TURNAROUND MANAGEMENT
Thierry Moulonguet - Nissan Motor
By Carla Rapoport

The small menu, just 3 by 5 inches, tells more than what's for lunch. "Le Chef M Ohno vous propose ..." it reads. Le Chef Ohno? There's only one spot on earth this meal could be taking place, and that's the executive dining room of Nissan Motor, Japan's second-largest auto maker.

The food - entirely au style français - shows that a small number of French executives are running Nissan and they'll get what they like to eat for lunch. But beyond Chef Ohno is a staff of no less than 133,800 Japanese workers. Together, these two forces have achieved one of the biggest corporate turnarounds anywhere.

Nissan's colorful CEO Carlos Ghosn has attracted a lot of press for his role in the changing fortunes at Nissan. And as an inspiring leader, Ghosn is unassailable. However, the mechanics of this turnaround have been almost entirely driven by the company's finance department. And that department is run by a extremely thin, very tall, very intense French man.

Just three years ago, Thierry Moulonguet was controller of capital expenditure for Renault, the French automaker, in Paris. Along with a few dozen others, he arrived in the blinding heat of a Tokyo summer in 1999, following Renault's decision to sink 600 billion yen (US$4.5 billion) into a 36.8 percent stake in Nissan.

The task couldn't have been tougher. Nissan had reported losses for seven out of the eight previous years and had been leaking market share for two decades. Moulonguet had been to Japan three times in his life, all on short business trips. In less than two years, Nissan's engines were purring - net profits leapt to 331 billion yen (US$2.7 billion) on sales of 6 trillion yen (US$49 billion) for the year ended last March.

This year, despite the much tougher market worldwide, the CFO expects to do just as well. Although many tactics contributed to this impressive turnaround, the biggest one was simple - placing profitability back at the center of decision-making.

Using this golden rule, Moulonguet's team was able to pull in 422 billion yen (US$3.1 billion) through sales of non-core assets, cut purchasing costs by 18 percent in two years, and halve the automaker's number of suppliers. Then, by developing a global cash management system and enforcing group-wide accountability, Moulonguet watched Nissan's consolidated automotive debt fall to 800 billion yen (US$6 billion), its lowest level for more than 15 years. For these achievements, Moulonguet walks off with this year's prize for Achievement in Best Practices in Turnaround Management.

Considering the speed at which Nissan's u-turn took place, it's no surprise that Moulonguet's office looks like he hasn't moved in yet. A couple of Ukiyoe prints from a calendar are tacked to the walls with push pins, while a painting of Mount Fuji, a map of the US, and a very tiny car in a small glass case are the only other ornaments. Son of a surgeon, a life-long Parisian, and a career civil servant with France's Ministry of Finance before joining Renault, Moulonguet is a CFO's CFO. He studied economics and financial management at the best schools in France and shows a passionate commitment to his field.

So much so, that he didn't worry at all about his lack of experience with Japan when he arrived in Tokyo. "Specialists on Japan told us it would be impossible. We didn't speak Japanese. They warned us that there is such a huge difference between Japanese and European business environments," says Moulonguet. "We didn't pay much attention. We plunged into the micro-reality of Japan. We had to learn quickly," he says.

There Goes the Family

As it happens, the micro-reality of Japan is still about maintaining relationships, not about making money. In good times, relationships matter. In bad times, the Renault managers decided, they didn't. In his first two years, Moulonguet helped to do the unthinkable - liquidating the company's shareholdings and breaking off customer relationships with dozens of associated companies and banks.

Under the new rules, Nissan chose to buy services or products on the basis of only one criterion - profitability. Nissan's keiretsu, a web of companies that held stakes in each other, crumbled. The process seemed almost anti-Japanese and he expected resistance. In fact, he met none. "Everyone saw this as the last chance for Nissan to survive. We were never slowed down - at the end of the day, everyone understands what is net income. This is universal," he says.

To create momentum, Moulonguet explains, targets were essential. Together with top managers, he helped create the Nissan Revival Plan (NRP), which included six turnaround management principles. Communicated to every single Nissan employee, these principles included the establishment of profit criteria for every decision. Other key principles: global and cross-functional management, performance-based compensation, commitments to financial targets, and transparency in financial matters.

All of this put a huge burden on the finance team. In addition to meeting strenuous financial targets, Moulonguet committed himself to producing Nissan's accounts to the demanding International Accounting Standard. Straightening out the books added nearly US$3 billion to the net losses in the year ended March 2000, mainly because of restating pension liabilities.

