Adonis Diaries

“Carlos Ghosn: Citoyen du Monde” by Philippe Ries; (Reviewed on September 27, 2006)

We are going to have a quick overview of the professional path of Carlos Ghosn, his upbringing, which is similar to thousands of Lebanese,  his professional training at Michelin, and then focus on the problems and solutions of the institutions he handled to guide them into profitability, especially Nissan.

Of Lebanese descent, Carlos was born in Brazil and repatriated to Lebanon at the age of 6, after a serious gastric sickness that he contracted at age two which prompted his Lebanese mother to settle in a more clement weather.  (I was also repatriated to Lebanon from Mali at age 6).

He lived his youth in Beirut with his mother and older sister, and finished his secondary education in the Jesuit institution of Notre Dame Jamhour.  He transferred to Paris where he did higher math studies and joined the Polytechnic School and continued at the engineering University of Mines with high distinctions.

He lived in a very limited perimeter for 7 years around these Universities and most of his courses were highly abstract concepts in mathematics.  Carlos mentioned that when he took a course in economics his professor defined rent as a triple integral function and then focused on the mathematical processes.

The French pneumatic manufacturer Michelin hired him because he was from Brazil and had plans to bolster its faltering businesses there.  Carlos rose quickly in the hierarchy and was promoted director of a new factory at the age of 27, then was dispatched to Brazil where inflation was rampant and managed to turn the Michelin branch in South America around to profitability within 3 years.

Carlos was transferred to the USA and did an excellent job restructuring the merger with the faltering pneumatic company Uniroyal-Goodrich.  By the time he left to join the car manufacturer Renault, the multinational Michelin was doing 60% of its profit from the USA branch.

Carlos was 41 years old when he decided on his second major move; chiefly because, as Michelin is primarily a family business, he was not ever to become the number one man and no further promotion to be expected.

He was working for 3 years at Renault when it acquired 36% of the Japanese car manufacturer Nissan.  Nissan was a multinational company and was experiencing certain death after years of losses. Carlos was dispatched to Japan to take the helm of the board of directors of Nissan. And he was successful within 3 years, and Nissan was back into profitability without any dept.

Carlos Ghosn is expected to take over Renault in 2005 when Louis Schweitzer goes to retirement.

What struck me in the first part of Carlos’ autobiography is the parallel in the genesis of Carlos Ghosn life with thousands of Lebanese, and particularly mine.

The grandfather of Carlos, Bichara , was from Kesrouan and a Maronite who immigrated to Brazil because of the famine when he was 13 years of age.  Bechara was penniless and illiterate and left from the port of Beirut during the Ottoman Empire, thus a ‘Turco’.  The trip lasted 3 months and ended in Rio de Janeiro. Bichara traveled to the region of Guapore with Capital Porto Velho, in the Amazon and close to Bolivia. Bechara died at the age of 53 from a minor surgery after establishing 3 industries: commerce in cereals, rubber and airline travel and begetting 4 boys and 4 girls.

Ghosn’s father Jorge took over the airline business and visited Lebanon where he married Rose nicknamed Zetta who studied at the French school of Besancon and whose father worked in Nigeria.

Carlos suffered a gastric illness and was taken to Rio and then shipped to Beirut with his mother at the age of six in 1960 where the climate was fairer and the water cleaner.

Jorge visited his family one summer every two years. Carlos did his primary and secondary education at a Jesuit institution called Notre Dame of Jamhour. Carlos was multilingual, Portuguese, Arabic, French, English, and lately some Japanese.  He struggled continuously with his primary language as he moved around and settled for a while in a country.

Carlos had passion for history and geography and secondly literature.

In 1971, Carlos finished his secondary schooling and had no definite specialty in mind.  He left to Paris to continue his higher education.  At the instigation of one of his teacher, Carlos was directed to study higher math and he enrolled in the college of Polytechnique and on to the University of Mines.

During Lebanon civil war that started in 1975, Carlos’ mother and sister in Lebanon traveled to Paris and then continued to Brazil where they settled with his father.

When Carlos, at the age of 27, was assigned as director of operations for the Michelin businesses in Brazil he decided to marry Rita, a 20 years old Lebanese student in pharmacy in Lyon.  They have 3 daughters and one son.

It is necessary to dwell on the training program in Michelin that enriched Carlos and offered him the opportunities to learn the management and financial skills and progress.

It is his formation at Michelin that provided Carlos with a wide spectrum for tackling general and particular problems in faltering enterprises.  Michelin hired Carlos in 1978 and he travels to Clermont Ferrand.

