Terrie's Take 970 - The Carlos Ghosn Affair - Fall-out for International Business in Japan, e-Biz News from Japan

[Terrie's Take]

* * * * * * * * * TERRIE'S TAKE - BY TERRIE LLOYD * * * * * *
A weekly roundup of news & information from Terrie Lloyd, a long-term
technology and media entrepreneur living in Japan.
(http://www.terrielloyd.com)

General Edition Sunday, Nov 18, 2018, Issue No. 970

- What's New -- The Carlos Ghosn Affair - Fall-out for International
Business in Japan
- News -- Foreign trainee system still has deep flaws
- Corrections/Feedback
- Travel Picks -- Hagoita in Tokyo, Japan's top ramen spot in Chiba
- News Credits

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+++ The Carlos Ghosn Affair - Fall-out for International Business in Japan

Two weeks ago we published a piece about corporate governance and CEOs who
regard their publicly listed companies as personal play-things and piggy
banks. We were of course talking about numerous Japanese CEOs who forget
their fiduciary duties while running public firms, and even gave some
examples. What we couldn't have imagined is that the same day, in the
evening, Carlos Ghosn, probably the most famous non-Japanese leader of a
major Japanese company, would be arrested as he arrived at Haneda airport
for a routine board meeting at Nissan Headquarters. A number of readers
asked if we'd had some type of tip off, but in fact the timing of the
article and Ghosn's arrest is pure coincidence.

Since then, we've been receiving emails regularly asking when we'd write
about the incident - so here it is.

Firstly, we'd like to say that whether Ghosn is guilty of anything at all
will come out in due course - it's not our role to decide as the internet
jury and judge what he may or may not have done. Instead, what should more
concern us more is how this whole thing went down, and how Ghosn is being
treated vs. his many Japanese fellow business leaders. We feel there are
five major talking points at this stage:

1. The rather brutal and 3rd world nature of the Japanese police detention
and judicial system.

Those of us living in Japan for many years know that the one thing you
never want to have happen here is to fall into the black maw of the
Japanese legal system. Not only are the rights of the police and
prosecutors overwhelmingly unfair to a suspect not yet proven guilty, with
broad interpretations of the law being possible and contact with the
outside world extremely limited, but there is also the established policy
of trying to break the suspect with sustained interrogation, potentially
for months (not just 13 or 23 days). This is one reason why the conviction
rate is so high, because even the hardiest arrestee is likely to want to
confess if it means a rest from 8 hours a day of relentless questioning.

For a good perspective on how long you can be jailed without conviction in
Japan, read Jake Adelstein's piece on the topic. Note the extensions
possible by the police coming up with new charges:

http://bit.ly/2zzFZc3

Once the prosecutors are done, the courts are the next hurdle. Generally
prosecutors will not handle a case unless they are pretty sure that they
can get a conviction, so the receiving judge on his/her side will generally
be very supportive of prosecutor evidence, as it is a given that there
wouldn't be a case being presented at all unless it was air tight.
Furthermore, the Japanese judicial system doesn't like messy endings, and
prefers to have cases nicely pre-packaged and non-controversial. Even
better is when there is a repentant accused (person) at the dock, accepting
his/her punishment with grace and humility. So there is unlikely to be a
sympathetic judge since Ghosn the fighter is unlikely to go quietly.

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[...Article continues]

Instead, one of the biggest challenges for Ghosn and his lawyers will be
that the laws in this case are sufficiently broad and vague that they can
easily be interpreted to the prosecutor's advantage. How? By showing that
Ghosn had INTENT to breach the FEIA and Companies (and other) Acts, even if
what is being regarded as evidence wouldn't hold up in a foreign court. See
later the ICLG.com business laws comparison website for Japan, to see that
both Ghosn and his lieutenant, Greg Kelly, can be pinned for a panoply of
charges. Since ignorance of the law is not a defense, and with Kelly
claiming he had local legal advice, it would appear that this will come
down to being a case of two foreigners pushing the envelope and getting
caught on the grey zones. In fact, this is how the Japanese legal system
works - permitting grey zone activity by business people until it's time
for the bureaucracy to make a strategic strike. In particular, Kelly's
creative movement of money and obligations (e.g., the Dutch front company
used to buy the offshore real estate for Ghosn) will be seen as  sufficient
intent. Ghosn as the beneficiary will automatically be found to be a
co-conspirator.

