American Airlines: Bankruptcy (2011-2013)

Controversy

American Airlines logo

In 2011, American Airlines filed for bankruptcy, the same day the new CEO, Tom Horton took control of the company. Over the prior 10 years, American Airlines had lost over $10 billion, putting the company in a precarious financial position. In efforts to reduce costs, Horton proposed a variety of so-called solutions. One of his proposed solutions was to cut over 13,000 jobs, which the bankruptcy court didn’t allow. Instead, Horton cut pay and benefits for pilots, which resulted in many flight delays and cancellations that year. Over the two years Horton spent as CEO of American, he only marginally improved the company’s deficit. Horton decided to leave the company in 2013 and hand the position over to Doug Parker, who is currently the CEO of American Airlines. Upon Horton’s departure, he requested a $20 million severance package, otherwise known as a golden parachute, all while the company was still in bankruptcy. The bankruptcy court ruled against the severance package; however Horton fought against it claiming that he had assisted with the company merging with its biggest competitor, United Airlines and that he still deserved the severance package. In the end, Horton received a $17 million golden parachute as well as 171,000 shares of American Airlines stock, despite the fact that the company was in bankruptcy at the time and the investors should have been the top priority. 

Stakeholders 

Tom Horton, former CEO of American Airlines

American Airlines over the years has been seen in a negative light by its stakeholders, which as a result has damaged the company’s reputation and tarnished the faith of investors. American Airlines has three major groups of stakeholders: its employees, its investors, and its customers. American Airlines’ largest group of stakeholders are likely its investors because they were the ones who primarily financed American Airlines’ operations. By allowing Horton to take a severance package that large, it is essentially robbing the investors of the capital they put forward for American. The other group of stakeholders for American are its customers because they are the ones who purchase American’s tickets and provide the company with revenue that they need to operate. By cutting pay and not maximizing the return to investors, American provides its customers with a subpar flying experience, which as a result provides them with less revenue as they choose to fly other airlines. Finally, another large group of stakeholders are American’s employees because they rely on American for a job. If the company isn’t maximizing profits and is giving their CEO enormous severance packages while cutting employee pay and benefits, they are doing their employees a disservice and potentially costing them their jobs in the future.

Individualism

Individualism is an important aspect of business ethics. Originally coined by Milton Freedman, individualism states that “the only goal of business is to profit, so the only obligation that the business person has is to maximize the profit for the owner or the stockholders”. In respect to this case, American Airlines did not comply with the ethical concept of individualism. Not only did Horton not help American Airlines much in terms of generating profit for the company, but he also counteracted the maximization of profit for the shareholders by claiming a large sum of money for himself. An individualist would most likely recommend that Horton took a smaller severance package and redistributed the money back to the shareholders who have lost so much on their investments in the defunct airline. Like most business decisions, the stakeholders are always affected, and under the principle of individualism, the stakeholders are the ones who should have received compensation for the poor business decisions that American Airlines has made. 

Above: Summary of American Airlines' (AAL) financial statements during Horton's years as the company's CEO.

Utilitarianism

Utilitarianism is the belief that decisions made should be made to benefit the greater good. Essentially what this means is that when making decisions it is important to give the most amount of good to the most amount of people. This, in a way builds off of individualism in the sense that the company should be focused on the bigger picture and the people it impacts, rather than itself. Where utilitarianism differs, however, is that it considers more than just the stakeholders. In American Airlines’ situation, the CEO did not make decisions with utilitarianism in mind. It is apparent that the only person that CEO Tom Horton wanted to benefit was himself. Unfortunately, for many businesses, greed is a major issue – an issue that utilitarianism tries to mitigate. By taking a $20 million severance package, it does not reflect the beliefs of utilitarianism whatsoever. Even if American Airlines decided not to compensate its investors, they could have reinvested the money back into the airline and making it better for its customer base, thus benefiting the greater good. When Horton was confronted about receiving such a large severance package while the company was losing money, he defended himself by stating the company was able to cut labor costs by 20%. In other words, the former CEO defended his extravagant severance package by cutting jobs and hours of many employees who earn much less than him. A utilitarian would absolutely agree that Horton has gone against every utilitarian value with his statement. There are a number of things American Airlines could have done to align with utilitarianism, but it’s obvious that greed is a major factor that got in the way.

Kantianism

Doug Parker, CEO of American Airlines following Tom Horton

Kantianism is the study of the ethical beliefs of Immanuel Kant, which fall into four major categories. Act rationally, allow and help people to make rational decisions, respect people and their needs and differences, and to be motivated by good will and seek to do what’s right because it’s right. The second and third points of Kantianism really do not apply to this particular case; however the first and last points relate perfectly. Horton’s decision was completely irrational and filled with greed. A rational person would not cut jobs and hours in order to receive a golden parachute. One could argue that Horton’s decision was rational if he was in desperate need of money; however, Horton received over a million dollars a year in salary and stock units. It is completely irrational for someone who makes roughly $1.25 million per year to request a severance package nearly 40x their base salary, at the expense of others. Leading off of that, the last point of Kantianism is to be motivated by good will and seek to do what’s right because it’s right. It is evident that Horton was motivated by greed rather than good, and had no intention to do right, whether it was good or not. Horton seized an opportunity to be CEO of a failing company, run it into the ground and cash out. 

