Ethics Gone AWOL at Toyota, GM

I was cleaning out some old files today when I came across a seven-year-old article reporting that top business schools were adding more ethics courses in the wake of the 2007 Enron scandal. The article, by Jeffrey MacDonald in the Christian Science Monitor, went on to quote critics saying the courses wouldn’t do much good. Boy, did that turn out to be true.

What could be more depressing than the twin scandals at Toyota and General Motors?

Within days of each other, Toyota agreed to pay a $1.2 billion fine to settle a four-year criminal investigation that found the company had concealed vital information about a defect that caused many of the firm’s top-selling cars to accelerate on their own, while General Motors recalled 1.6 million cars to replace ignition switches that the company has known were faulty for years.

holder2In the Toyota case, investigators found internal documents attesting to the defect even as company officials were blaming driver error. “We can say for certain that Toyota intentionally concealed information and misled the public,” Attorney General Eric Holder said, adding that Toyota’s behavior was “shameful.” More than 100 deaths were blamed on the problem before 9 million cars were recalled in 2009-10.

The General Motors case has yet to play out, but in a story Tuesday, The New York Times documented similar lying and deception. The Times said GM officials concluded five years ago that potentially fatal ignition systems had been installed in hundreds of thousands of cars, but they continued to deny a problem and even harassed families of accident victims who complained. Accidents after the problem was known resulted in at least 26 deaths, according to the Times.

What’s chilling is that these are not cases where a single or even a handful of individuals were guilty of an ethical lapse. These were major conspiracies involving an alarming number of people, both decision makers and those who participated in the cover-ups without blowing the whistle. I can’t see any gray area in these cases, and I don’t hear anyone defending the people responsible. Unfortunately, as I read the ethics blogs, I don’t see a whole lot of condemnation either. There are plenty of people calling for more regulation and enforcement, but I just don’t see the ethical outrage that I would expect.

tobaccoIn reading about the GM and Toyota episodes, I can’t help but recall the infamous 1994 photograph of seven tobacco company CEOs being sworn in at a congressional hearing just before they all denied that nicotine was addictive, despite overwhelming scientific evidence available to them that it was.

Has anything changed in the twenty years since then? Are companies any more ethical?

Institutionally, many more safeguards are in effect. Since starting this website, I’ve been in contact with dozens of compliance officers who I know are working hard to do the right thing. But there’s obviously a limit to what they can achieve if the top decision makers at a company behave like those at GM and Toyota—and if no one working for them calls them on it. Yes, I know that everyone has to make a living and that there can be enormous pressure in the office to go along with an unethical decision, but that’s hardly an excuse when lives are at stake.

Obviously, adding more ethics courses for business school students isn’t enough. The calls for more regulations and greater penalties, including more criminal penalties, may ultimately make business leaders think twice before acting this way. If that’s the only way to change the behavior, so be it. But why isn’t an appeal to conscience enough? When consumers are dying because faulty products aren’t being recalled, how do the people who know about the problem sleep at night?

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