2. That said, the charges appear to be flimsy

It's been interesting to see the Japanese weekly press and the Nikkei being
fed insider information on the case, which to us reeks of political
motivation. Even if Ghosn is released without charge, the media coverage
and speculation in the interim will have been extremely damaging to Ghosn's
reputation. It is unlikely that he will ever again be able to seek a paid
position in Japan or with a Japanese company. He still has his Renault job,
but even this will be in doubt after the legal action takes place. In this
respect, if someone at Nissan or in the Japanese government was plotting to
inflict maximum personal damage on Ghosn (we're not saying we know this to
be true), they will have been successful. Why target him  in the first
place? Well, the Japanese weekly media have been a-buzz about the case and
have suggested that resurgent in-house hubris at Nissan, coupled with a
legitimate fear of French government interference, have prompted a palace
coup. In that event, Ghosn is just collateral damage.

For all the leaks and innuendo's, though, we have yet to see any
accusations of suitable substance to warrant such rough handling of this
high-profile international businessman. So far there appear to be three
major charges being discussed in the Nikkei (as a paper of noted authority,
we are assuming that they are focusing on the meaningful charges), and to
our minds all seem rather weak.

The first is that Ghosn was doing some FX transactions in 2008 that went
bad, and somehow put them back on Nissan to pay. OK, maybe he did this and
maybe not, but either way the statute of limitations for commercial fraud
is 5 years, and for tax fraud is 7 years (up to just under 9 years if you
work the start-end months right), and neither of these brings us to 2018.
So if that is the case, even if he had committed such an offense, is this
the best that the legal leakers can provide to the press? To us, it seems
like what is being published is just the most salacious content, and
certainly not what will get Ghosn convicted.

The second substantial charge appears to be whether or not he was
contracted to receive a huge payout over the next few years, and if
contracted why this was not declared to the shareholders, the securities
authorities, and the Tax Office. In Japan, all phased beneficial
income-producing transactions are levied at the first date of payment (or
in this case of apparent corporate fraud, to the first date of promise of
payment). The leakers say that there are secret contracts committing these
sums from Nissan to Ghosn, but apparently Ghosn's legal team is arguing
back that a promise to pay Ghosn still cannot be considered a binding
commitment, for the simple reason that it would have to be agreed to by the
Board. And obviously with the current situation, they would never approve
such a payment - which we feel means that the core case by the prosecutors
is no longer relevant. Although obviously the Intent factor is still there.

The third major charge appears to be about the homes and holidays from the
company for Ghosn and family. More about this below.

For a good outline on the application of law in prosecuting business crime
in Japan, read this legal publisher's take on the rules here:

http://bit.ly/2RuiWXp

3. Why no one is pointing a finger at Saikawa and Nissan board?

As a number of commentators have said over the last couple of weeks, how is
it that Ghosn and Kelly are alleged to have pulled off these amazing frauds
and private expenditures without anyone on the board or in senior
management of Nissan noticing? Furthermore, why is it that these same
senior managers, once they realized that their boss was going overboard,
didn't say something about it to Ghosn or other senior team members. None
of these charges are new - some allegedly have been going on for 10-12
years.

4. No worse than thousands of other CEOs.

Then there are the alleged extravagant holidays, costing (shock, horror),
more than JPY10m. Ummm, excuse me, but this is about the same as two days
operating cost of the private jet Ghosn was on, and we don't hear anyone
(yet) saying that this was an extravagance that should be punished.
Furthermore, every CEO in Japan knows that it's acceptable to the Tax
office to do some business while on holiday in order to write off a good
chunk of the holiday expenses. In other words, this kind of behavior is
baked into the system. Yes, it is grey. Yes, it is probably indictable.
Yes, it should change. But there are probably 3,000+ public company CEOs
who are guilty of the same thing, and it will take years of corporate
governance crackdowns to change this behavior.

