A Board of Directors or A Board of Thieves?! Carlos Ghosn’s Scandal and Its Implications for Fighting Corruption “Fighting Corruption is like cleaning a staircase. You must start from the top to the bottom.” Lee Kuan Yew 1st Prime Minister of Singapore*
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Ali Mansouri Writer, Researcher, Consultant There has been some shocking news coming recently from Japan. Carlos Ghosn has been arrested. He was one of the most powerful business leaders in the world. “Carlos Ghosn is a Brazilian–French businessman, who has served as the chairman and CEO of Renault, chairman and CEO of Nissan, and chairman of Mitsubishi Motors. From June 2013 to June 2016, Ghosn was chairman of AvtoVAZ, formerly known as Volga Automobile Plan, which is a Russian automobile manufacturer. The company has been a subsidiary of the French Groupe Renault since 2016. Ghosn was also chairman and CEO of the Renault–Nissan–Mitsubishi Alliance venture, a strategic partnership between Nissan, Mitsubishi and Renault through a unique cross-shareholding agreement.” (Wikipedia). The man was thus too powerful. According to Reuters news agency, Ghosn was reportedly earning $8.4m from Renault, $6.5m from Nissan and $2m from Mitsubishi. He earned compensation of $8.4 million from Renault and $6.5 million from Nissan in the financial year of 2017, according to CNBC, not counting pay from Mitsubishi. However, he allegedly reported to the Tokyo Stock Exchange only about half the roughly $89 million in his compensation over five years, according to a Reuters report. The man has illegally enriched himself and his sister or so many people believe. Ghosn was accused of serious financial misconduct: he has been underreporting his salary by around five billion yen ($44 million) and has been misusing the assets of the three companies: Nissan, Renault and Mitsubishi for his personal gains. The maximum punishment in Japan for Page 2 of 8
falsifying financial statement is up to 10 years in prison and a fine of up to 10 million yen ($89,000). According to the NHK, Japan’s national public broadcasting organization, Carlos Ghosn has misused Nissan funds and has spent millions of dollars on luxury homes in four countries (Brazil, Lebanon, France and the Netherlands) without any legitimate business justifications. “Nissan Motor Co.’s board voted unanimously on Thursday to oust Chairman Carlos Ghosn from his post, and allegations emerged that Mr. Ghosn used company money to buy personal residences and enrich his sister. A person familiar with Nissan’s investigation into Mr. Ghosn said the auto maker found he used a subsidiary in the Netherlands to spend some $18 million buying and renovating personal homes, including a condominium in Rio de Janeiro and a house in Beirut.” (Sean McLain, 22 Nov, The Wall Street Journal). The Brazilian-French businessman was not the only Nissan executive put in police custody. Longtime colleague and co-conspirator Representative Board Director Greg Kelly was also arrested. “In a statement to the Tokyo stock exchange, Nissan said its directors, led by CEO Hiroto Saikawa, voted unanimously to remove Ghosn, and another director, Greg Kelly, from their posts. Kelly has also been arrested by Tokyo prosecutors after being accused of wrongdoing by the company.” (Daniel Shane, CNN Business, November 22, 2018 ) The Financial Times has reported that Nissan’s board decided to strip responsibilities from Kelly as well, the company said in a statement. The two men remain directors since a shareholder vote is required to remove them from the board entirely. The BBC has also reported that Nissan’s board issued a statement which said the decision to dismiss the two men was unanimous. The board’s mission was “to minimize the potential impact and confusion on the day-to-day cooperation among the Alliance partners.” Nissan, Mitsubishi and Renault are all in partnership together, with more than 470,000 employees in almost 200 countries. Many are at risk and the three companies are suffering the after effects. U.S. traded shares of Renault dropped by about 11% and Nissan’s shares fell by about 6% one day after the news of Ghosn’s arrest in Tokyo. Page 3 of 8
"There may be plenty of people whose day-to-day jobs won't change. But there is going to be some executive fallout. Anytime there is disruption at top, that is this sudden, it's bound to wreak a little havoc." (Quoted by Charles Riley and Chris Isidore, CNN Business, November 19, 2018). This corruption has been deep-seated, however. Prosecutors have said the two men conspired to understate Ghosn’s compensation starting in 2010. The charges against Carlos Ghosn were levelled after an internal investigation carried out by Nissan for several months, prompted by a whistleblower who made use of a new Japanese law guaranteeing immunity against prosecution for whistleblowers. Carlos Ghosn has denied the allegations of financial misconduct. Of course, the accused is innocent until