Building Cross-Cultural Leadership Competence

An Interview With Carlos Ghosn

GÜNTER K. STAHL Vienna University of Economics and Business, and INSEAD

MARY YOKO BRANNEN Peter B. Gustavson School of Business, University of Victoria, and INSEAD

Carlos Ghosn is chairman and chief executive of- ficer of the Renault-Nissan Alliance, and he holds the same roles at both Renault and Nissan. Born in Brazil to Lebanese parents in 1954, Ghosn moved to Beirut when he was 6 years old, and he completed his primary education at a Jesuit school. He then earned engineering degrees from two of the most highly esteemed schools of higher education in France—École Polytechnique and the École des Mines de Paris, both noted for their highly selec- tive entrance exams. He holds French, Brazilian, and Lebanese citizenships. Building Cross-Cultural Leadership Competence

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Ghosn’s first job was at Michelin, Europe’s larg- est tire maker, where he worked for 18 years. He started in manufacturing and was rapidly pro- moted at 27 years old to plant manager in Le Puy, France, where he started honing his leadership skills. Industrial Scion François Michelin later asked him to turn around Michelin’s ailing South American division, naming Ghosn chief operating officer during Brazil’s inflationary economic crisis. After restoring the South American operations into

one of the company’s most successful divisions, Ghosn became the head of Michelin’s North Amer- ican unit and supervised a restructuring after the acquisition of American Uniroyal/Goodrich Tire Company. His skill in transforming troubled busi- nesses caught the attention of Louis Schweitzer, president of Renault, who asked Ghosn to become his second in command in 1996. When Renault acquired a large stake in Nissan in 1999, Schweitzer asked Ghosn to turn around the nearly bankrupt Japanese automaker. Building Cross-Cultural Leadership Competence

His radical restructuring that returned Nissan to profitability earned Ghosn the nicknames “le cost killer” and “Mr. Fix It,” as well as Asia’s CEO of the Year Award (2001) from Fortune Magazine. The Renault-Nissan Alliance, a unique business plat- form in which each company helps the other and has mutual cross-shareholdings, is now the lon- gest surviving cross-cultural combination among major automakers. It has become the world’s third largest car group, after General Motors and Volks- wagen. The Alliance is responsible for more than one in 10 cars sold worldwide.

Ghosn is the recipient of Automotive News’ 2000 Industry Leader of the Year Award, the Strategic Management Society Lifetime Achievement Award (2012), and the INSEAD Transcultural Leadership Award (2008), which honors “an individual who exemplifies the importance and necessity of work- ing across borders.” Ghosn travels extensively and splits his time mainly between Paris and Tokyo. He also frequently visits his companies’ major mar- Building Cross-Cultural Leadership Competence

We would like to thank Associate Editor Carolyn Egri and three anonymous reviewers for their valuable comments on earlier versions of this article. We also would like to thank Carlos Ghosn, Chairman and Chief Executive Officer of Renault and Nissan, for providing us with this generous interview opportu- nity, as well as Frédérique Le Greves, CEO Chief of Staff, Anja Wernersbach, Assistant to Chairman and CEO, and Masaaki Nishizawa, Head of Marketing and Sales Japan, Nissan, Motor Co. for their support. Final thanks go to Allan Bird, Mansour Javidan, and Martha Maznevski who provided thoughtful and enriching commentaries on our interview.

� Academy of Management Learning & Education, 2013, Vol. 12, No. 3, 494–502. http://dx.doi.org/10.5465/amle.2012.0246 Building Cross-Cultural Leadership Competence

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kets, including emerging economies of Brazil, Rus- sia, India, and China.

On June 14, 2012, Carlos Ghosn talked with Pro- fessors Mary Yoko Brannen and Günter K. Stahl about challenges in managing across borders, his multicultural background, the mind-set and skill sets that managers require to create cultural syn- ergies, and how global corporations can utilize their cultural diversity to build cross-cultural com- petence in individuals and teams. Following the interview, three leading cross-cultural manage- ment scholars and educators were invited to com- ment on selected issues and to place the interview in the context of existing research. These are Allan Bird, Darla and Frederick Brodsky Trustee Profes- sor in Global Business, D’Amore-McKim School of Business, Northeastern University; Mansour Javi- dan, Garvin Distinguished Professor and founding director of the Najafi Global Mindset Institute, Thunderbird School of Global Management; and Martha Maznevski, professor of organizational be- havior and international management and MBA program director at IMD. Building Cross-Cultural Leadership Competence

LEVERAGING CULTURAL DIVERSITY: CROSS-CULTURAL DIFFERENCES AS A SOURCE OF SYNERGY, LEARNING, AND INNOVATION

Mr. Ghosn, you have been touted as a “leader without borders,” the “quintessential global executive,” and “multiculturalism’s poster boy”— and have even inspired a manga comic book in Japan, where your efforts to turn around and transform Nissan made you a Japanese hero. From your extensive experiences in managing across borders, how important is cross-cultural management education for global corporations such as Renault and Nissan today?