In other words, what Ghosn was doing (or not doing) has not been at all
unusual for larger-than-life mover-and-shaker CEOs in Japanese industry. A
private home in Beirut? So what? If the expense is approved and the asset
remains under ownership of the company, whatever incentive is considered
sufficient to keep a world-class CEO or Chairman at work is probably a good
investment. And once Ghosn moves on, they could always sell it again. We
haven't heard any allegations that there was a plan to let Ghosn buy any of
these residences for JPY1 (although apparently he was thinking about buying
them to remove the audit objection). If there was a super-cheap buy-back
plan, then, yes, that would be a pretty serious issue - but even then, only
if the board hadn't approved such a buy-out as compensation and declared
it. Indeed, it's hard to imagine that Ghosn or Kelly would have stooped to
such a primitive level of corporate fraud. Rather, what we've heard in the
press so far is that they were careful to get outside legal advice.

5. Another poorly handled incident which is scaring away international
business?

If Ghosn's current predicament is part of a larger strategic action by
Japanese government circles (media rumors have included everyone from the
Cabinet Office to METI as being behind this) in collaboration with CEO
Saikawa, so as to prise Nissan away from potentially disastrous influence
from the French government, then there are several outcomes likely.

a) One outcome may be that the French government trades Ghosn's personal
freedom for a weakened say in how Nissan is run. In particular, Renault has
43.4% voting shares in Nissan and these may be permitted to be partially or
fully revoked. If so, Ghosn will be released, returning to France to run
Renault, and it's unlikely he will step foot in Japan again. If this was to
happen, we wouldn't be surprised that Ghosn once back in France would sue
Nissan there (or the USA or UK) for unfair dismissal. This could be quite
lucrative for him, as Mr. Woodford, the former CEO of Olympus found out.
Woodford reportedly received about US$10m for his troubles. We think Ghosn
should be able to ask for triple that amount. Doing so would also offer
some measure of vindication.

b) The humiliating treatment of Ghosn at Haneda airport, despite his making
such a major contribution to the rescue of Nissan and the Japanese economy
itself, will be a keen reminder to foreign business people that once you're
on Japanese soil, you become part of a feudal society that likes to punish
first then seek the truth later (the whole purpose of the 23 days of
detention is to seize evidence while the suspect is incapacitated in jail).
As many others have commented, the police actions taken so far appear to
have the acquiescence of not outright support from the Abe government,
making the affair seem more like the legal workings of a developing country
rather than a first world power. It's really very disappointing.

c) Then there is the fall-out in regards to foreign business and investment
in Japan. The message being sent here is that if you are in an
international corporation, and what might be legal in your own country and
which is a grey zone matter in Japan, you will probably be exposed to the
whim of some unhappy senior official (public or private) in Tokyo, and you
could wind up in jail in the normal course of business. We once served on
the board of a public Japanese company here, but now in light of what has
happened with Ghosn, we'd be reluctant as non-Japanese to seek another
similar high-profile post. The fall-out is that foreign investors are going
to have yet one more reason to  bypass Japan, rather than be strong-armed
later into relinquishing fairly won spoils. This case of shaming a
well-paid foreign CEO reminds us very much of the firings of senior
employees at Shinsei Bank some years ago. The result will be that next time
Japan needs a foreign-led Nissan-style rescue (e.g., JAL, Sharp, and
others) whomever steps forward will demand a punishing risk premium in
return.

d) Lastly, this case seems to be yet another nail in the coffin as far as
senior international executives relocating to Japan. The first nail was the
decision by the Tax Office to apply Japanese inheritance law to foreign
executives after they have become resident in Japan, even though they may
only be in Japan for a few years. It's hard to plan your time of death, and
few well-off senior executives would want the risk of losing 50% of their
estate to a government that offers such an unfriendly regulatory regime. HK
and Singapore look so much more attractive.


