is sure that he reported about all income sources and their amount. In spite of the criticism placed by Nissan and the public on Ghosn, the case remains under the consideration of the Japanese justice system.
Discussion
In the modern world, many entrepreneurs meet only with the established legal norms and laws, while paying little attention to the ethics of business. Ignoring it can seriously undermine the image of a businessman and pose a threat to the business. While ethical standards in the field of business may be perceived as an act of goodwill, the choice to perform without obliging them is up to employees. In many cases, non-compliance with business ethics is fraught with punishment and dismissal. The review of Ghosn’s actions shows that he does not feel responsible for this issue and most often adheres to behavior that is largely contrary to the basic principles of business ethics. Often, when their non-compliance concerns directly the businesspersons themselves and is carried out by other companies, loud statements about injustice and unwritten laws begin. Up to this point, it seems that the only principle that guided Ghosn is that the end justifies the means.
At the same time, the experience of Nissan shows that the presence of certain moral and ethical standards cannot serve as a guarantee of a comfortable existence in the business sphere. It should be stressed that the main premise of success in almost any economic industry is the quality of work. It, in turn, directly depends on the atmosphere in the team, employee relationships, and their attitudes to their responsibilities along with the company as a whole (Crane, et al. 38). Thus, the concept of ethics in business is necessary to regulate relations between the organization and employees, partners, shareholders, and so on. As it can be seen in the given Nissan scandal, the failure to follow formal business etiquette violates the workplace environment that cannot promote productive work. The trust and mutual respect of the members of one organization to each other are primarily based on social responsibility, as well as transparency of the rules and competent management.
The professional ethics of modern business includes a range of dimensions that are important to discuss in this paper. The universal values ​​that govern the social responsibility of business are job creation, the production of certain goods, caring for employees, and so on. This dimension seems to be followed by the company with regard to Ghosn. As for the ethics of doing business in relation to product buyers, it implies a high quality of the product, honesty in advertising, and justified prices. Ethics in relation to the staff of the company is a good salary, a full social package, health insurance, and so on. An ethical attitude to partners, shareholders, and investors means compliance with the terms of the contract, timely payment of the agreed amounts, and access to public information.
At the macro level or ethics of business, workplace relations are considered on the scale of a particular sector of the economy. This is the absence of discrimination in the labor market, respect for market competition, and private property recognition. This is ethics in relations with suppliers, customers, san stakeholders, which was, on the one hand, violated by Ghosn. On the other hand, his guilt is not proved completely. The attempts to persuade the court of his innocence are to be continued, which means that there are arguments that demonstrate his strong point of view. Nevertheless, the very appearance of accusations also signals some misbehavior of Ghosn, which cannot be ignored.
From the point of Ghosn, the Japanese business was annoyed by the enthusiasm with which he tried to build an alliance between the French state-owned company, Renault, and Japanese private Nissan. Ghosn did not conceal plans to merge the two companies into one. In this case, Renault that owns 43 percent of Nissan shares would play the main role, while Nissan had only 15 percent of Renault shares (Kelly and Takenaka). Thus, the Japanese suspected that the French state could take possession of the second largest car manufacturer in the country after Toyota. It should be noted that the exchange value of the Japanese company is twice the value of the French one.
From this perspective, one may suggest that it was the deliberate accusation of Ghosn by the mentioned carmaker. According to the observer of the Guardian, it was these circumstances, and not the mythical benefits of using the situation, that led to a conflict with an attempt to eliminate Ghosn. He is still in prison at the moment, with both Nissan and Mitsubishi rushing to remove Ghosn from all posts (he served as chairman of the board of directors at Mitsubishi). In turn, Renault supported the disgraced businessman and kept him at the head of the company.
The fall of Ghosn presents more details about the corporate culture of Japan that is driven primarily by insiders. Koichi Nakano, manager of the Japanese equity fund in Japanese companies at Nikko Asset Management, links Nissan’s fundamental management challenges to a culture of implicit conspiracy (McCurry). It is particularly strong in the automotive sector, hampering any attempt to increase transparency. Despite his reputation, Ghosn was not able to eradicate it at Nissan. At the same time, the board of directors at Nissan is another problem, Nakano notes (McCurry). It is incapacitated because it does not have ethics control functions. There is control of the relations with investors, audits, and compliance with laws. It seems that the company will have to completely change the board and change its functions. There is no longer an atmosphere where people can speak freely and argue with other departments.