It is critical. More and more, managers are dealing with different cultures. Companies are going global, and teams are spread across the globe. If you’re head of engineering, you have to deal with divisions in Vietnam, India, China, or Russia, and you have to work across cultures. You have to know how to motivate people who speak different languages, who have different cultural contexts, who have different sensitivities and habits. You have to get prepared to deal with teams who are multicultural, to work with people who do not all think the same way as you do.

You have also talked about cultural differences as being a source of cultural synergies, as opposed to the general concern that they present barriers and impediments to doing business. In fact, in many teaching cases and anecdotal reports about the Nissan turnaround in the wake of the Renault-Nissan alliance, there have been examples of such synergistic outcomes. How do such synergies actually come about and, specifically, what kinds of cross-cultural skill sets do you look for in people that help foster these synergies in real life? Can you provide an example from the Renault-Nissan alliance? Building Cross-Cultural Leadership Competence

I can give you many examples. A very prominent example is around the concept Japanese refer to as “monozukuri.”

[Note from the interviewers: Monozukuri literally means “making things.” However, rather than fo- cusing on the operational aspects of making things, the phrase embodies the concept of the spirit that energizes individuals to produce excel- lent products and continually improve them. Rather than mindless repetition, monozukuri relies on creativity and perseverance earned through lengthy apprenticeship practice rather than the structured course curricula taught at traditional schools. In that sense, monozukuri is art rather than science.]

We all know that monozukuri is a core compe- tence of Japan. And it’s embedded in the culture of Japan about how to work together coming from different functions for a specific objective. You have purchasing people working with engineer- ing, working with logistics, working with manufac- turing in order to get this car out of the door of the plant at the best quality and lowest cost possible. It’s not optimization by function; it’s an optimiza- tion as a whole by people coming together and, often in a disorganized manner, coming to a good conclusion. This is one area where culturally Nis-

You have to know how to motivate people who speak different languages, who have different cultural contexts, who have different sensitivities and habits. You have to get prepared to deal with teams who are multicultural, to work with people who do not all think the same way as you do. Building Cross-Cultural Leadership Competence

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san and Renault are completely different. Obvi- ously, we as French absolutely do not have this culture. The synergies in this example are created by the fact that Renault, by trying to learn from a different culture, can advance a lot in terms of monozukuri. It translates into better quality and lower cost for the product by just having a com- pletely different approach. This is for me a great example of how cultural differences and having completely different approaches to the same prob- lem create synergies. In this case, Renault employ- ees are learning something that they could not have done by themselves, by just going and sitting down with monozukuri teams, by learning the pro- cesses of Nissan and implementing them in the Renault way back home.

I could give you lots of other examples where in one national or organizational culture something is a blind spot or weakness and in another culture it’s a strength, and by working together, synergy is created. We all know that the Japanese culture is very strong in engineering, very strong in manu- facturing, very weak in communication, and very weak in finance. The Renault culture generally is very strong in some of the places where the Nissan culture is weak—for example, in finance, in telling the company narrative, and in artistic and emo- tionally evocative advertising and marketing. That’s why I think the Renault-Nissan Alliance works so well—because the cultures are different, yet complementary. Building Cross-Cultural Leadership Competence

Can you elaborate on how these cultural complementarities lead to synergies in the Renault-Nissan alliance?

The Japanese culture is very “sectionalist.” The principle of the “chimneys” that exists in France also exists in Japan, except that it’s called “sec- tions” in Japan. The Japanese are sectionalists; you have it in the Japanese bureaucracy, and we have it at Nissan. But the flip side of this is an incredible strength of community and common purpose— what I call “neighborhood collaboration.”

In Japan, the plant is a sacred place. If the plant manager calls all the functions to come to work around him, to help him optimize the product, they will come. Because there is a sense of community in Japan, there is a sense of collective purpose. It’s a community which has a sense that the car com- ing out of the plant is our car. They are proud of it, they want to come and help the plant manager do the best possible job. This is the essence of mono-

zukuri. The purchasing guys are going to contrib- ute, the engineering guys are going to contribute. They will overcome even the strongest sectional- ism because the one thing even more important than sectionalism is a shared sense of community and purpose. Monozukuri or other Japanese con- cepts, such as nemawashi have become key words of the Alliance. [Note from the interviewers: Nema- washi refers to collective project planning through cross-functional team input, advance communica- tion and consensus; literally, “preparing the roots of a tree for transplant”]. Even Renault people— people in France and those in Brazil, Morocco, and elsewhere—now talk about monozukuri and nema- washi, which they learned from their Japanese col- leagues. So, there are words which used to belong to one culture which now belong to the Alliance. Building Cross-Cultural Leadership Competence

You have given us examples of synergies that result from optimizing the best of both worlds— what the French bring and what the Japanese bring. These kinds of cultural synergies might be said to come about naturally due to economies of scale. Another way to think of synergies is to think of them as economies of scope where there is colearning—something new for both parties arises from working together. Have you seen something like this that has emerged at Renault-Nissan?