...The information janitors/

***------------------------****-------------------------***

+++ NEWS

- Foreign trainee system still has deep flaws
- Tit for tat on Korean wartime labor dispute
- Cool new pop-up offices from JR
- WeChat Wallet soon to be usable on Line Pay terminals
- Update on Japan's vege factories


=> Foreign trainee system still has deep flaws

Even as the government is preparing to ramp up the number of foreign
"trainees" in Japan, the system is still throwing up incredible cases of
blatant violation of human rights. Wasn't there a new oversight system put
in place already? Seems like it's not working. This article from the Asahi
covers the case of a 32-year old female Vietnamese trainee who was given
the option by her employer of either returning to Vietnam and losing her
job, or having an abortion for an unexpected pregnancy...! The choice was
given to her by a supervisor at the paper company she has been working at.
To be fair to the supervisor, all trainees apparently have to sign a letter
of consent that requires them to not have a romantic relationship with the
opposite sex, presumably to keep them at peak factory-working performance
for the whole 3 years they are in Japan. ***Ed: But surely this is a
violation of basic human rights? What is a government-authorized
pre-internship facility thinking, having trainees sign such a document?**
(Source: TT commentary from asahi.com, Dec 2, 2018)

http://bit.ly/2KNdAnh

=> Tit for tat on Korean wartime labor dispute

Although Japan as a nation financially settled its wartime grievances with
South Korea in the 1950's and 1960's, the responsibility of its largest
corporations was never really resolved amicably, and long-running lawsuits
in South Korea have been the result. Now the South Korean Supreme Court has
decided that Japanese companies who used wartime labor are morally and
legally due to compensate South Koreans drafted by them to work in
factories, mines, and paddies. The court ruling there means that Japanese
firms in South Korea are now at risk of having assets confiscated. In
response, some bright spark in Tokyo has suggested to the media that the
Japanese government would engage in a tit-for-tat measure by making similar
confiscations here against South Korean companies here in Japan. ***Ed:
Hopefully we never see these two nations get locked into an asinine battle
over this. Japan has clearly shown in the Ghosn incident that its laws
apply fully to anyone here in Japan. It would be a double standard for them
to not accept South Korea's court decision for business over there. At
least the Koreans went to the trouble of fighting the case all the way up
to the Supreme Court. Japan should be prepared to do the same - thus
ensuring a 20-year hiatus before the issue really becomes serious.**
(Source: TT commentary from japantimes.co.jp, Dec 1, 2018)

http://bit.ly/2Pg1JyW

=> Cool new pop-up offices from JR

Very interesting to see JR pushing the envelope on what they can do with
their prime-time real estate. An experiment in Shinagawa station has JR
building 1-person phone-box-like business spaces, for computer use or other
activities. The new "offices" are called ekinaka. The four booths at the
station are being trialed for free until February, and so far over 3,000
people have registered to use them. Clearly, there will be a waiting
line...! JR has also built similar booths at Shinjuku and Tokyo stations,
and is eyeing further locations. Tokyo Metro also has similar booths
installed at Tameike-Sanno, Kasai and Kita-Senju stations. ***Ed: We would
not be surprised to see these booths pop up all over Tokyo, even outside
the stations, allowing people somewhere to spend the night (upright) while
waiting for the first train in the morning - from whence they can go to a
train station booth for a day-time stay.** (Source: TT commentary from
the-japan-news.com, Nov 30, 2018)

http://bit.ly/2U99L0c

=> WeChat Wallet soon to be usable on Line Pay terminals

In what will be a huge strategic advantage for both companies, China’s
WeChat payment system is now set to be usable over Line's Pay terminals in
Japanese stores. This means that Chinese tourists who already use cashless
payments extensively back home, can travel Japan with ease and avoid
investing in yen notes. The tie-up is reportedly in response to Alipay,
WeChat's main social media competitor in China, tying up with Yahoo Japan
for a similar payment alliance. ***Ed: Our understanding is that WeChat is
growing much faster than AliPay, and will probably overtake AliPay in the
next year or so. In which case, Line will have made a valuable strategic
decision to move ahead with WeChat and Tencent.** (Source: TT commentary
from techcrunch.com, Nov 26, 2018)

