TT-972 -- The Carlos Ghosn Affair - Fall-out for International Business in Japan, e-biz News from Japan

* * * * * * * * * 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. 972

- 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@japaninc.com)

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