To clarify the significance of the discussed findings, it is critical to refer to the role financial misconduct play in organizations. The more there misbehavior of employees, the higher the risk that a company would suffer losses. This case demonstrates that the principles of honesty and integrity were violated. These are fundamental principles that serve as the basis for building relationships and mutual respect among employees. The failure to meet these ethical standards leads to the decrease of the public trust in Nissan and businesses in general. Therefore, it is important to recognize and promote truthfulness at the workplace, such as staying committed, focused, and responsible.
Recommendations
Based on the discussion provided in the previous section of this paper, it is possible to suggest some recommendations. It seems to be useful to provide assumptions for Nissan’s further actions and business ethics field as a whole. The first recommendation is to improve transparency across the company and increase control over the work of the key leaders, who make the most important decisions. For example, the requirements to disclose information about internal events of the company should include all of the above components of information disclosure, including the requirement to disclose information on the decision-making process. Also, the latter type of openness would work for the interests of stakeholders within the company and in the long term, would increase its competitiveness. The importance of the openness of the company’s top management for employees and that of each division of the company for employees should be identified when disclosing the benefits for the innovative development of horizontal coordination.
There is a range of positive sides to adopting transparency as an ethical principle. Openness in decision making, including strategic and tactical decisions, would allow reducing the risk of underreporting. Transparency would also help to reduce corruption risks within the business and encourage employees to achieve greater efficiency in their activities. Timely disclosure of the information is beneficial to manage conflicts of interest, reduce the risk of abuse by company managers, and the possibility of making ineffective decisions.
The issues of social responsibility in international business ethics are of great importance. A set of moral rules established by the rules and regulations in each country imposes its own corrections and restrictions on the international ethical system. However, honesty, openness, and responsibility are the promises of the ability to adhere to the principles of reliability and efficiency and focus on long-term cooperation. The ability to work effectively in the international market is also determined by ethics, observing the law in accordance with established rules and customs. Using the norms and rules of business etiquette, one can predict the behavior of colleagues, which helps to effectively organize the management process. It is especially important to study all the components of business ethics in international business since, in addition to uniform norms and rules, there are many national and cultural amendments that are significant in business relations.
The recommendation for improving business ethics in general and avoiding misconduct is to keep the balance between benefits and responsibilities. Indeed, even a business person who is accustomed to following the rules of ethics of business relations for many years may begin to hesitate when choosing between serious income and loyalty to principles. The situation turns out to be critical especially if it is fraught with serious damage to one’s company. However, it should be recalled that a reputation is gained over time, and misconduct can lead to the fact that a person can lose it in one day. As a result, all carefully thought-out policies and ethical standards may be threatened by the intention to gain more profit.
To avoid such a situation, any business person who wants to comply with ethical standards needs to find a balance between the pursuit of income and social responsibility. This recommendation involves a choice between short-term gain and long-term success. In addition, it is necessary to determine the importance of spiritual and material values, public and personal interests, as well as individual goals and methods for achieving them. It is vital to understand that it is the balance between these factors and not the rejection of one of them that is the key to a successful business for a long time.
Conclusion
To conclude, it is important to state that this paper explored the corruption scandal in Nissan, namely, the financial underreporting of Carlos Ghosn, the ex-CEO of the company. It is found that his failure to report about financial operations as well as tax evasion were the main reasons for the accusation. On the one hand, Nissan alleges him of violating the ethical principles of integrity and compliance. On the other hand, Ghosn refuses to recognize his guilt, insisting that all his actions were in honor of the company. The context of this scandal also plays a significant role in the conflict. It is suggested that the Japanese corporate culture of insiders also affected Ghosn’s decisions. Based on the critical analysis, several recommendations were suggested for the field of business ethics and Nissan as well. For the company, one may assume reinventing the ethical principles and promoting compliance with them across the organization. At a larger scale, the value of business ethics needs to be explored and clarified in detail to be implemented by all businesses.
Works Cited
Crane, Andrew, et al. Business Ethics: Managing Corporate Citizenship and Sustainability in the Age of Globalization. 5th ed., Oxford University Press, 2019.
Kelly, Tim and Kiyoshi Takenaka. “Nissan’s Ghosn Claims Innocence in First Appearance Since November Arrest”Reuters, 2019. Web.
Leggett, Theo, and Daniele Palumbo. “Carlos Ghosn: Five Charts on the Nissan Boss Scandal”. BBC, 2018. Web.
McCurry, Justin.”Nissan Crisis Sheds New Light on Japan Inc’s Awkward Secrets”. The Guardian, 2018. Web.
Vasudev, P. M. “Financial Misconduct, Ethical Theory, and Regulatory Ethics-Promoting Accountability.” Journal of Business, Entrepreneurship & Law, vol. 9, no. 1, 2015, pp. 93-128.