In the first 3 months, the new recruits for all types of functions follow the same program consisting of conferences given by the main directors on the different aspects of the business and backed up by small real operational problems to find simple solutions for them.  The new recruits live together and they learn to go through the transition between a student life and the active one.  This training program also offers management a profile of the new recruits and their potentials in different sectors of the business.

At the end of the training period, Carlos is affected to work for another 3 months in a factory preparing the rubber that will be turned into tires.  His work consists of cutting the rubber, rolling it up, inserting it into moulds and then transporting it, but the best part is the fraternity that is created among the workers and the future bosses.

Carlos is promoted foreman for a group of workers in a new factory at Puy-en-Velay.  Six months later he is dispatched to Karlsruhe, Germany, to get training on quality control, then training in industrial organization at the factory in Tours.  He is promoted group chief of production for a whole year at the factory in Cholet.

In 1981, Carlos is 27 years old and director of the new factory where he worked as foreman and will stay 2 years and three months.

Carlos is summoned to headquarter to meet with the ‘Boss’ Francois Michelin; the Boss assigns him the task of investigating the troubles of the straggling affiliate Kleber-Colombes.  Carlos works with the director of finance Behrouz Chahid-Nourai and discover the concept of “cross manufacturing” for utilizing the same tools of production for several products under different brands.

After offering his recommendations to revitalize Kleber-Colombes he is affected to the research department for a year, the job that Michelin initially contemplated that he might fit better in the company.

In June 1985 Carlos is promoted director of operations in Brazil.

In February 1989, Carlos takes over the operations in the USA and settles in Greenville South Carolina.

This training formation at Michelin is at the foundation of Carlos concept of forming leaders in any enterprise.

The primary task of the ‘Boss’ of any institution is to send everyone with potential to the hot fronts on the fields (terrains) where difficulties are observed and then offer them chances to fail sometimes.

It is by providing opportunities to learn and prove leadership that the ‘Boss’ can insure the survival of his enterprise when he decides to retire. The leaders of tomorrow are formed from the challenges of today and the clever ‘Boss’ should end up with a wide choice of alternative leaders when the time to retire is near.

When a general director is hired he had to assume and embrace the responsibilities of the past, present, and future status of the enterprise; he is not allowed to dwell on excuses from past failures as if they were not of his doing.

A general director has to first gather all the current facts and information on the institution and base his theory on this intelligence. The boss has to feel the enterprise and the clients by frequent visit to the different sections of the business and proffer the same message everywhere; the boss does not have to comprehend in depth every facet of the business, that is the job of the specialists whose task is to adequately summarize the topic so that the boss is in apposition to take decisions.

The boss should not forget for a moment that the crux of the mater is to produce quality products and be able to sell them, otherwise, if diversification into other businesses is undertaken without close supervision to the core business then the enterprise will suffer ultimately.

This section will focus on the professional aspects of Carlos when he was selected to head the operations of reviving Nissan from certain death in 1999.

Carlos brought with him a total of 30 French specialists in Renault in a period of three months to support his job; the understanding was that they are not there to change the culture of the Japanese employees but with the objective of turning Nissan around to profitability. For 3 months Carlos set up nine “transversal or cross-operational teams“, each headed by two members of the executive committee which was reduced to ten, with the task of understanding each other departmental problems.

He visited all the factories and suppliers to get a feel of the major problems and to get to the bottom of the illnesses of Nissan. During these months he encouraged and was open to interviews by the Medias in order to promote the concept of transparency that will be adopted in reviving Nissan and also to encourage communications inside the institution and disseminate the steps to be taken and the expected changes that will follow.

In October 18, 1999 Carlos divulged his plan of rebirth NRP to an assembly of journalists; it was a surprise announcement and no one outside the members of the executive committee new about the announcement; even the Japanese government got wind an hour prior to the announcement.  Nissan had 6.6% of the world market in 1991 and dropped to 4.9% in 1999 or a reduction in production of 600,000 cars; it had been losing money for seven consecutive years and was heavily indebted of $19.4 billion.

Carlos promised that Nissan will introduce 22 new models within three years and that the objective is to reduce the cost of procurement to 20% within three years since it represents 60% of the total cost, the number of suppliers of pieces and materials to almost half from 1145 to 600 suppliers and the suppliers of equipment and services from 6900 to 3400 by 2002.

Nissan had the capacity of producing 2.4 million cars but actually produced 1.3 million; thus 4 factories would be closed by 2001 and another one by 2002 so that the rate of utilization of the remaining factories would be up to 82% taking into account a growth of 5.5% by 2002.

Nissan will end up with 4 factories utilizing only 12 plate-forms. Nissan will have to reduce by 20% the number in its network of distribution subsidiaries and close 10% in its points of sales.

