Thursday, May 23, 2019

Family businesses must learn from Carlos Ghosn’s fall

Inside Family Business

AS INVESTIGATIONS continue and mounting evidences of financial improprieties are being pieced together, expectedly Carlos Ghosn’s detention was extended for another 10 days.

What transformed the man nicknamed “Le Cost Killer,” considered as a presidential contender in Lebanon and worshiped like royalty in the auto industry, to commit career-ending lapses? What drove Ghosn to compromise his ethical values?

A Forbes article penned by Tom Eisenmann is an eye opener! He describes ego and arrogance accurately: “It’s all in the founder’s head, the drive to build something great, the resilience to dust yourself off when you repeatedly get knocked down but inside a founder’s head may also be delusional arrogance, an overly impulsive ‘ready-fire-aim’ bias for action; a preoccupation with control; fear of failure; and self-doubt.”

When the leader fails to recognize it in himself, admit to it, or take steps to correct it, arrogance can demoralize his workforce and undermine the success of his business.

It is dangerous because it can lead to making poorly flawed and unplanned decisions and in Ghosn’s case, he manifested these disorders so the hard fall was just a matter of time.

Single-minded loyalty to the company

Personally, what was unclear to me was the role of Nissan Motors’ board of directors. With their oversight powers, why did they allow such impropriety to happen during their watch? Why did they allow their chairman (Ghosn) to dictate policies contrary to the best interest of the organization? Where was the RC (Remuneration Committee) when all of these indiscretions were happening? In my experience and culling from my SID (Singapore Institute of Directors) handbook, RC has a clear mandate on anything related to compensation governance, plans, compliance and disclosures.

As a director sitting in listed companies myself, I am also interested to know the roles of both chairs and members of the audit and the corporate governance committees, Did they raise objections in the purchase of luxury homes in Beirut where Nissan has zero or minimal presence? In short, did these committees flag decisions that were detrimental to the organization?

Was the Nissan board remiss or part of the conspiracy?

These are critical questions on governance that have remained unanswered particularly for a multinational giant like Nissan known for its layers after layers of protocols and controls.

For any board director, controlling or nominee, the fiduciary mandate is crystal clear... the appointment is clothed with a powerful duty: single-minded loyalty to the company.

In my years advocating corporate governance in company boards, I found it very challenging to impose governance on family-owned businesses.

In most cases, the founder’s bias towards stewardship is noticeable but on the other hand they generously reward family members including loyal non-family executives with compensation way beyond their pay grade.

This practice is a classic double-edged sword (leading to entitlement and excessive pride) as it reinforces a debilitating disorder commonly referred to as “owner mindset” arrogance.

And with all the power and accolades heaped on the leader, hubris will naturally enchant them, not with the image of another, but with a perfect image of themselves.

It is a monster that sits by their ear, whispering praises of their accomplishments and ignores their faults.

With a looming conviction and a possible jail sentence of up to 10 years, he will have many years to contemplate in solitude in a cell that has nothing but a bed, toilet and a knob-less door with an iron–barred window that imposes austere conditions-30 minutes of daily exercise and two baths a week.

A bit shocking for a millionaire with a penchant for a luxurious lifestyle.


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