French carmaker Renault CEO Carlos Ghosn talks during the financial annual results presentation at the group headquarters in Boulogne-Billancourt, near Paris, on February 12, 2016 . / AFP PHOTO / ERIC PIERMONT (Photo credit should read ERIC PIERMONT/AFP via Getty Images)
The undoing of Carlos Ghosn, former chair of the Renault-Nissan-Mitsubishi alliance, is a reminder to be wary of corporate miracle stories and celebrity chief executives © AFP via Getty Images

In the recent Financial Times report into the downfall of Carlos Ghosn, head of the Renault-Nissan-Mitsubishi carmaking alliance, one sentence jumped out. Nissan was “a corporate culture in which no one can make any objections or say ‘no’”. People did not criticise Mr Ghosn because they feared retaliation.

These observations came from an internal Nissan governance investigation but they could be said of almost any company. Companies are not democracies. And while each organisation allows a lesser or greater degree of freedom of speech, there are lines that cannot be crossed. Criticising the chief executive is usually one of them.

This raises a problem when it comes to ensuring companies don’t run out of control. Businesses are like families; only those inside them really know what is going on. Outsiders — stock market analysts, investors, the media, even the board — can do their best to find out, but they rarely discover the truth. The employees who do know are tightly constrained. They do not want to lose their jobs or risk their promotion prospects.

Those who do blow the whistle often pay a heavy price: they are ignored, ostracised and forced out, and seldom rewarded for their bravery.

We do not yet know exactly what happened at Nissan. Mr Ghosn was arrested in Tokyo last year. He has been released on $13.5m bail and faces charges of understating his pay by more than $80m and misusing company assets. He denies all the allegations.

He also appears to have been brought down by executives in Japan who resented his attempts at what they saw as a French takeover of the alliance and launched an investigation in which Japanese prosecutors became involved.

But there are three lessons we can draw that shareholders, directors, regulators and journalists too often miss.

First, be wary of corporate miracle stories. Many celebrity chief executives achieve great things. Mr Ghosn’s achievements were certainly remarkable. He succeeded as a foreign boss in Japan, he revived Nissan when it was in serious trouble and he ran an unlikely French-Japanese carmaking alliance.

But past achievement is no guide to future success. Indeed, it can undermine it. His critics now say that Renault-Nissan-Mitsubishi was too big even for Mr Ghosn’s undisputed talents.

Few legendary chief executives retain their lustre. Even when there are no allegations of impropriety, their reputations often dim after they have gone. That happened to Jack Welch of General Electric and Terry Leahy of Tesco, the UK retailer. Mr Welch took GE into financial services that later undermined the company. Mr Leahy, like many other British retailers, thought he could succeed in the US.

The second lesson is to watch out for changes in behaviour, for signs of self-aggrandisement and suggestions that the chief executive is no longer paying attention to the basics of the business. Nissan dealers in Japan complained that they no longer heard from Mr Ghosn in the way they used to. He also began to behave like a head of state, his appearances heralded by aides leaping out of cars ahead of him to alert people that “the president is arriving”.

Few chief executives go this far, but many, after years of success, become complacent, overambitious, increasingly self-important, or all three. They spend too much time at global talkfests and hobnobbing with politicians and too little looking after the business.

This leads to the third lesson, perhaps the most important: chief executives’ reigns should not go on too long. Mr Ghosn became president of Nissan in 2000 and chief executive of Renault in 2005. Tenures of 19 years are excessive.

A veteran chief executive of a leading UK company who eventually saw his once-high reputation plummet phoned me after he had stepped down. After berating me for an article I had written saying that staff had become afraid to approach him, he told me that he wished he had left after eight years, which he had come to regard as the optimum term for a business leader.

The “miracle boss” story can tempt boards into believing the success can be extended for years or decades. It rarely can. Bosses who do not know when to go should be told time is up.

Twitter: @Skapinker

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