Toyota Motors - Effective Measures to Regain Lost Glory - Term Paper Example

THE TOYOTA CORPORATION: ETHICS AND THE LAW ABSTRACT The phenomenon of globalization has prompted business to venture into global production network to cater to new markets and also enjoy cost savings due to differentials in costs. The automobile sector has also seen a massive increase in globalized operations; however, the laws of various countries endanger the safety and quality aspect of the vehicles. Toyota faced a recall crisis due to a similar situation in 2010 and took positive rectifying solutions to counter the problems. The effective measures enabled the company to regain its lost glory as an automobile manufacturing giant and establish itself as a reliable and safe brand of cars once again. The aim of this paper is to highlight the issues of ethics and law in the automotive industry with as special emphasis on the case of Toyota in order to provide a better understanding of how situations can be avoided beforehand and countered if they occur. INTRODUCTION The importance of ethics and law for business has been a long debated subject for quite some time. The numerous studies have blurred the difference between law and ethics, causing ambiguity regarding the true uniqueness of both the concepts. Where the need to stay within ethical and moral boundaries is seen as less important as compared to staying within the boundaries of law, the growing emphasis on safeguarding the lives of all the stakeholders, positively impacting the society and being able to deliver the promises made has made businesses prioritize ethics as well. Before clarifying the difference between the two it is important to understand the two words and what they stand for. Ethics refers to a set of moral principles and course of action for one as a part of a society. These are not obligatory thus the penalties for not acting ethically are far less than the ones for breaking the law. Law is a set of rules approved by the legislature to be imposed upon the subjects. Since businesses can suffer from hefty losses as a result of unlawful acts, they set lawful compliance as the maximum control benchmark to ascertain the ethics of the business. However, it is not so. Critics of ethics of business claim that the organizational regulation should give importance to the laws as they are the basic forces that regulate the business and legalize its aspects. The concept of right and wrong thus takes a back seat and businesses face severe consequences of for not being able to comply with the social philosophies that safeguard the rights and lives of the customers and stakeholders. Thus there is a difference between staying within the law and acting ethically. With the shift in power from the suppliers to the customers, greater variety to choose from and access to global markets, the importance of ethics along with laws have been emphasized by many theorists and businesses. The automotive industry is highly complex as far as regulations are concerned thus, before focusing on the organizational chosen for this study, it is imperative to discuss the concept and features of automotive ethics. AUTOMOTIVE ETHICS Automotive ethics refers to a phenomenon that deals with how vehicles are made, their compliance with the governmental regulations and their hazards to the environment and people. The advancement of technology has changed lifestyles drastically. So much so that we as human tend to overlook the negativities and the dangers those are associated with these advancements and new inventions. The invention of engine revolutionized the way mankind travelled. New avenues for transportation and travel through airways and waterways were also enhanced as a result of the engine. Where every man sought to own a vehicle for himself, the increasing demand and sale of vehicles increased a number of problems as well. Several people lose their lives every day as a result of vehicular mismanagement. The high levels of car exhaust dispensed into the air make the air we breathe in highly toxic and dangerous. For example, the city of Los Angeles is filled with smog that is caused by the discharge of car engines. The increasing demand and improved technology called for mass and automated production of vehicles. Thus, machines took over the manufacturing aspect and human resources were only required to handle these machines. Even though machines and computers are more precise and efficient as compared to humans, many malfunctions in systems and assembly because errors that ultimately lead to recalls. These recalls not only damage the image of the brand but also add hefty expenses to the company’s tab. For example, Ford Motors has suffered from many assembly problems and system errors that added risks like problems with the driver’s locks, steering gear jamming, late deployment of SRS airbags, etc. bulk of recalls have led the company to strengthen its production stage processes to ensure that their cars meet the safety and law standards of the countries they operate in. the effects of these malfunctions can jeopardize the lives of the customers bringing up the question whether it is the company’s responsibility to properly test their vehicles before launching them in the market. The need to strike an adequate balance between the safety and cost is a dilemma faced by most automobile companies of the world today. On one hand they focus on producing faster and more efficient car with the latest technology and equipment. On the other hand they have to indulge in cost minimizing strategies that can help the company pass on these savings to the end consumers in the form of low prices. Thus, automobile manufacturers are obligated to strike a balance between cost cutting and safety of the vehicles. Globalization has allowed companies to not only access foreign markets but also make use of outsourced components and labor to cut down on their production cost. This greatly impacts the uniformity of quality in vehicles and questions the quality control measures to handle the dynamism of global production scale. Toyota is one such company that faced severe backlash as a result of outsourcing its gas pedals. The producer of the pedals compromised on the quality to meet the price and quantity quota set for the Toyota Company and ultimately, once they were deployed in the vehicles customers complained of unexpected acceleration that could cause accidents (Finch, 2009). As a result, Toyota had to recall high numbers of its vehicles to fix the faulty pedals and this also negatively impacted its image as a reliable and safe brand of cars. Apart from the major ethical dilemmas that lead to recalls other aspects of the subject include proper disposal of the increased waste that results from automation, having proper policies to fairly lay-off employees that are no longer needed as a result of automation and most importantly, deciding whether having an in-build communication system is a feature that can increase the distraction