University of Paris Dauphine - PSL
Michel Kalika (Photo)*
President and founder of the Business Science Institute
IAE Lyon School of Management
Jean-Moulin Lyon 3 University
*President-founder of the Business Science Institute.
Article originally published on The Conversation France
Beyond the possible illegal taking of interest and the escapades, we can conjecture that three strategic errors and a governance error explain why the man who contributed to the development of the alliance between the two groups for two decades, Carlos Ghosn, has been under house arrest for many months in Japan and now has the status of an international fugitive.
There are two perspectives to consider: one is internal to the alliance and to the relationship between the two partners, Renault and Nissan; the other is external, in relation to the stakeholders, first and foremost the French and Japanese governments.
An alliance rather than a merger
When the merger between Renault and Nissan was envisaged in 1998-1999, two strategic options were available: a merger and acquisition or an alliance. The choice of a merger and acquisition is all the more defensible (appears all the more logical and rational) as there are many areas in which the companies can achieve savings or additional revenues in a sustainable way by coming together.
Conversely, if the potential for synergies concerns only a very small part of the respective activities of the two companies, the alliance should be preferred, unless the project does not have an industrial logic. In the case of Renault-Nissan, a merger-acquisition seems to be the best option, given the extent of potential synergies.
On 27 March 1999, the chairmen of Renault and Nissan, Louis Schweitzer and Yoshikazu Hanawa, signed an agreement giving the French carmaker a 36.8% stake in the Japanese group's car division, which was heavily in debt at the time (INA archives).
However, the founder of the Renault-Nissan Alliance, Louis Schweitzer, ruled out this option. There are three contextual reasons for this initial choice:
The first is financial. A merger-acquisition would have meant taking over all the liabilities of Nissan, which was in a very bad position in 1999: a debt estimated at between 18 and 25 billion dollars, depending on the scope of the keiretsu, recurrent losses and a deteriorated competitiveness. Renault did not have the means to take on the possible bankruptcy of Nissan, whose recovery was not assured.
The second is managerial. The ability to really cooperate was not acquired in a Franco-Japanese context marked by a significant geographical distance, organizational and national cultural differences, and the need to work in different time zones and with a third language.
The third is political and cultural. The merger-acquisition would have been perceived as the absorption of a Japanese automotive flagship by a French carmaker that was virtually unknown in Japan, a prospect that was not very acceptable from either a cultural or political point of view.
Under these conditions, an alliance was the only acceptable option, on both sides. Over the last two decades, the alliance has developed with increasing industrial and organizational integration, but the two companies have remained legally independent, thus avoiding political and cultural sensitivities.
Over the years, when we have worked with MBA managers on the "Renault-Nissan case", the question of the evolution of the alliance towards a merger has been systematically raised by company managers, whatever their nationality. It always appeared to us that the integration of all the functions of the value chain could be developed, but that there was a red line that should not be crossed, that of the founding principles of the alliance, namely the maintenance of the identity of the two companies and their legal independence.
By seeking to transform the original alliance into a merger, Carlos Ghosn would have crossed this managerial "rubicon" and provoked the manoeuvres of Japanese managers that led to his loss. Unless one believes in the myth of a merger between equals, the operation would have reshuffled the cards of power, a highly sensitive subject since it takes the form of a zero-sum game.
The first strategic error is therefore based on the belief that economic relevance (strengthening synergies through a merger) is synonymous with feasibility and acceptability. Two of the reasons initially justifying the alliance are, of course, no longer relevant: the very poor situation of Nissan and the doubt about the ability of the two players to cooperate and, therefore, to create value. But the third reason has remained: the unacceptability of a takeover of Nissan by Renault, reinforced by Nissan's recovery, just as the unacceptability for Renault of seeing its revived partner take the lead in the new entity.
A second strategic error concerns the leadership of the alliance. Carlos Ghosn was initially appointed Nissan's general manager (in 1999) to turn around the Japanese carmaker, and became president of Nissan in 2001, then president of Renault and president of RNBV (the alliance's management structure) in 2005. The trust placed in Ghosn following the turnaround of Nissan made this accumulation of mandates possible. But this hegemonic position, apart from the fact that it can exceed the limits of understanding, was not a blank check for directive leadership, because any alliance calls for shared leadership, unless the dominated partner explicitly agrees.
There is little doubt that Carlos Ghosn has forgotten this, which is confirmed by his words during his press conference on 7 January, when he said: "The alliance can succeed without me, but it must follow certain rules. It will not work on the basis of consensus, we are wrong now". Sooner or later, when the opportunity arises, those without a voice will react.
A third strategic error relates to the relations that the former head of the Alliance has established, or rather, has not established with the French state, which was one of the shareholders, and not the least, of Renault. How else to explain, at least at the beginning of the affair, the French State's lack of interest in the man who was one of the great captains of industry to whom France owes the development of part of its automobile sector? Carlos Ghosn has ignored the French state and its representatives, and they are paying him back today.
No doubt he has done the same on the Japanese side. The former head of the Renault-Nissan Alliance may have had a conception of industry based on Porter's original model that ignores public authorities and their influence. The leader of a company, even a globalized and very powerful one, cannot ignore the role and influence of national governments. The current situation of the former head of the Renault-Nissan Alliance and the very rare support he is attracting illustrate this relationship between business and the state, or rather in this case, between business and the state.
A hegemonic position never denounced
These three strategic errors, both internal and external, shed light on Carlos Ghosn's descent into hell. They also illustrate the difficulties of managing a global alliance and raise the question of the governance of this type of organization.
The Renault-Nissan case shows that a leader may not always be the "right man for the job". Louis Schweizter had the experience and the sensitivity to imagine a hybrid model capable of avoiding the pitfalls of the aborted Renault-Volvo merger. Carlos Ghosn had the necessary experience to accompany the turnaround of Nissan. It was much less obvious that his personality, as well as the hubris and narcissism, aroused by the success of the recovery of the Japanese manufacturer, were consistent with the shared leadership required to ensure the consolidation of the alliance.
The mistake of Renault-Nissan's governing bodies has been not to denounce the hegemonic position of Carlos Ghosn, or at least his excesses. They are also responsible, but perhaps not guilty, because the entrenchment of Carlos Ghosn may have hindered any idea of replacing him or bringing him into line. The "Ghosn affair" has been salutary in this respect.
Article translated from French with https://www.deepl.com/translator
Michel Kalika's articles on The Conversation France.
Michel Kalika's books & articles via CAIRN.info.