Commentary: Ghosn's Way: Why Japan Inc. Is Following a Gaijin

The CEO's quick turnaround of Nissan has Japanese execs starting to imitate his slash-and-burn style

By Chester Dawson

Carlos Ghosn, the CEO and president of Nissan Motor Co. (NSANY ), is everywhere you look in Japan: lecturing influential audiences such as the Japan Association of Corporate Executives, beaming from the pages of a popular comic book, The True Story of Carlos Ghosn, and signing copies of his new book, Renaissance--which in Japan is outselling retired General Electric Co. guru Jack Welch's autobiography. Ghosn-Ryu, or Ghosn-style, has entered the popular lexicon as shorthand for the take-no-prisoners corporate restructuring this Brazilian-born, French-trained executive has imposed at Nissan.

No one questions that Ghosn's prescriptions have worked. On May 9, Nissan, which is controlled by Ghosn's former and future employer, Renault, announced record earnings of $3.8 billion on sales of $47.7 billion. With those numbers, the company nearly achieved the 8% operating margin that Ghosn had set as a target for 2005. Nissan stock is soaring, and its new March subcompact in Japan and Altima sedan in the U.S. are big hits.

The turnaround is a major achievement--but that's not why Ghosn is so important to Japan. His real success will be measured by just how much the rest of Japan Inc. strives to imitate him, whether out of admiration, rivalry, or sheer terror. And while Corporate Japan is not professing a debt to Ghosn--the idea of publicly praising a gaijin's style is just too much--it's clear Japanese companies are watching closely. "Ghosn's results have raised the bar for companies in Japan in terms of what can be accomplished and how quickly," says Michael Garstka, vice-president with consultancy Bain & Co. in Tokyo.

The result is the slow, quiet spread of the Ghosn influence. Take Big Steel, which was in no hurry to trim excess capacity until Nissan announced its factories would deal with fewer steel suppliers and demand big price cuts. "Steel companies had been dawdling for years," says Robert Feldman, chief economist at Morgan Stanley Dean Witter & Co. in Tokyo. "Then Nissan comes along, and that triggered a huge restructuring" of the steel industry.

Thanks in part to Ghosn's gut-wrenching changes, traditions such as lifetime employment and seniority-based promotion are dying out. The most recent company to adopt merit-based promotion is Canon Inc. And a February survey of 805 companies found that less than a fifth plan to keep lifetime employment. Even mighty Toyota Motor Corp., which remains true to many old-school business practices, has copied Nissan's tight squeeze on suppliers. "Toyota has taken a page from Nissan, demanding price cuts from parts and materials suppliers like us," says Akio Kosai, chairman of Sumitomo Chemical Co. "Ghosn's presence is like a storm wind." Many companies have also followed Ghosn's moves to dump cross-shareholdings in longtime partners and sell noncore businesses--in Nissan's case, its aerospace operation. And other Japanese companies are becoming less tolerant of the lackluster bottom line. At troubled textile producer Toray last month, the president was ousted in a boardroom coup.

There's a long way to go. Most Japanese companies continue to fail the test of Ghosn-Ryu when it comes to meeting targets for operating margins, return on equity, and holding down debt loads. Saving jobs, even at the expense of shareholder interests, continues to sway executive decision-making.

But maybe these laggards will pay attention as Nissan's taskmaster-in-chief increases the stakes yet again. His latest plan calls for an additional 15% cut in purchasing costs and zero net debt. Ambitious? Yes. But Ghosn is the guy who pledged to quit if he didn't put Nissan back in the black within a year of taking over as president. It did, and he didn't. Ghosn then wrapped up Nissan's first big restructuring a year ahead of schedule. That lends crucial credibility to his latest performance targets.

As traditional corporate ties break down, the men in blue suits who run Japanese industry are under fire like never before from impatient shareholders, frustrated employees, and predatory competitors. Many of these executives are finally responding with the kind of structural changes that Japan desperately needs. Not many Japanese execs are likely to step forward to praise Ghosn's example. But everyone knows that imitation is the sincerest form of flattery.

Dawson reports on the Japanese auto industry from Tokyo.

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