Nissan President and CEO Visits Tuck

Carlos Ghosn knew nothing about Japan when he moved there from France to become chief operating officer of Nissan Motor Co. when Renault allied with Nissan in 1999. He first thought his ignorance was a weakness-but came to consider it a strength. As he led Nissan from the brink of bankruptcy to profitability in his first year, he was not led astray by inaccurate preconceptions, and he was forced to rely on his understanding and appreciation of the universal elements of human nature.

A brilliant, kinetic, and humorous speaker, the Brazilian-born Ghosn devoted the first part of his talk at the Tuck School on May 11, 2004, to a short, rapid-fire description of his five-year career at Nissan, leaving nearly an hour for questions from Tuck students, faculty, and staff who packed Cook Auditorium to hear him. Ghosn, now president and CEO of Nissan, has worked on four continents and speaks English, French, Italian, Portuguese, and Spanish. He visits one U.S. business school a year-and this year he chose to visit Tuck after Professor Sydney Finkelstein sent Ghosn a copy of his book, Why Smart Executives Fail. Before his talk, Ghosn spent time in class with Finkelstein's students.

"Obviously, the CEO of any company has a natural tendency to tell you, 'You know, I found something so miserable when I came,'" Ghosn said. But, he noted, "In 1999, Nissan really was in bad shape."

From 1990 to 1999 Nissan's sales declined, and the company lost share in every important market. The operating margin, "one of the most important indicators of how efficient you are," averaged 1.3 percent. Return on equity averaged 1.5 percent. Market capitalization was $10 billion, but net automotive debt was more than $20 billion. Employees were "frustrated and demotivated," and cash was short. Nissan looked for an alliance.

Ford turned thumbs down. Daimler-Chrysler concluded it would be cheaper to sink $5 billion into the ocean than to invest it in an alliance with Nissan. Renault, where Ghosn was a vice president, was the last resort.

Well-meaning advisers warned against rapid and radical change in Japan. "But we said, no sacred cows, no taboos, everything on the table," recalled Ghosn. "The only thing we want is results." He set 200 people, mostly from Nissan, to work three months on a plan.

"We ended lifetime employment, closed five plants, reduced head count by 21,000 people, reduced the cross-share holdings from 1,400 different shareholdings to five. We announced a plan to sell more than $5 billion in assets, reconcentrating on the core business. We established pay-for-performance. There was not one single taboo that was not challenged."

Ghosn and his executive committee promised to quit if they failed to produce profits within a year, and to halve debt and reach an operating margin of 4.5 percent in three years. Nissan exceeded the benchmarks in two years. Today, the company's debt is gone, return on equity is 21.3 percent, and at 11.8 percent the operating margin is the highest in the auto industry. "There is one word which is very important," Ghosn said. "Commit. Then they know you have as much as them, or more, at stake."

Part of this success story was Ghosn's ability to motivate employees. Motivation is essential to performance, Ghosn said. Respect for people's identity-national, corporate, and others-is indispensable to motivation. Employees will outdo themselves for respect, and they respond to commitment and to fair rewards for performance. They love stories, they want to understand the story they are in and the role they are playing, they want to see a happy ending-and they want to be part of that ending.

Nissan employees were eager to prove themselves. "Nissan people were looked at in Japan as the retarded cousins of the car industry," Ghosn recalled. "You know, 'What's wrong with you guys? You are coming from the same university, you are based in the same country, you have the same size, and look at you.'"

As an outsider, Ghosn escaped any connection with the decisions that had led to Nissan's difficulties. However, Ghosn recommends that companies in trouble look for outsiders from their own countries in most cases, regardless of a language barrier. "I spent more time with my interpreter than anyone else," he recalled. "It was extremely frustrating. Nissan is the only company where the executive committee and the board (meetings) take place in a language-English-which is native to none of the members. At the beginning, when the French met with the Japanese, the French said, 'Well, at least we've discovered somebody who speaks English worse than us.' And the Japanese made the same discovery!"

A student asked Ghosn how he balances work and family life. "Professional success, you can measure it-but family success is more subjective," he replied. He described how he and his wife considered the proposition of leaving France soon after moving into their renovated house. Their four children were lukewarm about the idea, so Ghosn took them to Japan for a spring vacation, including a visit to Disney Tokyo. "Back on the plane, the kids said, 'You know, Dad, we loved Japan.' You have to manage these things," he said.

"I have to be careful, my wife is sitting here," he added to a burst of laughter and applause. "There is no one measure for family success. Sit down with your wife, and you may discover that you are not so successful!" It depends on what you want and how you define success, he said.

Carlos Ghosn's visit to the Tuck School was sponsored by Tuck's Leadership Speaker Series and the Alan Smith T'53 Visiting Executive Program. For more information on visiting executives at Tuck, visit www.dartmouth.edu/tuck/business/visit_exec.html.