Carlos Ghosn and the rigor of the Japanese state

The surprise arrest of Renault-Nissan CEO Carlos Ghosn is a tale of personal greed and clashing corporate cultures. But drill deeper and the more important takeaway is what the case reveals about the Japanese approach to law and power of the state.

Former Renault-Nissan CEO Carlos Ghosn is released on bail from arrest in Japan
March 6, 2019: Former Nissan Motor Company Chairman Carlos Ghosn leaves his lawyer’s office in Tokyo after being released on bail from a three-month detention. © dpa

In a nutshell

  • Carlos Ghosn’s status and foreign citizenship makes his trial a special case for Japan
  • The Japanese legal system emphasizes state supremacy and enforcing social norms
  • This philosophy’s collision with Western views could have international repercussions

Carlos Ghosn’s surprise arrest in Tokyo has spurred endless analyses of conflicting corporate cultures, different management strategies and clashing personal ambitions. Yet, scant attention has been paid to a broader and more significant issue brought to the fore by this sorry affair: the nature of the Japanese state.

Special case

At first sight, the case of the fallen boss of Nissan Motor Co. and Renault SA is a tale of boundless greed and uncontrolled power. Particularly in Europe, there has been widespread criticism of excessive pay for top managers, while in Japan the general norm dictates restraint in salary and bonus claims.

While the sums involved in Mr. Ghosn’s case may not appear shocking compared with the remuneration paid top executives in the United States, particularly in the financial and high-tech industries, it should be remembered that Carlos Ghosn, as a corporate employee, plays in a different league than the Silicon Valley tycoons. His behavior and the ways he sought to satisfy his lust for money were incompatible with the basic tenets of Japanese society. Public commentary on Mr. Ghosn’s arrest and protracted detention was overwhelmingly critical of the accused. Only one or two voices were raised in criticism of the procedure, while the rest demanded severe punishment.

It is common knowledge that Japan in many ways is a special case. Most notably, the country has a very cohesive population with only a few insignificant minorities, whether they be religious, ethnic or linguistic. This cohesion is also the result of a traditionally restrictive immigration policy, which may only be relaxed in the years to come. Another source of Japan’s cohesiveness is that most of its citizens see themselves as belonging to the middle class. This ethos helps explain why wage differentials in Japan are much smaller than in any other industrialized nation.

Amaterasu and Confucius

The influence of Chinese civilization on Japan has been overwhelming. In most cases, what is perceived as original elements of Japanese culture have been borrowed or adapted from the Asian mainland. Usually, Japan’s contribution has been to refine what it took from China and, to a lesser extent, from Korea. Most notably, while Buddhism originated in India, it reached the Japanese archipelago through a mainly Chinese filter.

With the Meiji Restoration of the 1860s, Japan opened up to the outside world. Observing the decline of once powerful Asian civilizations and empires and the seemingly inexorable expansion of European, and especially British, imperialism in Asia, Japan’s political elites made the wise decision to seek in Western countries the technology and institutions they needed for a crash modernization. In a way, the Meiji Restoration was a “shopping trip” through Europe. Within half a generation, Japan transitioned from medieval feudalism to the industrial revolution. To a remarkable degree, Japan modeled itself upon newly unified Germany, where it acquired the basic know-how of modern medicine, modern science, philosophy and jurisprudence.

Whatever one thinks of Japan, the country’s essentially separate character was highlighted by the Ghosn case.

The success of the Meiji Restoration allowed Japan to avoid the fate of India and China, which were conquered and humiliated by Western powers. But Japan’s peculiar achievement was to adopt Western techniques, thoughts and institutions without abandoning its own distinct identity. Whoever thinks that Japan’s remarkable Westernization is the whole story is seriously mistaken. The country retains its essentially separate character, which has been sharply highlighted by the Ghosn case.

China, the “Middle Kingdom,” has a very long track record of statehood. Even in very early times, Chinese rulers learned how to administer huge territories and control large populations effectively. The origins of Japanese statehood, on the other hand, are lost in mythological times. Jimmu, who according to the myths of the emperor cult founded the dynasty that to this day occupies the Chrysanthemum Throne, lived in the seventh century before Christ and is held to be a direct descendant of the sun goddess Amaterasu.

Confucius (551 to 479 BC), who had a profound and lasting impact on Chinese political thinking, entered history only a short time after these mythological beginnings of the Japanese imperial system. The teachings of Master Kong, who did not found a religion of his own, influenced large parts of East Asia far beyond the confines of China proper. Vietnam, Korea and Japan all adopted Confucian precepts and ethics.

State supremacy

A key part of Confucianism is the relation between the state and the people, or the emperor and his subjects. When reflecting on the difficulties China has encountered with the overdue task of introducing the rule of law, one should look not to communism and Marxist-Leninist authoritarianism, but to the history of the Chinese state.