Most important, Nissan will sell its shares in almost 1400 societies that do not strategically contribute to car manufacturing business.  The number of employees would be reduced 14% to 127,000 by the year 2002, with the exception of the department of research and development which will gain 500 additional jobs and the engineering department another two thousands.

Three targets were set to be accomplished by 2002, otherwise, Carlos and all his executive committee will leave even if one of these targets is not attained:

1. return to profitability,

2. a rate of operational margin exceeding 4.5%, and

3. the reduction of the total debt to 50%.

These targets were reached and in 2002 the syndicate at Nissan obtained all their demands which were reasonable while the number one Toyota froze salaries. Many in Nissan are now exercising their rights for stock options and the minimal number of stocks was reduced to 100 instead of one thousand.

The team of Carlos Ghosn elaborated a 3-years plan called Nissan 180, where 1 represent an additional one million cars produced, 8 for an operational margin of eight percent growth, and 0 for zero debt by the end of the triennial.  As Carlos explained: “If an enterprise does not develop middle and long term plans then the financial analysts will have nothing to rely on but the near term results”.

By the year 2003, 80% of Nissan’s cars would emit only 25% on the regulatory limit on pollutants.  An agreement with its archenemy Toyota was signed in September 2002; Toyota would provide Nissan 100,000 hybrid engines vehicles to be marketed in the USA by the year 2006. A hybrid engine works in the classical manner on highways and electrically within city routes.

In November 2000, six months after the announcement of the NRP plan, Carlos decided to invest $ one billion in the USA for the construction of a new plant in Canton in the State of Mississippi; this new plant will target the segment of large pick-ups and SUV in the Middle West market where the American companies have it locked.

This investment secures a stronger implantation in the most profitable market in the world because it has the best mix and a homogeneous market for advertisement and distribution and selling 16 million vehicles a year; it will also save on the tax barriers and monetary exchanges.  Nissan already have a successful plant in Smirna for the exclusive Altima mark for the USA market.

Another development is the investment in China, a new emergent market with the biggest potential given the saturation of the matured developed nations.  Nissan concluded a deal to invest more than $ one billion to acquire 50% of Dongfeng, a Chinese state owned enterprise that manufactures buses and heavy trucks. By the year 2010, this joint venture is projecting to produce 450,000 Nissan cars and 450,000 heavy vehicles.  The Chinese government gave priority to Nissan because of the bold steps it has taken to get back to profitability and of its experience with multicultural and global management practices.

Although the initial intention was to revive Nissan into profitability some cultural changes within Japanese business behavior had to occur. For example, Nissan had an organization of assigning counselors to each field teams with no definite operational functions and not responsible to results; these counselors were originally dispatched to foreign countries to disseminate the Japanese practices but were of no use anymore; these counselors ended up diluting the responsibilities of the field directors; they  had to go.

Another Japanese practice was to promote employees according to seniority as well as increase in salaries without any regard to productivity or innovation; Carlos instituted the notion of result instead of effort in judging what is fair.  The consequences for that notion of result did away with the practice of working overtime and spending unduly longer time at the offices, even showing to work on holidays. The doing away with the seniority criterion for automatic promotion meant that new recruits could be hired at higher and competitive salaries.

The cost of incentives represented the variable portion in the total cost which was 40% at Nissan. Employees will thus be judged according to their contributions and incentives given to those who satisfy quantitative criteria. Another practice is hiring for life. During the recession in the 90’s, many Japanese companies concocted many gimmicks to in reality fire employees while providing the image of still belonging to the firm; for examples, many were assigned to concessionaires and suppliers who paid their salaries. Fourteen percent of employees will lose their jobs and many of these fictitious employees repatriated to Nissan.

In the automotive business the question for the future is: can it afford a competitive offer and the capacity to maintain it? The end game reduces to maintaining innovation in a complex market, where emotions of clients for a stylistic car play a critical part and at a competitive price. Right now, after all the mergers in the last decades, there are 6 big manufacturers that hold 66% of the world market and the first ten about 90%.

The biggest is General Motors with 7.5 million vehicles, then Ford, then Toyota, then the fourth Renault-Nissan with 5 million and fifth Daimler-Chrysler with 4.35 million, then Volkswagen.

The team detached from Renault to Nissan played the role of catalyst because the real resource of Japan as the second economy in the world is its professional and skilled people.  Japan has no natural resources, a relatively tiny island, ravaged by earthquakes and typhoons and facing strong adversaries. Japan has the third of the world monetary reserves although it has now a public debt up to 150% of its PIB.

It is apparent that the Japanese companies have not assimilated the Nissan experience because they are still suffering from indecision and indebtedness; the “Cost Killer” Carlos believes that the problem is a lack of know-how and experience to treating their own managerial problems that did not change for over 40 years.