Never too late to learn some lessons

The iconic Carlos Ghosn, former Chairman and chief executive officer of Nissan, and still Chairman of Renault, has been indicted on charges of under-reporting his pay by US $ 44 million over a period of five years, besides other abuse of authority with investigations being conducted in overreaching manner.

The news shocked a number of admirers of Mr Ghosn’s acumen as a smart, sharp and visionary CEO. In more than one respect the writing was on the wall for far a long time. These stories fall into a predictable pattern.

There are a few lessons to be learnt from Mr Ghosn’s unfortunate fate. All of these are corporate governance related.

To start with, Mr Ghosn has been far too long at the helm of a big organisation even if he has been successful in his job. He developed in the eyes of many a bigger than life personality. Staying beyond your shelf-life always opens opportunities for abuse as Chairman or CEOs start thinking that they are indispensable, and that their authority is unquestionable. Authority synonymous to power corrupts and governance has to be a strong check on its ramifications. The risk of abuse is further expanded by holding the joint position of Chairman of the board of directors and CEO. These two positions have to be separated for effective governance with an independent Chairman running the board and holding constant check of the CEO and other senior executives.

Strong Chairman/CEOs are always surrounded by a tight circle of loyal, dedicated executives who act as their confidant but who fuel even further the Chairman/CEO’s ego. This is considered as a big risk for the business, not only because the CEO finds himself or herself in an echo chamber and hearing only what it likes to hear, but that these same people are working on their own personal agenda which is not necessarily for the good of the company. Do not be afraid of challengers on the board of directors. These must be encouraged as they are the ones that make other directors think and question. It is through this tension that otherwise unchallenged decisions are questioned or stopped.

Internal controls, effective governance and independent auditors are a critical factor to check on the potential excesses of a CEO. It is however not only the structures that are relevant, but the personalities and character of the incumbents who refuse to be bullied and who are brave enough to call a spade a spade.

Another lesson is… get suspicious when there are recommendations presented to the board for the setting up of a web of companies more so if these are being registered in not so reputable jurisdictions. These can be vehicles for abuse not only related to taxation but also for personal gain of the people involved in setting them up.

All that glitters is not gold. The press had beatified Mr Ghosn as it did numerous leaders of big corporates over the years. There is no harm with being sceptical on what lies behind all that glitter.

About the author(s)

Joseph F.X. Zahra is a Malta based economist with over thirty five years of corporate leadership and business consultancy experience.