Harvard Case - Coup or Crime? The Case of Carlos Ghosn
"Coup or Crime? The Case of Carlos Ghosn" Harvard business case study is written by Aiyesha Dey, Jonas Heese, Puneet Brar. It deals with the challenges in the field of Accounting. The case study is 25 page(s) long and it was first published on : Apr 2, 2019
At Fern Fort University, we recommend a comprehensive review of Nissan's corporate governance practices, including a thorough investigation into the allegations against Carlos Ghosn. This review should focus on strengthening internal controls, improving transparency and accountability, and establishing a more robust system of checks and balances within the organization. Furthermore, we recommend a strategic shift towards a more collaborative and inclusive leadership style, fostering a culture of ethical behavior and open communication. This will require a multi-faceted approach, addressing both the immediate crisis and the underlying systemic issues that allowed the alleged misconduct to occur.
2. Background
The case study revolves around Carlos Ghosn, the former chairman and CEO of Nissan, who was arrested in Japan in 2018 on charges of financial misconduct. Ghosn was accused of underreporting his compensation, misusing company assets, and engaging in other financial irregularities. These allegations led to his dramatic escape from Japan in 2019, further fueling the controversy surrounding his case.
The main protagonists are Carlos Ghosn, the accused executive; Nissan, the company at the heart of the scandal; and the Japanese legal system, which played a significant role in Ghosn's arrest and subsequent trial.
3. Analysis of the Case Study
This case study presents a complex situation involving multiple stakeholders, ethical dilemmas, and legal complexities. It highlights several critical issues related to corporate governance, financial reporting, and cultural differences.
Strategic Framework: We can analyze this case through the lens of the Agency Theory, which focuses on the relationship between principals (shareholders) and agents (managers). The theory suggests that a potential conflict of interest exists when managers (agents) act in their own self-interest, potentially at the expense of the shareholders (principals). In Ghosn's case, the allegations of financial misconduct suggest that he may have prioritized his own interests over those of Nissan and its shareholders.
Financial Analysis: The case study raises several key questions regarding Nissan's financial reporting practices, including:
- Accounting procedures and policies: Were Nissan's accounting procedures and policies sufficiently robust to prevent the alleged financial irregularities'
- Financial statements: Were Nissan's financial statements accurate and transparent, or did they mask the alleged misconduct'
- Financial performance measurement: Did Nissan have appropriate performance indicators to monitor Ghosn's activities and detect potential misconduct'
- Internal controls: Were Nissan's internal controls adequate to prevent or detect the alleged financial irregularities'
Corporate Governance: The case study also highlights the importance of strong corporate governance practices, including:
- Boards: Was Nissan's board of directors sufficiently independent and active in overseeing Ghosn's actions'
- Corporate governance: Did Nissan have a robust system of checks and balances to prevent executive misconduct'
- Employee incentives: Did Nissan's incentive structures encourage ethical behavior or create incentives for executives to engage in financial misconduct'
- Organizational structure and design: Did Nissan's organizational structure and design facilitate transparency and accountability, or did it create opportunities for misconduct'
Cultural Differences: The case study also highlights the importance of considering cultural differences in business operations, specifically:
- International business: How did cultural differences between Japan and other countries where Nissan operates influence the company's corporate governance practices and financial reporting'
- Emerging markets: How did Nissan's operations in emerging markets impact its risk management and compliance practices'
4. Recommendations
- Conduct a comprehensive investigation: Nissan should conduct a thorough and independent investigation into the allegations against Ghosn, examining all aspects of his activities and the company's financial reporting practices. This investigation should involve external experts in accounting, finance, and corporate governance.
- Strengthen internal controls: Nissan should strengthen its internal controls to prevent future financial misconduct. This includes:
- Improving accounting procedures and policies: Implementing stricter accounting policies and procedures, including stricter controls over executive compensation and expense reporting.
- Enhancing financial statement audits: Increasing the frequency and scope of financial statement audits, including independent audits by external firms.
