Wednesday, February 24, 2010
Toyota – or: Why acceleration is not always a good thing
Seeing executives of car companies testifying before congress is not too much of a novel picture. It has happened before. But the context of today’s and yesterday’s appearance of Toyota’s top brass in Washington provides a lot of food for thought.
We have followed the news for a while and it took things to unfold to convince us that this is actually a very interesting issue not just for business, but yes, for business ethics. It is indeed – and even more so, as one of the seminal cases for the business ethics literature has been a rather similar problem. Remember the Ford Pinto, in the 1970s, where Ford had installed a gas tank which exploded at the slightest collisions and allegedly killed more than 500 people? That case though was clear cut in some ways: Ford decided not to deal with this problem for six years because the cost difference between fixing the car versus compensating the victims amounted to $7.04 per car – too much to ask for a company whose only goal at the time was maximizing returns for shareholders.
Superficially, Toyota has ignored the problem with the gas pedals of their cars for a couple of years in the same way. But it is inspiring to ponder the reasons. We would suggest that putting the usual lens of Anglo-American capitalism on the issue is not very helpful. Though many do exactly this: The Economist, applying its mantra ‘Ketchup’ of neo-liberal economics on the issue – which btw. is complimentary with any news item they report on, - just see the scandal as a failure of Japanese corporate governance. As if the Anglo-American model of corporate governance has given us those much more efficient and healthy car companies, such as Chrysler, General Motors, Jaguar, Rover, and… - you get the picture.
We would argue that the Toyota case provides some more subtle and deeper lessons. First, there is the fact that all these deficient gas pedals were manufactured by suppliers Toyota worked with only recently. Following their ambitious goal of gaining 15% of global market share in the car market, the company had to engage with suppliers all over the world beyond their traditional network of ‘Keiretsu’ suppliers in Japan. This poses risks and needs more attention in order to integrate them into the high quality processes the company is known for. So, ethical issues are just a result of bad management. Not because evil people devise evil plots.
At this stage, though, you might ask questions regarding why Toyota did not deal with the problem earlier. Fair point. And again, its not that evil, profit crazed nerds in suits did not care about people dying. A first point one of the executives made in the Congress hearing was that while the problem was know, it was just not communicated between the different units of Toyota globally. While the problem was known in Europe in 2008, it was not ‘shared’ properly with the US unit. This points to the traditional organizational pattern of Japanese MNCs: to keep all core competencies at home and deal with the subsidiaries in the different countries just as delivery units of what was decided in the headquarters. Of course, this does not work for a global actor like Toyota, who needs to take into account that local differences and problems need to feed back into the global organization. So what results in a huge ethical issue is just the result of bad management: not adapting to the global growth of the organization.
Finally, there is another point worth considering. Brought up, we concede in all fairness, by The Economist. Japan is a rather hierarchical culture where criticism of superiors is not socially accepted. In such a culture, raising issues of insufficient vetting of suppliers, criticizing strategic decisions etc. is just not happening. No wonder then that an upfront confrontation of the issues took so much time within the Toyota organization. But again, this is more a cultural issue than a result of evil profit-maximizing apparatchiks.
What it boils down to, in our view, then is that issues of business ethics are not just an add-on, the icing on the cake – but they are rather deeply embedded in core business strategy and an integral part of good management. After all, think of the dosh Toyota has to put up for fixing this issue. Not to talk about the dent on the image of a company whose motto is ‘moving forward’.
Photo reproduced by the Creative Commons License.