https://tcrn.ch/2Uart3a

=> Update on Japan's vege factories

Something notable in Japan over the last 5 years is how the growing
instability of summer weather has been having less impact on the supply of
fresh veges than it used to. This is so true for root veges and tomatoes
yet, but for green leafy veges, the variety and reliability is really quite
impressive - especially high-potency sprouts. This report from the Nikkei
gives an update on the vegetable factory phenomenon sweeping Japan. It
particularly notes that Seven-Eleven Japan will be supplying all 2,000 of
its stores in Kanagawa and Tokyo with 3 tons daily of factory-grown lettuce
from its Sagamihara facility. In Ishikawa-ken, there is another
Seven-Eleven-related factory supplying the convenience store chain in the
Kansai, which produces 2 tons of lettuce daily. ***Ed: Sprouts are one of
nature's best functional foods. Interesting to see the huge growth in
demand for kaiware, broccoli, mustard, and other sprouts, delivered to the
consumer, all still growing in the base medium and thus incredibly fresh.**
(Source: TT commentary from asia.nikkei.com, Nov 29, 2018)

https://s.nikkei.com/2QuFzO8


NOTE: Broken links
Some online news sources remove their articles after just a few days of
posting them, thus breaking our links -- we apologize for the inconvenience.

***------------------------****-------------------------***

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***------------------------****-------------------------***

+++ CORRECTIONS/FEEDBACK

=> No corrections or feedback this week.

***------------------------****-------------------------***

+++ TRAVEL DESTINATIONS PICKS

=> Senso-ji Hagoita-Ichi Fair, Tokyo
Asakusa's traditional fair of good luck charms

Tokyo's oldest temple, Senso-ji in Asakusa, is holding an annual three-day
fair called Hagoita-Ichi, to sell good luck ornamental bats (called hagoita
in Japanese). Dating back to Edo times the festival takes place in front of
Sensoji. From December 17th to 19th, 9:00am to 9:00pm, 50 open-air stalls
will be set up near the main hall of the temple.

Hagoita are ornamental rectangular bats with a handle, modeled on those
used in the traditional New Year's game of hanetsuki, a sport quite similar
to badminton. The hagoita is usually made of Japanese cedar, decorated on
one side with lacquered or embroidered images. The good luck bats are
traditionally decorated with images of kabuki actors, but actually these
days you can find them decorated with cartoon characters, or sports, cinema
and TV stars. It is common practice for both sellers and buyers to clap
their hand together when a sale is completed.

http://bit.ly/2FW8HK9

=> Tomita Ramen in Matsudo, Chiba
Most consistently highest-ranked ramen shop in Japan

Tomita Ramen is arguably one of the top ramen shops across Japan. Don't
take my word for it either — at the time of writing it proudly sits at the
top of the Ramen Database with an average 99.22 score in Number 1 spot,
twice winner of the Grand Tsukemen Festival, several times winner of Tokyo
Ramen of the Year and countless other magazine/industry awards. Once you're
seated at Tomita Ramen, located just a few blocks from Matsudo station, two
main dishes will be competing for your attention: chuka soba and tsukesoba.
I opted for tsukesoba, their version of tsukemen dipping noodles, purely on
the basis of recommendations and the buzz surrounding this dish. It did not
disappoint. You can opt for different quantities of noodles and also meat
toppings (the epic tokusei version): a mixture of perfectly grilled, tataki
and raw, all of which come together in perfect combination.

The ingredients hidden beneath the surface of the thick, richly flavored
tonkotsu-gyokai dipping broth, including char siu and bamboo shoots, were
delightful, and combined perfectly with the thick, chewy noodles – made
fresh on site each morning. It's always challenging getting through a huge
bowl of tsukemen but once you run out of noodles, the soup provided
afterwards is a great follow-up and balances out the experience perfectly.

Combining ramen-yu stock (used to cook the noodles) with your remaining
dipping broth, this soup can be customized to taste with extra chopped yuzu
peel, char siu and/or onion, all available free of charge in any
combination. The soup itself uses a gyoukai/seafood base using niboshi
sardines produced in Setouchi.

http://bit.ly/2RoPAJD


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+++ ABOUT US

STAFF
Written by: Terrie Lloyd (terrie.lloyd at japaninc.com)

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