Friday, February 14, 2014

Toyota: Acceleration Concerns (2014)

Toyota Motor Corp. logo
Toyota Motor Corporation is nearing settlement of a $1 billion fine to close out a 4-year federal investigation related to issues of uncontrolled acceleration of its vehicles reportedly responsible for hundreds of cases of accidents as well as numerous crashes which resulted in death.  In October, 2013, Toyota lost a lawsuit which claimed a defective accelerator in a 2005 Camry caused the death of the driver and passenger, resulting in a $3 million payout to the estates of the two women.  Toyota stands strong in its claim that there was nothing wrong with the 2005 Camry driven by 76 year old Jean Bookout.
Reports by the NHTSA show a 400% increase in complaints related to the sudden acceleration after Toyota started equipping vehicles with its ETCS-i system.  Brett Smith, co-director of manufacturing, engineering and technology at the Center for Automotive Research stated that he is unaware of any conclusive study which links electronics as a cause for sudden acceleration in cars.  The National Highway Traffic Safety Administration ended its investigation in 2011 after NASA failed to find any electronic causes of unintended acceleration during a 10-month analysis.  Yet, there are still multiple class action lawsuits against Toyota pending and widespread belief of the acceleration issues.  The lawsuits claim that Toyota violated warranty laws and consumer protection laws, among others.  According to the NHTSA, Toyota acceleration problems go back to 2002. 
'99-'09 NHTSA unintended acceleration
complaint per 100,000 vehicles
In 2002, they had about 10 percent of the U.S. auto market and they had about 19 percent of the complaints on acceleration. Vehicle recalls are either mandated by the NHTSA or voluntarily recalled by the manufacturer. Between 2009 and 2010, Toyota recalled roughly 8.5 million vehicles internationally. The NHTSA determined that Toyota was well aware of the safety defect for at least 4 months prior to reporting the problem and fined the company $16.375 million for failure to report the defect. Toyota has recalled vehicles for sudden acceleration blaming the floor mat location, and later the pedal itself but disputed any flaws in the electronic throttle. In fact, Toyota has actually won 3 lawsuits against unintended-acceleration claims. Toyota President Akio Toyoda states that he wants to focus on improving the quality and image of his company on a global scale. Toyota continues to address complaints and is trying to manage decreases in the company’s image as well as stock value. As Toyota prepares to pay a $1 billion fine to settle the federal suit, they have reported that they are on track to earn $18.8 billion for its current fiscal year, more than the combined annual earnings of GM, Ford and Chrysler. It is believed that shareholders and investors will react positively to closure of these suits in an attempt to put it behind the brand and move forward. In fact, Toyota paid out $25.5 million to shareholders based on the claim that the company stock price was damaged due to Toyota’s failure to timely report the safety issues. An SEC investigation is still pending. Toyota faces ethical issues and litigation due to the delayed reporting to the NHTSA and delayed recall of automobiles related to the known complaints of sudden acceleration and the related injuries and deaths that resulted.

Milton Friedman's view on social responsibility in business was simply to follow the law.  As an economist, Friedman emphasized that corporate officers had the sole responsibility of maximizing profits for the shareholders as long as the law was adhered to.  As a for-profit corporation, the leaders should not use corporate funds for social welfare simply because they felt it was socially responsible.  The officers should in fact pay the lowest wages possible, the least benefits and operate business in the most cost effective way regardless of potential external consequences as long as they were within the means of the law.  The corporation’s sole purpose was to maximize shareholder earnings rather than spend shareholder funds for the social well-being of others.  Simply, profits above all else as long as the law was followed.
Prior to the recall scandal, Toyota was highly profitable, continually gaining market share and recognized as a dependable, high-quality car maker.  Toyota stock values trended similar to the Dow Jones index.  When the recalls began, Toyota stock fell disproportionately to the rest of the market.  Eventually, Toyota stock regained its place in the market but has begun to show decreased value in the past year presumably related to the recent law suits and settlements.  If Toyota had been more responsive to the acceleration issues reported and recalled the vehicles out of ethical responsibility rather than by the force of law and NHTSA reporting, consumers would have maintained more faith in the company in its delivery of quality and safety and stock prices would not have taken as much of a hit.  Recalling the vehicles sooner would have also eliminated some of the accidents and corresponding lawsuits, ultimately saving shareholders their stock values and profits because the fines and payouts would have been substantially lower.  If one is to believe that Toyota was following individualism and Friedman’s viewpoint, it can be said that both failed the organization from a profit and share value standpoint.  The short term financial impact of a timely recall would have been substantially more cost effective because now Toyota is paying for the recalls, the lawsuits as well as having to invest in rebuilding its reputation as a quality and safety conscience car manufacturer.