proven guilty through fair, transparent and legal procedures and trials. “With Ghosn’s future in doubt, a key lesson for corporations is the risk of concentrating too much power in a single executive.” (Wharton, University of Pennsylvania, 21 November 2018). One of the well-known quotes of Carlos Ghosn is “If you have not been a villain at a certain point in time, you will never be a hero. And the day you are a hero, you may become a villain the next day.” Although I personally reject this quote, I think it sheds a lot of light on the man’s mentality, career and the story of his arrest. I still remember a somewhat similar story that happened at A’Sharqiyah University in Oman though with some differences in details and results due to a different approach followed in the corruption case. This is related to serious financial, academic and administrative irregularities committed by Abood Al-Sawafi (VC) and Hamed Al-Hajri (Assistant VC). These irregularities cannot be described other than corruption and breach of trust. They both enriched themselves, their families, and their relatives at the expense of the University and the Ministry of Higher Education. They used to over-report the number of students in the University over a number of years in order to steal money from the Ministry of Higher Education. There has always been a wide discrepancy between the real numbers of students in the University and the “fabricated and inflated” numbers for whom the University charges tuition fees. For example, if the real number Page 4 of 8
of new students in the Foundation Program is one thousand, the University will greatly “inflate” this number and will charge the Ministry for an inflated number of three thousand students! How could they do that? Regrettably, there are corrupt officials in the Ministry of Higher Education itself and they have always covered up the corruption of Abood Al-Sawafi and Hamad Al-Hajri.
How can Abood Al-Sawafi and Hamad Al-Hajri hide their corruption from the Ministry of Higher Education and the anti-corrupt agencies in Oman? They follow a very brutal and detestable approach. They constantly issue orders and directives to the teachers and members of staff preventing them from talking about anything related to performance, irregularities or suspicions of corruption anywhere in the University. If anybody has the courage to ask a question or raise an intelligent, or a stupid point, he will be silenced immediately and will lose his job or will be referred to the Police and the Public Prosecution in Ibra accusing him of leaking “confidential information”. So, for Abood Al-Sawafi and Hamad Al-Hajri, any information related to their corruption is “confidential” and no one is allowed in any way to talk about it or report it to the Board of Directors or the Board of Trustees. These measures are, by themselves, against the official anti-corruption policy adopted by the Government of Oman. You see advertisements and notices everywhere, even in local newspapers, urging Omanis and expatriates to pass any information they have about corruption in their companies and organizations to the Public Prosecution and the anti-corruption agencies in the country. But Abood Al-Sawafi and Hamad Al-Hajri do not recognize this policy as they mistakenly think they are powerful and they are above the law! One day, the former Director of the Language Center and Foundation Program was brave enough to write two internal memos about many serious irregularities and different aspects of corruption in the University. One memo was sent to Mr. Mohammad bin Ali Nasser Al Alawi, the Chairman of the Board of Trustees; the other to Sheikh Abdulla bin Sulaiman bin Hamed Al Harthy, the Chairman of the Board of Directors. The two memos were sent through the Secretary of the two Boards (Mr. Abdul Muttaleb) via the e-mail system which is the only official means of communication with the two Boards. The former Director was hoping that an investigation would be launched in the general interests of the students and the University. Instead, Mr. Mohammad Al-Alawi, the Chairman, kept silent and did not respond. Sheikh Abdulla bin Sulaiman bin Hamed Al Harthy went even further. Instead of conducting a thorough, fair and Page 5 of 8