Virtue Theory

Aristotle believed in four virtues that allowed things to function properly: courage, honesty, temperance and justice. Unfortunately, Tom Horton didn’t see things the same way as Aristotle. The first virtue, courage, essentially means to stand with what is right. As discussed in the paper, we know that Horton stood with what was wrong and was opposed by the majority of people. However, due to his own personal desires, he chose to stand with the wrong decision, despite the obvious objections. This leads us to the temperance virtue which states that people should have self-control and to have reasonable expectations and desires. Most people would agree that a severance package that is 40x larger than a base salary for doing a sub-par job leading a company out of bankruptcy is completely unreasonable, yet, Horton seemed to think otherwise, which leads us to justice. The justice virtue revolves around fairness in decisions and good ideas. Horton’s view on this matter included laying off employees, cutting pay and benefits for pilots, charging unnecessary fees to customers and raising airfare while taking large bonuses and other compensation. The act of greed is anything but just, and it negatively impacted many stakeholders and people who relied on American Airlines to be a successful and profitable company. The final virtue doesn’t apply much to this case considering Horton was honest regarding his decisions; however, due to the greedy nature of his decisions, one could argue Horton had an ulterior motive in the merger between United and American Airlines which is one of the main reasons Horton received his severance package in the first place, which can be portrayed as dishonest. Regardless, Horton’s decisions by definition were not virtuous at all and were a step backwards for the company that current CEO Doug Parker hopes to correct.


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Toyota: Class Action Lawsuit (2009-2014)

Toyota Corp. logo

Controversy
The case of Toyota's class action lawsuit placing blame takes place starting in 2009, and ending recently in 2014. Toyota is a major motor corporation, Headquartered in Japan, and is currently recognized as the 14th best brand in the world. Toyota's mission statement claims that "Toyota will lead the way to the future of mobility, enriching lives around the world with the safest and most responsible ways of moving people”. Recently, however, as it is probably fresh in the minds of many, Toyota has fallen under scrutiny from both the NHTSA as well as consumers. Faced with a massive 9 million vehicle recall spanning from 2009-11 over faulty accelerator pedals, among other things, the employer of over 300,000, with 20,000 of those working in the United States, Toyota struggled to maintain a positive image with consumers, and some legal tactics in the handling of the class action lawsuit and subsequent settlement raised even more concern with the ethical state of being within the company.

When Toyota was defending themselves from the 200 plus lawsuits that were filed over the many deaths and countless injuries from the faulty equipment, they used a stance that focused not on the defective pieces, but instead the legal team worked to squarely place blame for the accidents on the drivers of the car. This stance was met with heavy opposition, unsurprisingly, because it was proven that the vehicles had defective hardware, and the pain and suffering already felt by those who lost loved ones was worsened with these false accusations. Once the case was settled in 2013, for a sum of over 1.6 billion paid out to those affected, those who received the money assumed that they were done being harassed by the Toyota legal team. In the settlement however, there was a provision for $100 million in "unclaimed funds", that didn't go to any specific party. Toyota intended this $100 million, or 6% of the settlement, to go towards "driver re-education programs". Toyota again stood behind there defense of its not me, its you, and blamed the injured or dead drivers of the vehicles that were equipped with defective equipment. This eventually was caught by mainstream media, exposing what Toyota had done to their loyal customers.

Accelerator trapped by unsecured floor mat in Toyota vehicles

Stakeholders
The stakeholders, or the persons who are key to the business and its actions, are multi-fold. The first and foremost include the customers of Toyota, specifically those who owned or previously owned a vehicle equipped with the faulty equipment. These are the people most affected by the actions of Toyota, and its stance on the settlement they received. Next in line are the executives of Toyota, the ones who are making the decisions in the legal defense as well as the provisions in the settlement. Thirdly are Toyota's stockholders. In the course of the recall, lawsuit, and subsequent settlement, Toyota stock experienced periods of decline, and little stability. The stockholders suffered as a result of Toyota's mismanagement of the vehicles, legal battle, and payout.

Individualism
The theory of individualism means that one is best served to pursue their own interests without making choices for others. In a business sense, this theory means that a business' only goal is to profit for its stockholders, and that is its responsibility. Even with that in mind, Toyota was not acting ethically according to individualism, because they allowed the business to become awash with criticism, ultimately hurting their value. Toyota wanted to maximize profit and maintain an image by asserting they were not to blame for the problem vehicles, but in the end this came back to haunt them, by hurting their image even further.

Utilitarianism
In the utilitarian theory, the goal is to maximize happiness for all people, while keeping in mind that the ends do not justify the means. For a business, this means maintaining success, but not at the expense of another. Toyota did the opposite of that, focusing more on an egoist perspective, maximizing their own happiness above all others. They were far more interested in their own image and profits to worry about what they were doing to their customers and eventually stockholders. Alienating those who had invested in them showed that they were unethical according to utilitarianism, because they were uninterested in how those who are so integral to their business felt about their practices and products.

Kantianism

One of many crashes caused by accelerator in Toyota vehicle

The Kantian perspective means that one should act rationally to fulfill a purpose. In simpler terms, to act ethically according to Kant, one must do what is right because it is right, not for any other reasons. Toyota was clearly unethical according to the Kantian perspective, because their actions were carried out because Toyota believed it would give them the best chance at reviving their tarnished image. If they had done the right thing because it was the right thing to do, it would be safe to assume they would not have been in the predicament they are in. Toyota knew exactly what had happened and what went wrong, and knew they were to blame, but made the choices for the wrong reasons, and therefore were acting unethically according to Kantianism.

Virtue Theory
Virtue theory is a theory that is very simple to understand, and contains four key virtues. According to virtue theory, you must act rationally in order to live a good life, and the four main virtues are courage, honesty, temperance, and justice. When Toyota went about their case and settlement, all of the virtues save for temperance were ignored. They showed no courage in hiding behind their legal team while they blamed victims of their own faulty equipment. The lack of honesty is all too obvious, with false statements made about drivers who lost their lives to defective pieces installed by Toyota. And the fact that this went on without question from any authority shows a lack of justice for those affected by Toyota's actions.


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