Business ethics

Update 9/17/2010: I posted a business case write up “Toyota Recalls and Public Relations Management Crisis” which I had prepared for my Business and Public Policy class in summer 2010.

With this scandal unravelling in the last 3 weeks about Toyota recalls connected to the sticking accelerator pedal, and speculations about how much and for how long the top managers and owners have known about the problem, I realized that the situations is related to two of the courses I have been taking in my part-time MBA program. One is obviously Business Ethics, the other is Global Perspectives.

In Business Ethics we had a few cases on truth-telling. One case about the owner of gourmet seefood manufacturing. The issue he had was that he became aware about salmonela tainted batch of his signature product. The complicating issue for him personally was that the batch of tainted product had been produced at the recently acquired competitor plant. That plant was bought for over $3 mil. Also the discovery happened right around the Christmas holiday when the product had already been shipped to the restaurants around the country. So he had this dillema wheter to recall the product, to inform the customers to make sure they cook it at minimum required temperature and time (which would kill the salmonela), or to wait it out in hope that the restaurants would do proper cooking and nothing would happen.

Picture courtesy of businessweek.com

Another case was about Ford’s Pinto car in the 70′s. The company knew for quite a while about gas tank design defect in the car which was connected to cars setting on fire even in relatively minor rear-end collisions. In that case, it turned out, the company just performed in a very business-like manner (many would call it cold-blooded calculations) the cost-benefit analysis and figured out that it would cost them less to settle out of court the claims of the victims, or the relatives of the killed in fire ones, than to fix the problem. The problem, by the way, was quite miniscular in dollar terms to fix.  

With Toyota, it seems, the top managment have been aware of the problem, but in denial of the fact for quite a while, even after a few deaths  were alleged to be connected to the issue. We don’t know all the details, and I am sure there will be more revelations in the case in the weeks and months to come.

The Global Perspectives angle of the story is related to the management style which is common to companies in some Asian countries, including Japan and Korea. In our class on corporate government in different countries we learnt about closely-knit and closely-kept ownership and management of those companies. While we have heard a lot about Toyota Production System  ( which actually reflects the philosophy implemented at the lower to mid-level management) from the media, not really much is heard about the top management of the company. That’s why now we hear about the atmosphere of secrecy surrounding the case.

So, obviously, this case will get proper attention in the future editions of the MBA textbooks. And we have a privilege to see yet another business case unfold right in front of us. It would be fascinating, except for those of us who have also a “privilege” of driving the recalled models of Toyota. And regardless of the outcome of the ethical implications in the case, the blow to almost impecable reputation for Toyota quality is going to be strong. Is Hyundai ready to take the top quality spot in car business? Might as well be. Next thing they woudl need to do is to break away from the Asian corporate government model and adopt more transparent management practices and policies in dealing with both routine and crisis situations. But that is much less probable than becoming a high quality manufacturer. Because, it seems, the same philosophy and cultural norms that help Asian manufacturers to become the best in quality, hinder their reputation in issues of openness and transparency.

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