Toyota Camry speeds out of control and crashes
Utilitarianism is an ethical belief that decisions should be made based on the overall consequences of the actions and how they impact everyone.  It focuses on making decisions based on the greater good for all (or as many as possible). Utilitarianism takes into account a cause and affect mentality.  These beliefs mean that corporations should be making decisions based on the outcome of the company as a whole, the shareholders, the employees and the consumers.  Utilitarianism focused organizations would always be seeking balance between satisfying shareholder profits, the end users of the products sold as well as the employees of the company.
Had Toyota felt compelled to follow a Utilitarian mission, the issues with sudden acceleration would have been addressed with the consumers as soon as the company was aware.  Toyota would have had concern over the safety of its consumers and would have wanted to ensure that all of its vehicles on the roads were operating properly.  Taking utilitarianism as "consequentialist ethics" (page 30), and reviewing the actions and consequences of the Toyota, the negative consequence was the lack of gain for the greater good and whole.  Failing to timely notify consumers of the vehicles cost the consumers money, their safety and the physical well-being and even life of those involved in the sudden acceleration accidents. It also tarnished the reputation of the company which cost the shareholders future profits and arguably cost the employees future pay raises and other benefits due to the litigation payouts.

Kantian ethics focuses on the humanity aspect and ethical duty to do what society views as right and for the greater good without self-interest.  The most basic and important relationship is personal and humane.  Kant believed in an undeniable duty to all people and actions that are dependent upon these relationships.  Corporations would set out to define a Maxim for Action that would execute a business practice for the greater good of the organization as well as the consumers of the product.  In review of the set Maxim, one wants to ensure it comes from good will to “do the right thing”, otherwise, it must be consistent with good action or it won’t be praiseworthy.  Decisions should be rational and logical and all of those affected should be able to make rational and logical decisions.  Kant considers three types of motivation, self-interest, character or sympathy and the moral law or duty.  In Kantianism, the only proper motivation is that of moral law or duty.
Toyota president has been quoted as saying he wants to build the quality and image of the brand after the fall out of the recall scandals.  However, it seems that his motive is not of moral duty but rather self-interest to rebuild the profitability and reputation of Toyota.  Had Toyota followed Kantianism, they would have recalled the vehicles immediately upon learning of the acceleration issues because it would be the morally correct thing to do for the safety and welfare of its consumers.  Failure to properly disclose the acceleration issues is against Kantianism belief of doing the right thing for the greater good of all involved.  Not only did they delay the recall but they continued to sell vehicles with the known issue at hand, jeopardizing the safety of the consumer against moral duty.  Had Toyota made a Maxim of building quality and image motivated by moral law rather than by self-interest, lives would have been saved, less people would have been injured and the law suits, litigation and fines would have been minimal if not no-existent. 

Virtue Theory
Akio Toyoda, CEO of Toyota Motor Corp.
Virtue theory involves understanding the motivating factors behind ethical decisions and knowing that while some people are motivated by self-interest others in fact are motivated by compassion, and caring for the well-being of others.  This philosophy requires ethics related decisions to be based on the character of the person making the decision and requires companies to review its business goals and practices to reflect on setting a corporate culture and environment of individuals that have the same virtues to create the desired method of achieving company goals and workplace practices.    Virtues are essentially positive character traits such as honesty, respectfulness, positivity and kindness.  The opposite of a virtue is a vice.  Vices include greed, envy, arrogance and selfishness.  The four primary virtues are prudence, justice, fortitude and temperance.
Toyota was not prudent in its decision to delay the recall of cars with the sudden acceleration defect.  They failed to act with foresight, reasoning or caution in regards to the safety of the consumers and did not choose the right means to a safe end for the consumers once they were aware of the recall.  The second primary virtue is justice.  Toyota did not consider justice because the decision to delay recalls directly hindered the rights of the consumers and put them in the line of danger rather than aiding them to avoid injury.  Rather than act with fortitude or courage, Toyota management acted cowardly by being more concerned with the cost of the recall than the safety of the consumers.  Temperance takes into account moderation of pleasurable things to avoid a sense of shame and to demonstrate humility.  Toyota did not act with temperance but rather with greed and ego for profits rather than the safety of the drivers.  Overall, Toyota violated all of the primary virtues in regards to the sudden acceleration recalls and scandal.  They put self-interest before the overall moral character considerations.  In order to have demonstrated the four primary virtues, Toyota should have recalled vehicles immediately upon learning about the possible defect because it would have chosen a means to the end that was worthy, it would have given proper justice to the consumers who had purchased the defective cars, it would have shown fortitude of making the right call in a difficult decision and would have demonstrated temperance by balancing profits with the safety of the consumers.


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