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P619 ORGANIZATIONAL BEHAVIOR AND LEADERSHIP

TITLE: CONSIQUENCES OF UNETHICAL DECISION MAKING

A Case Study of TOYOTA Motors

Instructor: Papageorghiou N.George

Prepared By

Kashif Iqbal S20101244


Alexander Nwaka S20101245
Joachin Nnorom S20101246
Ding Tao F20082262
Xiurong Chen S20081312
Ganesh Uprety F2006758
1. Abstract (Summary)

This paper provides an analysis of relevant study of TOYOTA automobile


maker and the findings related to the consequences of unethical decisions.
Good ethics, whether at work or home, demands self-knowledge. Whereas
some groups want to see ethics as a skill or a particular part of
organizational transformation, practicing good ethics ultimately comes down
to you and how you make decisions. Education, family background, social
setting, and political and religious affiliations shape what you see and what
you do not see. The study provides some useful tips to improve the
decisions.

2. Introduction
Toyota Motors a very popular automobile maker having large market shares
around the world. Now a days Toyota company is facing high obstacles and
fallen down into crises as a consequence of some unethical decisions.
Details tell us, since 2000 Toyota has expanded its production line from 5.2
million to 10 million with 17 more productions sites. This unsustainable
production made inevitable for company to procure auto-parts from overseas
sub contractors, thereby making it difficult to oversee every procedure
involved in the quality control process. Moreover due to growing competition
company putt an immense pressure on its subcontractors to cut production
prices at least 30%, resulting in diluted quality. This is evident from the
reports of news papers and BBC news. According to a analysis of complaints
by auto safety control firm Quality Control System found that number of
complaints received by National High Way Traffic safety Administration
tripled since introduction of electronic throttles in Toyota vehicles and due to
break problems many people have died in road accidents. However Toyota
continued a similar careless attitude in response to these complaints and
normal tendency remained to blame the drivers and go on. After an
immense pressure by customers and high media coverage to these
complaints Toyota turned to accept the flaws and started recalling different
vehicles back for necessary rectifications. These decisions of Toyota are
criticized as unethical because the security procedures and risks of precious
lives were compromised over profitability plans which lead the company
towards destruction. An estimated amount of vehicles recalled back due to
break paddle and floor mat problems is more than 8 million this amount is
surpassing its 2009 total global of sales of 6.98 million vehicles. What are
the results received as consequences of unethical decision, are illustrated
below.

• More than 40 people (On record) have died and several have been
injured because of vehicle break problems.

• Toyota recalled its almost more then 8 million vehicles.

• The estimated vehicles recall cost is more than 2 billion.

• Toyota Company has loosed 4 to 5% of its market share.

• Lexus GX460 sale is halted by the company.

• The US Government imposed a fine of $16.4 million. It is a largest fine


ever imposed by the US Government on an automobile maker.

• Company’s public image is affected as this recall is perceived as


“Forced” rather than “Voluntary”.
Source: [A report by the BBC 22 Feb 2010 "Toyota Receives Request for Recall Documents,']

3. LITERATURE REVIEW

3.1 Relationship between Ethics and Business

The relationship between business and ethics is inherently entwined. A


successful company is a company which can effectively recognize and
cultivate the relationship which exists between the two. Leigh Goessl (2010).
However, C.V. Rajan (2010), Sees this relationship as being comparable to
the relationship that exist between marriage and morality. A good marital
relationship has several essential moral ingredients: commitment of loyalty
to each other by the partners, none of the spouse ever having any extra
marital affairs, commitment to healthy upbringing of the children, earning
decent income by unquestionable means for running the family, maintaining
a responsible relationship with the society and contributing even if in a small
way for its welfare.

Businesses that exhibit and promote strong corporate codes of ethics are
more prosperous in the long run because they show a commitment to an
expectation of sound moral behavior. This shows a dedication to society,
customers, employees and the business itself. It will also enhance the
company’s reputation (goodwill) if it is generally known as an ethical
company and ultimately bring more value to the organization. Donna
Burgess (2009).
It is true that due to the competitive nature of global economy today,
leaders of firms seem to be under immense pressure to remain profitable
and to show good returns to stakeholders, but this does not justify unethical
decisions. It should be known that as leaders of firms exhibit unethical
behaviors and even try to justify their actions when they know that it is
wrong, this gradually become part of organizational culture. People follow by
example and lack of moral judgment will spread. It is easy to blame “the
system” yet people forget that the “system” is made up of decision making
individuals. Leigh Goessl (2010).

The relationship between business and ethics is intrinsically linked; people


fail to recognize this connection. To operate under the principle “business is
business” is not accurate and responsible (ethical) decision making is an
important component of doing good business.