Yes, for example the electric car. This is something that neither company could have done by itself— something that came about because the compa- nies are working together. Because we have the scale and we have the complementary skills and resources, we were able to pursue something com- pletely new to both. We have many projects that would have never been realized if each company had tried to do it alone. So, yes, synergy is not only what exists in one company or the other. It is not just about transferring best practices. It’s also about creating together something that neither one could have done alone.

[S]ynergy is not only what exists in one company or the other. It is not just about transferring best practices. It’s also about creating together something that neither one could have done alone.—Ghosn

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COMPETENCIES REQUIRED FOR WORKING ACROSS BORDERS AND MANAGING MULTICULTURAL TEAMS

Let’s dig a little bit deeper into the competencies and the individual-level factors that enable such synergies to arise. You have said that what’s really important now is for managers to be prepared for working in multicultural teams, that they have to understand there are cultural differences and need to be able to not only overcome cultural barriers but to leverage cultural diversity. Could you discuss four or five competencies that you have observed in individuals that enable them to work effectively across cultures, and that companies operating in culturally diverse environments need to develop in their managers?

Working in a multicultural environment necessi- tates from the beginning a kind of thirst for learn- ing. If you don’t have a thirst for learning, if you think you know it all, and your system is the best, and you don’t even try, this is not going to work. That’s the most basic thing—that you want to learn more, develop your skills, broaden your horizon, and that you want to work in a multicultural envi- ronment because you are going to discover new things—about your business and also about your- self. The beauty of being in a multicultural envi- ronment is it eliminates your blind spots. When you are alone, there are parts of things you cannot see. But, if I am with you, you are going to see and tell me things I don’t know and I cannot see. So by working in a bigger group you get wider horizons.

But working within a diverse community is diffi- cult. A sense of humbleness is important. Arro- gance is one of the reasons for which many merg- ers or acquisitions in our industry didn’t work: You generally have one executive or one management team that is very arrogant, thinking that they know everything, and they are going to teach the others what they have to do. It doesn’t work this way. It’s always a “give and take,” and even the company that is weaker or smaller has a lot to teach the stronger company. Building Cross-Cultural Leadership Competence

Let me give you an example from our industry. The American car industry collapsed in 2008 be- cause two car manufacturers went bankrupt and the third one barely escaped. These three compa- nies had joint ventures with Japanese partners. General Motors had a joint venture with Isuzu and Suzuki, Ford had Mazda, and Chrysler worked with Mitsubishi. The CEO of one of these American car

manufacturers told me one day: “I am amazed at how much the Renault-Nissan Alliance is exchang- ing, because we had these joint ventures for so many years but we didn’t learn from them, we didn’t take anything significant back home.” So the collaboration in this case didn’t contribute to effi- ciency or creativity.

Another thing that is extremely important in multicultural environments (it’s important every- where but particularly in a multicultural environ- ment) is what I call common sense. [Note from the interviewers: Mr. Ghosn uses the word “common” innovatively with the implication of building a shared basis for understanding as in a “common ground.”] When you don’t have common sense in a monocultural environment, you can escape. If you are in a multicultural environment you cannot es- cape, because what enables people of different cultures to work together is this common ground, nothing else. Because when you are of the same culture, let’s say Germans together, French to- gether, Japanese together, you can do a lot of things because you already have common ground, having been socialized in the same cultural con- text, so you have a basic understanding of each others’ habits and traditions, and each others’ lan- guage and history. But, when the French are sitting with Japanese, or with Germans, there is no way you are going to make a decision together without establishing common ground rooted in solid facts. Ultimately, this is the only common denominator. This is why I always strive to make decisions based on common sense—business logic and a shared understanding of all sides of the issue tak- ing into consideration everyone’s context, cultures, functions, and so on. The only way to make sound decisions in a multicultural environment is to use facts and common sense.

Are the competencies that you mentioned equally important at all levels of the organization? Building Cross-Cultural Leadership Competence

Everybody has to be a manager of diversity, but especially senior executives because people al- ways look to the top. They look at the top and say, “OK, is he doing what he is saying?” If employees see top management talking about openness and learning—but they see an arrogant person who is closed down—they will not take it seriously. So the top management in a multicultural environment has an important role: They must walk the talk.