Together with another US$2.2 billion hit for restructuring, primarily from plant closures, Nissan reported a US$6.4 billion net loss - the largest in Japanese corporate history. Says Kiyoto Shinohara, vice-president of finance and a career veteran at Nissan: "People wondered if it was possible to declare losses like that and survive. We proved it was."

Making Cars Pay

In order to meet the tougher requirements for operating margins, Moulonguet knew that he needed new benchmarks for each vehicle Nissan produced. Using a Renault formula as a basis, he decided that each Nissan car, truck or van had to generate a positive net present value using a discount rate of 14 percent. Considering that interest rates in Japan are almost negative, that alone was a serious stretch goal. Then, he decreed that the formula must work with the extraordinarily demanding yen/dollar exchange rate of 100. When he came up with the formula, only three out of 43 Nissan products made the grade. Today, thanks to cuts in procurement costs, the advantages of sourcing globally, and better manufacturing productivity, two-thirds pass.

Next, the CFO went after the company's hopeless antiquated approach to managing cash. In his assessment of Nissan's finance departments worldwide, Moulonguet found different definitions and methodologies being used across regions.

This meant that head office staff devoted mountains of time just trying to reconcile numbers. His check of the company's IT systems was equally depressing - the group had no system integration. Some employees were still processing purchase orders manually. And in parts of the world, Nissan employees were still working with punch cards and magnetic tape to store information.

"The company wasn't taking advantage of its real assets. Information was not flowing. Decision-making was stalling," says Moulonguet. The CFO pushed to set up a global cash management center and network the company from back office to front with an enterprise-wide software system. But first he had to sell the concept to his own managers. Admits Akira Satou, Nissan's global treasurer: "The system wasn't difficult to understand but the culture at Nissan was the big barrier. We'd always been a very decentralized company."

Satou carried Moulonguet's "clear instructions" to get the job done to more than 170 presidents of subsidiaries and more than 20 presidents of overseas operations. "We knew the new system would reduce finance costs and automotive debt. And we could prove how much money could be saved. That made the difference," says Satou.

With the aid of three partners, Fuji Bank, JP Morgan Chase and Nissan's in-house bank, Satou's team fed responses from its subsidiaries and overseas units into the head office. It then customized a system everyone could live with. The end result? From 200 banking relationships worldwide, Nissan now has a global cash management system run by just three banks, with another 15 banks supplying its funding needs.

And just as Satou promised, efficient use of cash has indeed reduced financing costs. Interest expense hit more than 100 billion yen (US$746 million) in 1998, wiping out almost all of the company's operating profits. In the year to last March, interest expense sank to 42 billion yen (US$313 million), a pleasing 14 percent of operating income of 290 billion yen. And in December, Moulonguet received another pleasant piece of news.

The company's efforts to reduce its debt and straighten out its balance sheet caught the attention of Moody's corporate ratings agency, which gave both Nissan and its finance subsidiaries upgrades. In the case of Nissan International Finance and Nissan Capital of American, both moved from Not Prime to P-3, while the parent company moved from from Ba1 to Baa3.

Target: 180

Moulonguet was delighted with the upgrade, calling it "great news." He promptly went into the corporate debt market last month, raising US$639 million, confidently offering a 1 percent coupon. The CFO figured the bonds were a better bet for investors than parking yen with the company's ailing banking system. The offer was another first for Nissan - it was the largest-ever single offer to retail investors from a Japanese corporation.

Having achieved the goals of the Nissan Revival Plan a year early, Moulonguet now has the company's three-year target in his sights. Called Nissan 180, each number has a meaning. The first stands for another 1 million units of car sales by the end of fiscal 2004. The reason for the new target is simple. Despite the improvement in the company's financials, Nissan still languishes well behind its key rivals in the Japanese market and is missing some key models in the US. This year, a whole range of new models will roll out in an effort to correct this.

The eight represents 8 percent, the target for the company's operating margin, which currently stands at around 6.5 percent. The zero is for where the company wants its net automotive debt.

It's no surprise to Moulonguet that two of these three goals will be up to the financial department to bring home. "We can't slow down now," he says. Moody's, for one, believes the goals aren't outlandish, stating in its upgrade report: "We expect that Nissan will continue to demonstrate strong performance and debt reduction."

And with 30 percent of compensation for managers at Nissan now performance-related, the incentive for Moulonguet and his team to succeed couldn't be stronger. And those bonuses don't count stock options. He may not know Japanese, but it doesn't seem to matter. When it comes to best practices, any language will do.