- Strengthening internal controls: Implementing a robust system of internal controls, including segregation of duties, regular reviews, and whistleblower protections.
- Improve transparency and accountability: Nissan should increase transparency and accountability within the organization by:
- Improving corporate governance practices: Strengthening the independence and oversight of the board of directors, including appointing independent directors with expertise in finance and accounting.
- Implementing a code of ethics: Establishing a clear and comprehensive code of ethics that emphasizes ethical behavior and compliance with all applicable laws and regulations.
- Promoting open communication: Fostering a culture of open communication and transparency, encouraging employees to report concerns without fear of retaliation.
- Shift towards a more collaborative and inclusive leadership style: Nissan should move away from a highly centralized leadership style and embrace a more collaborative and inclusive approach. This includes:
- Empowering employees: Empowering employees at all levels to participate in decision-making and problem-solving.
- Promoting diversity and inclusion: Creating a more diverse and inclusive leadership team, representing a wider range of perspectives and experiences.
- Encouraging open communication: Fostering a culture of open communication and feedback, encouraging employees to share their ideas and concerns.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: The recommendations are consistent with Nissan's core competencies in manufacturing and automotive technology, while also aligning with its mission to provide safe and innovative vehicles.
- External customers and internal clients: The recommendations prioritize the interests of external customers by ensuring the integrity of Nissan's products and services, while also protecting the interests of internal clients (employees) by fostering a culture of ethical behavior and respect.
- Competitors: The recommendations aim to ensure that Nissan remains competitive by maintaining its reputation for integrity and financial stability.
- Attractiveness ' quantitative measures if applicable (e.g., NPV, ROI, break-even, payback): The recommendations are expected to improve Nissan's financial performance in the long term by reducing the risk of future financial misconduct and enhancing its reputation.
- Assumptions: The recommendations assume that Nissan is committed to addressing the issues raised in the case study and implementing the necessary changes to prevent future misconduct.
6. Conclusion
The case of Carlos Ghosn highlights the critical importance of strong corporate governance practices, transparent financial reporting, and ethical behavior within organizations. By implementing the recommendations outlined above, Nissan can strengthen its internal controls, improve transparency and accountability, and create a more ethical and sustainable business environment. These changes will not only help Nissan recover from the current crisis but also position it for long-term success.
7. Discussion
Other Alternatives:
- Ignoring the allegations: This option would be highly risky and could damage Nissan's reputation and financial performance.
- Dismissing Ghosn without investigation: This option could be seen as a cover-up and could further erode trust in the company.
- Focusing solely on legal action: While legal action may be necessary, it is not a sufficient solution to address the underlying issues.
Risks and Key Assumptions:
- Risk of further legal action: There is a risk that Nissan could face further legal action from regulators or shareholders.
- Risk of reputational damage: Nissan's reputation could be further damaged if the company is seen as not taking the allegations seriously.
- Assumption of Nissan's commitment to change: The recommendations assume that Nissan is committed to implementing the necessary changes to prevent future misconduct.
8. Next Steps
- Immediate action: Nissan should immediately initiate a comprehensive investigation into the allegations against Ghosn.
- Short-term actions: Within the next three months, Nissan should implement a series of short-term actions to strengthen its internal controls and improve transparency.
- Long-term actions: Over the next year, Nissan should implement a comprehensive plan to overhaul its corporate governance practices and create a more ethical and sustainable business environment.
This case study serves as a cautionary tale for all businesses, emphasizing the importance of strong corporate governance, ethical leadership, and robust internal controls. By taking proactive steps to address these issues, companies can mitigate risks, enhance their reputation, and achieve sustainable growth.
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Case Description
This case explores the interplay of global corporations, management styles, and local traditions through the high profile arrest of auto industry icon, Carlos Ghosn, in November, 2018. The case allows students to debate opposing theories that led to the arrest, and examines several key themes, such as leadership challenges in an increasingly global market, role of culture, and the design and role of incentive and governance mechanisms. The case also allows for discussions on personal accountability in light of misbehavior.
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