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It would seem that you are suggesting that authenticity and role modeling on the part of top managers are critical in creating a culture that values diversity.

Yes, authenticity is critical, particularly at top management level. When Renault people go to Japan to work with Japanese colleagues, that’s not their normal environment. When Japanese people come to work in the Renault Technical Center, that’s not their normal environment. Engineers from France and Japan think differently from each other. Their languages are different, their environ- ments are different. They need some common ref- erence, support, and guidance. They need a frame- work, and this is where top management plays a big role—setting priorities, representing the cul- ture, signaling what to do and what not to do. Building Cross-Cultural Leadership Competence

The ability to find creative and mutually benefi- cial solutions is also important. For instance, we have a rule that we can never make a decision to pursue a project in which one side wins and the other side loses. Never—even if that means that ultimately the project is completed at a slightly slower pace than if we had imposed a top-down decision in which one team had to surrender. Some people don’t understand this. In particular, some outside observers have said, “Come on, you are slowing down the Alliance. There are so many opportunities. You should decide today to make a decision where Renault wins and Nissan loses, and tomorrow you can make a decision where Nis- san wins and Renault loses, and then everything’s going to be okay because, at the end of the day, everybody wins.” But this doesn’t work.

So, in your experience the capability of envisioning a “win–win” scenario for both parties is a critical cross-cultural skill set as well?

Yes. Understanding this issue is fundamental to understanding human nature: People, in the long run, always remember when they lose, and they always forget when they win in a relationship. So if you do the win–lose stuff, after one or two years you have a bunch of people who remember every time they lost. And then the relationship is going to burst.

This philosophy served us well in the Renault- Nissan Alliance. I have always believed that an alliance is about partnership and trust rather than power and domination. People will not give their best effort if they feel that their identities are being threatened. This relates back to what I said earlier if you are not able to establish some common ground, and if you do not believe anything can be learned from your partner, the venture is doomed from the beginning.

Just to review then, the desire to learn, knowing you have blind spots, humbleness, finding common ground, authenticity, and a win–win attitude are key competencies for effective cross- cultural interactions. Have we left anything out? Are there other skill sets that we might develop in managers to help them attain cross-cultural synergies? Building Cross-Cultural Leadership Competence

Perhaps overall, a key quality that you need to possess—or develop, because you often don’t have it from the beginning—is mutual respect. This was a critical success factor in the Renault-Nissan Al- liance. Mutual respect means that you don’t focus on the weaknesses and limitations of your partner. You focus on the strengths. This is basic, but it allows a total change of atmosphere when instead of focusing on the weaknesses of your partner you try to see the partner’s strong points. Only then are you able to learn from your partner.

How do you instill this mind-set in your managers and employees?

It is a continuous battle, and you are never really “finished.” For instance, we have done a good job solidifying relations between Renault and Nissan, but now we are moving to expand our business model to include AvtoVAZ, which is Russia’s larg- est car company and the maker of the Lada brand. Even some of my best managers—ones who were at the beginning of the Renault-Nissan Alliance— need to be reminded about respect and tolerance and win–win relationships. I need to remind them,

The ability to find creative and mutually beneficial solutions is also important. For instance, we have a rule that we can never make a decision to pursue a project in which one side wins and the other side loses. Never—even if that means that ultimately the project is completed at a slightly slower pace than if we had imposed a top-down decision in which one team had to surrender.—Ghosn

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“You can’t impose your beliefs or processes. You need also to learn from the Russian team because they are our partners. We may have a 51% stake, but this is a partnership and we are here to make our partner more competitive—and ultimately that is how we are also going to make Renault and Nissan more competitive.” You constantly have to remind people that we are taking this approach because otherwise the tendency would be similar to a conventional acquisition where people say, “OK, we have 51% stake, we control it, so I want this place on the board, I want to put a controller here, I want to control these processes.” I always remind people that the CEO is Russian, the com- pany is Russian, the brand is Russian. The Rus- sians are in charge. You have to instill this mind- set from the beginning and then constantly reinforce it.

The next question is about distinguishing between what we call “culture-specific” skill sets and “culture-general” skill sets. For example, you yourself have exhibited strong culture-general skill sets in leading the Nissan recovery. From what we understand, you didn’t know that much about Japan at the time of the initial alliance. However, based on your Lebanese–Brazilian cultural origins—both what are known as “high- context” cultures where a great deal of attention is given to tacit and the relational aspects—you were able to leverage your pre-existing cultural knowledge to guide you. That is part of a culture- general skill set. A culture-specific one would be knowledge about Japanese customs and values that you can get from reading books about Japan, making a field trip to Japan, and so on. So, the question is, “Are you aware of the difference between culture-general and culture-specific skill sets?” And do you think they are complementary, or is one more important than the other? Building Cross-Cultural Leadership Competence