transparent investigation into the irregularities and corruption information, he handed the internal memo to the Police and the Public Prosecution in Ibra, Oman to be used against the former Director because he had the courage to write to him about the corruption of the Vice Chancellor and his assistant. What a disaster! Teachers and members of staff in the University are taken to the Police and Public Prosecution for writing confidential internal memos to those who are supposed to lead the fight against corruption in the University. This very clearly indicates the level and extent of corruption in this institution. Both the Chairman of the Board of Trustees and the Chairman of the Board of Directors should be ashamed of themselves. Corruption has become a universal problem, but, unfortunately, most businesses and governments do not want to admit it. Some go even further and make laws against those who expose, or attempt to expose, corruption anywhere. Some laws are really disgusting mixing up between corruption and protecting privacy. Corrupt officials should not be protected by any law; otherwise, the fight against corruption will be in vain. Some people are very narrow-minded and think that talking about corruption will negatively affect the reputation of their business and their country. This is utter nonsense and absolute stupidity. Corruption is a very dangerous disease and fighting it and eliminating it will be beneficial to both the business and the country. It will make the business and the country stronger rather than weaker. We may raise now a very legitimate question about the role of the members of the Board of Directors. What is the job of these members if they do not know about what it is happening or they keep silent about corruption in their company or in their institution for many years? Are they afraid of the Chairman or are they themselves thieves and corrupt officials? Or are they just puppets being bribed and exploited by the Chairman for his personal gains? What is the role of the Director of the Internal Audit Department? What is exactly his job? Is his job to act as a clown to cover up corruption for his personal interests and for keeping his name on the payroll at the expense of the genuine interests of the company or the organization? Why do we need a brave whistleblower to tell us about corruption in a company or an organization while all the other senior managers are enjoying their packages and privileges and acting like clowns? Why are they not held accountable as well?
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Carlos Ghosn’s scandal has many important implications for fighting corruption in businesses, universities and other organisations all over the world. We may offer here some of these implications:
There must be laws and regulations to protect whistleblowers. They are brave people who take great personal risks for reporting irregularities and corruption. Without them, corruption would have doubled and intensified. They should be offered
rewards rather than punishments. There must be systems and mechanisms through which people, especially employees, are able to report irregularities and corruption in a confidential and reliable way that
yields tangible results rather than cover-ups. Anti-Corruption Agencies need to be independent from the police and the public prosecutors who are themselves corrupt in many countries. When I reported the corruption of Abood Al-Sawafi (VC of A’Sharqiyah University) to Saif Al-Saltti, the Public Prosecutor in Ibra, Oman, he shamelessly said to me, “I am not concerned about the corruption of Abood Al-Sawafi; I am concerned about whether Abood AlSawafi has been insulted or not.” Imagine that! Can we really fight corruption with
such a public prosecutor?! The Chairman or VC should not be given a “blank check” to do whatever he likes. He will soon turn into a dictator with absolute powers. This will definitely lead to corruption and self-destruction for the individual and the company. The Devil is
always there to take advantage of our human weaknesses. This entails that the best approach to manage a business or an organization is through the democratic approach. Employees should be educated and trained to speak up their minds and offer honest reports without fear of losing their jobs or being intimidated
through the corrupt police and public prosecutors. Honest reports supported by documents and proofs should always be encouraged and
rewarded when there are serious financial or administrative irregularities. If a senior official is found to be corrupt, look for other senior managers. You will certainly find them, or at least some of them, “in the same boat”.
Fighting corruption is a very complicated process and it may involve many conspiracies. Though Abood Al-Sawafi and Hamed Al-Hajri are fond of conspiracies against everyone, the Japanese are not. They are intelligent and hard-working people. They have a judiciary independent in Page 7 of 8
practice, not on paper. They cannot tolerate corruption. They do not belong to the Middle East where most of the corrupt businessmen and officials are promoted rather than punished. The number of those punished is statistically insignificant!
______________________________________________________________________________ * Lee Kuan Yew (16 September 1923 – 23 March 2015), commonly referred to by his initials LKY, was the first Prime Minister of Singapore, governing for three decades. Lee is recognized as the nation's founding father, with the country described as transitioning from the "third world to the first world in a single generation" under his leadership. (Wikipedia)
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