Some CEO Survival Lessons From the Scandal at Renault

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  • Posted on April 21, 2011


    Defenestration was in vogue at Renault last week as the French company punished top managers who had cried wolf over a fabricated corporate spying scandal.

    Notably absent from the list: Carlos Ghosn, Renault’s CEO and chief crier. He tithed to the executioners and continued flying at altitude.

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    Carlos Ghosn, the chief executive of Renault and Nissan.

    As the espionage saga comes to a close, we thus rediscover these important CEO survival lessons:

    If you’re a superstar and you’ve brought in the bucks, it will take much more than committing gross embarrassment to bring you down. That’s especially true if the board has no clear successor and just sent a key backup for CEO sailing through the window.

    Errors of judgmenteven high-profile ones like Mr. Ghosn’scan be tolerated as long as they don’t suggest you’ve lost your essential leadership magic for expanding corporate profit.

    For Mr. Ghosn, the spying episode has complicated that certainty, at least in the near term.

    A reminder of the plot:

    Previously Ghosn’s Image Takes a Hit (04/12/2011) The Source: Renault — Time To Concentrate on the Core Business More Management News and Analysis

    A tipster alerts Renault that three senior managers are stealing intellectual property from the company’s key electric-car program. The company investigates and fires the managers.

    Mr. Ghosn appears on national television saying there’s plenty of evidence to support the firings.

    More investigation determines the tipster is a fraud. Renault exonerates the managers and begins negotiating settlements. Mr. Ghosn goes back on television to apologize.

    The denouement inside Renault played out this way: Last week, Renault said it would reassign Patrick Pelata, the chief operating officer and possible successor to Mr. Ghosn. He had helped oversee the initial investigation. A range of executives and staffers, including the head of the legal department and the secretary general, were either fired or shown the door. One employee landed in jail.

    And Mr. Ghosn forfeited his 2010 Renault stock options and bonus of $2.3 million. This is no small sum, but it’s a fraction of the total he receives as CEO of both Renault and Nissan: In 2010, his Renault salary was $1.8 million. His 2010 compensation at Nissan isn’t yet public, but in 2009 he made $9.8 million.

    The board didn’t propose a more serious penalty and has unanimously supported Mr. Ghosn throughout the episode, says Rachel Konrad, director of communications for the Renault-Nissan alliance. In fact, an internal audit noted that key decision making in the case happened many levels below the CEO. It suggested Mr. Ghosn was duped along with everyone else.

    Outside observers are similarly forgiving. “Carlos made a mistake” and was hasty, says David Cole, chairman emeritus of the Center for Automotive Research in Ann Arbor, Mich. But his intentionsto protect the companywere good, and he shouldn’t be penalized for “being decisive,” Mr. Cole says.

    However distant Mr. Ghosn may have been from the facts of the case, it was his stamp on the allegations that propelled their credibility. In the auto world, he is regularly called “a rock star,” juggling the management of two complex companies across a vast stretch of the world. People believed him, and believed in him.

    His work turning around an ailing Nissan is legend in the industry. Mr. Ghosn made smart use of his role as an outsider, ordering a dithering and inbred Nissan bureaucracy to make changes it had resisted for years. Managers used him as cover to mow down sacred cows, closing facilities and altering supplier relationships. The Brazil-born executive and polyglot was soon speaking Japanese and became a celebrity in Tokyo.

    The Renault board knows that it employs one of the industry’s top players, and that he has been head-hunted by competitors. And it knows that, especially in the near term, while Renault pursues a newly announced strategy to boost sales and Nissan is busy recovering from the recent earthquake in Japan, continuity in the CEO’s office is important.

    Thus, the support of the board.

    In the trenches, among the rank and file, it may be a different matter.

    Mr. Ghosn may have been a level or two above the details of the case, but he had a starring role in the drama. First he publicly accused three veteran and innocent Renault managers of, ironically, a breach of trust. Then he helped oversee the sacking or demotion of several managers who, like Mr. Ghosn, had a role in the drama’s first act.

    “He has a credibility problem,” says Joseph Porac, who has taught a case study of the Renault-Nissan alliance at the Stern School of Business at New York University. “Who would want to be loyal to this guy? Based on unsubstantiated rumors you take these employees and sell them out? [Others] are going to look at this and say: If he can do that to them, what’s going to happen to me?”

    Which gets back to the topic of essential leadership magic. And whether Carlos Ghosn still has his.

    Write to John Bussey at

    The Wall Street Journal/AC

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