3.2 Effects of Unethical Decisions on the Society

One only needs to recall the Enron incidence or high profiled business
professionals like Bernie Madoff to know how poor ethical practices affect the
society. Robert Grice (2009). Some of the specific effects are:

• Loss of Confidence

One definite consequence of poor ethical and moral practice is loss of


confidence and trust in businesses. Company rely on their ability to maintain
trust with stakeholders in order to maintain profitability over time. A loss of
trust can reduce drastically customer’s loyalty and motivate customers to
turn to competitors. Other unethical activity likely to sway customer’s loyalty
is the issue of corporate social responsibility. Bernie Madoff (2009)

• Loss of Resources
A second effect of unethical and immoral practice on the part of business
organizations is the loss of resources. The Phony profits and inflated stock
prices collapsed over time, for instance, leaving the shareholders to absorb
the losses.

• New Legislation

Another effect of unethical practice on the part of businesses is the


introduction of new legislation that applies to all companies. The Sarbanes-
Oxley Act (SOX) of 2002 is an example of accounting legislation enacted in
response to accounting scandals in companies like Enron, Tyco, and
Adelphia. SOX imposed strict accounting requirements on all publically held
companies and made executives personally responsible for public accounting
records. Robert Grice (2009).

4. Suggestions

Above discussions gives an strong evidence that unethical decisions can be


catastrophic for any organization. Organization profitability can by affected.
Employee’s morale effected, being unable to answer the queries of
customer’s complaints, when customer suffered from defective products.
Company reputation gets negative impact. The ways through which
decisions are taken in organizations should be rectified. The strength of will
is required to face and resolve the ethical challenges and to confront barriers
that inhibit the ability to proceed toward right action. Before taking any big
decision the top management should think all possible outcomes especially
ethical considerations must be taken into account as addressing ethical
issues is always beneficent in long term planning.

The centralized decision process is a very slow process as information


flows from different small segments to a central location for a decision. More
over centralized decision making has some draw backs, first a very few
people in organizations can not keep their selves up to date with number of
issues thus it becomes difficult for them to move at the speed required by
issues. Like in Toyota case the information flows towards HQ (C-Suite of
Company) for decision making, the regional team that knew of the issue for
years and probably had their friends buying unsafe cars did nothing. You
might think this is not ethical. Today trend is toward more and faster and
thus the customers who depend on us also experiencing the same trends.
What makes companies different is responsiveness. Responsiveness depends
upon how a company listens, discerns, learns, and organizes itself to
respond quickly. In the light of above issues it is suggested that companies
should delegate some decision making rights to sub offices to take
immediate decisions on some critical issues with information to top
management. The group decision making policy should be applied. The
experience of line managers and field workers should also be used in
formulation of a new decision.

A centralized complaint management system is recommended in which


complaints should be given different critical flags according to their criticality
and some well defined procedures should be formulated to deal with severe
issues. Access to these complaint management systems should also be given
to some stake holders like wise in case of Toyota Company the National High
Way Safety Commission should have access to such Information Systems in
order to quickly launch their complaints with some suggestion if any exists.

Communication gaps should be removed between top, middle and


frontline management by the help of weekly and monthly meetings and
instant issue logs should be generated whenever any problem is reported.
These issue logs should be turn around and signed by all top managers.
CONCLUSION

In the final analysis, managers and organizations must realize that ethical
and social responsibility issues deservers top priority.

The Companies should acquire fast responsiveness for these issues with the
help of modern technologies, delegated rights and group decisions.

There should not communication gaps between top to line management


levels.

Conclusively, Granted the unethical companies may initially make significant


gains financially and deliver the profits, but at what cost? When companies
make unethical decisions it can result in defective or rushed products,
Uncorroborated firing of employees and false presentations of products
to consumers as the case with Toyota company. Is this good for the
company? This is an illusion. Yes, these factors will all cut costs and give
apparent profit, but it's inevitable that poor choices will impact negatively on
the business in the long-run. This research work aims at exposing more
practical effects of unethical decision as evidenced by the Toyota
incidence.
REFERENCES

Internet Sites:

 http://www.socialworker.com/jswve/

• http://epublications.bond.edu.au/business pubs/68

Journals:

 Kathleen Boland, (spring 2006), Ethical Decision-Making Among


Hospital Social Workers, Journal of social work values and ethics, Vol.
3, pp 1, cedar crest college

 Leigh Goessl, (may, 2009), understanding the relationship between


business and Ethics. Article 01, Retrieved April 23, 2010, from
http://www.helium.com/search/search?
search_query=how+poor+ethical+decisions+can+hurt+a+company&s
earch_context=Unknown

 Robert Grice,(may 2009),Ways poor business ethics and morals affect


society. Article 01, Retrieved April 23, 2010, from
http://www.helium.com/search/search?
search_query=Ways+poor+business+ethics+and+morals+affect+soci
ety+&search_context=Unknown

 Cody Hodge, (may 2009), How poor ethical decisions can hurt a
company. Article 02, Retrieved April 23, 2010, from
http://www.helium.com/search/search?
search_query=how+poor+ethical+decision+can+hurt+a+company&se
arch_context=Unknown