From a Confucian point of view, the situation is clear-cut: the state is supreme and cannot be wrong in a case involving its subjects. Appearing before a court is already an implicit admission of guilt. In Confucian societies, practically all court cases end in conviction. The idea that an individual can win against the almighty state is alien to this concept of law. While Japanese legal practices certainly cannot be compared to the arbitrariness of a one-party state like the People’s Republic of China, they have definite Confucian traits.

The Supreme Court of Japan building in Tokyo
The modernist facade of Japan’s Supreme Court in Tokyo. Despite its superficial resemblance to Western systems, the social function of Japanese law does not always follow its outward form. © dpa

In practice, anyone facing legal issues in Japan would be well advised to seek an out-of-court settlement. If this option is not available, it is useful to admit guilt and show remorse. Repeatedly, we have seen severe sentences meted out to defendants who insist on their innocence. Even in a case ultimately settled out of court, the Swiss manufacturer Schindler Group suffered irreparable damage to its local business after refusing to accept responsibility for an elevator accident in 2006. Foreign companies are vulnerable to such risks because showing remorse and asking for leniency is alien to the Western concept of litigation when the defendants believe themselves innocent. Such preemptive admissions may be common in public relations, but not in court.

In this light, it is evident that Carlos Ghosn has chosen a difficult path. By rejecting any violation of laws and proclaiming his innocence, the former CEO is challenging the entire state system and making prosecutors even more motivated to convict him. Mr. Ghosn’s three-month detention in harsh prison conditions was intended to break his will, which explains the two denials of bail, even though the defendant repeatedly stated that he would not leave the country before trial.

Under Japan’s rather extensive social contract, people like Carlos Ghosn are regarded as highly disruptive.

A fundamental principle behind the Confucian concept of man’s rights and duties is deterrence. Since crime cannot be eradicated entirely, a society that aspires to orderly functioning must rely on deterrence. Social norms and law and order are ensured by severe punishment of transgressors, leniency toward those who admit their guilt, and ostracism for those who do not conform.

Japan’s rather extensive social contract gives the individual a high degree of security in return for demonstrating unconditional loyalty to the community and the state. In this context, people like Carlos Ghosn are regarded as highly disruptive, not because of any crimes they may have committed but because they do not play by the accepted rules.

Mr. Ghosn’s court date is still some time away. The content of his indictment and the spirit of the proceedings will be highly revealing, especially because Mr. Ghosn’s trial will be a special case in two senses: he is a prominent businessman, and he is a foreigner. In this context, it is worth remembering that many foreigners working in Japan suffer professional failure, not least because they fail to understand or misjudge their social status and obligations. That makes the Ghosn trial a valuable learning experience for foreign companies and investors considering doing business in Japan.

Perceptions on trial

In terms of the eventual verdict, the scenarios range from light punishment to an extended prison term – which given Mr. Ghosn’s 65 years of age, could amount to a life sentence.

During his struggle to obtain bail, Mr. Ghosn recently changed his legal team, hiring an attorney known for his tough defense of high-profile clients. It is doubtful that this will change much, since the stakes are very high for the prosecutors, too. They cannot afford to lose a battle in which the prestige of the Japanese state is at stake. Even if Mr. Ghosn’s alleged crimes may look limited compared to his contributions at Nissan, the state cannot afford to look soft, especially in the case of a foreigner who shows no signs of remorse.

France’s eagerness to protect the Renault-Nissan alliance and its corresponding reluctance to defend Mr. Ghosn publicly has not been helpful. From Tokyo’s point of view, the case is purely domestic and has nothing to do with relations between states and ramifications for foreign investors.

The Ghosn case comes at a time when Prime Minister Shinzo Abe is trying to redefine his country’s position.

It seems likely that prosecutors will initiate court proceedings within the next three months. While Mr. Ghosn’s new lawyers managed to secure his temporary release on bail of 1 billion yen ($9 million), the prosecutors can always bring new charges. They can be expected to demand a harsh sentence, which increases the likelihood of lengthy appeals stretching into the distant future. No leniency can be expected if the accused does not demonstrate humble and profound regret. Given Japan’s distinct legal culture, one should not expect its court procedures to follow Western precedents.

The trial and its verdict will be followed closely abroad. The Ghosn case comes at a critical time when Prime Minister Shinzo Abe is trying to redefine his country’s position in the world. For various reasons, not least because of demographic decline and new geopolitical challenges, Japan is contemplating a new opening and a stronger presence on the international scene.

These ambitions could be curtailed if foreign partners – rightly or wrongly – perceive Nippon Inc. as a dangerous place to do business. In this sense, how the Ghosn affair plays out will weigh heavily on Japan’s international standing.

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