levels of the drivers, leading to accidents. This paper will shed light on the ethical dilemmas faced by the Toyota motor corporation with major emphasis on the high levels of recalls that the company had to partake in the recent years. The compliance and ethical framework will be studied further to understand the measures that the company has taken to rectify the situation. BRIEF INTRODUCTION OF TOYOTA Toyota Motors is a Japanese automobile brand that is known for its reliable vehicles and use of latest engineering technology to offer the best features in the most economic price. Founded in 1937 by Kiichiro Toyoda, the company started off as an engine manufacturer. In 1936, it launched its first passenger car by the name of Toyota AA. At present the corporation has five major automobile brands under its umbrella namely, Toyota, Hino, Lexus, Scion and Ranz. With emphasis on developing the latest technology and working with the top automobile innovators, the company has major stakes in Daihatsu and Isuzu. Tesla, which has taken the US markets by storm with its state-of-the-art electric and green cars, also has 0.27% of its stake holding with the Toyota Corporation. According to the Toyota global website the company produced more than 8,737,000 vehicles in 2012 alone, making it the largest automobile manufacturer in the world. With operation spread all over the world, the company provides employment to more than 333,000 people worldwide (Toyota-global.com, 2014). The global outreach of the brand is only possible because of its strong external set-ups that promise to uphold the brand’s image and integrity. The massive scale of automobile production and sale can be evaluated through its capital of 397.05 billion yen as of march 2014. The company’s product portfolio consists of several types of automobiles like sedans, sports vehicles, station Wagons, hatchbacks, Minivans, cab-wagons, SUVs, vans, trucks, buses and mini-vehicles. Lexus is the premium Toyota brand that promises to deliver luxury, efficiency and style at par with the market leaders in luxury cars. The constant expansion and global outreach of Toyota motors has also brought about a number of problems with quality control and compliance. The various laws of different countries levy importance on the need for the companies operating in their country so that they do not compromise on the safety and quality standards maintained in the country. Outsourcing of substandard components along with assembly line problems complicated the vehicle malfunctions and the resulting problems. Massive vehicle recalls, hefty repairing fee and dent in the company’s otherwise spotless image has made it an imperative case study for all market players in the automobile industry. ETHICAL DILEMMAS- RECALLS AND QUALITY CONTROL The company Toyota enjoyed top position in the automobile manufacturing market for a long time. Their cars were durable, affordable and safe, making them hugely popular all over the world. The legacy of the brand was envied by most of the market players for its technologically advanced systems and efficiency rates. However, 2009 was a year marred by all negativities for the brand. The US rival of Toyota, general motors, took its position as a market leader in no time, owing to the significant decline in Toyota’s sales and share prices worldwide. In January 2009, Toyota announced a recall of some 1.3million vehicles due to problems associated with seatbelts and exhaust systems in the cars. The economic crisis of the same year added to the complicated recall situation causing the company to perform its worst. In august 2009, Toyota recalled 690,000 cars that were made in china due to window switch malfunctions. This is said to be the biggest recall in China at that time. In September 2009, the situation worsened when Toyota recalled a record of 4 million vehicles in the US due to sticky accelerator pedals which could over-power the car’s speed leading to accidents, injuries or even death. An incident greatly damaged the company’s reputation when a man allegedly called 911 to report the problem with his accelerators moments before he got into an accident and killed 3 people. This caused a nationwide uproar and customers and critics alike, teamed up to raise their voice against such non-seriousness of the company in ensuring utmost quality standards. In January 2010, Toyota recalled 2.3 million additional vehicles to rectify the pedal problem. It suspended the sales in the US market and stopped the production of 8 models of its cars in North America, including Camry which was the bestselling vehicle in the country. The scope of the recall was widened to cover Europe and china as the US congress demanded an investigation regarding the accelerator problems and the level to which Toyota abided by the safety regulations (Allen & Sturcke, 2010). In February, the owners of the recalled Toyota were asked to wait for more than 3 weeks to get to know whether their cars had a sustainable solution. February of 2010 was marked by another serious allegation in the UK when law enforcement agencies advised the masses to stop the usage of Toyota vehicles immediately in the wake of emerging problems with its accelerators and brakes. Toyota UK sent out details to 180,865 vehicle owners to allow a 30 minute fixture of the problems at approved service stations and also announced that they will install a brake override system in all future cars so that brake issues do not occur again. The company claimed that they suffered a loss of $2 million as a result of the mass recalls from all over the world. Further probing into the matter of sticky accelerators revealed that Toyota had been aware of the problem in 2008 which they treated a quality issue rather than a safety hazard. The president of the company publicly apologized for his company’s lapses and admitted that they were in the midst of a serious crisis. In the same year, Toyota corolla vehicles were also recalled due to possible steering problems. This caused a stir in the congress which demanded the company to hand over documents regarding its safety standards. Akio toyoda succumbed to the pressure of the US government and appeared before the congress for the hearing of his company’s case. The hearing ended with decisions to suspend production at some of its plants where the problem had been detected. One major shock emerged when the company’s confidential e-mails were leaked that showed members of the management discussing their success in persuading the US regulatory authorities to allow them leniency in the vehicle recalls. This caused major uproar once again and the US grand jury issued a subpoena to the company to reveal all confidential evidence to allow transparent investigation regarding the production lapses and their causes. Toyota was blamed for providing its customers with misleading information and withholding information regarding its safety defects. Even though the company accepted its pedal malfunctions, they clearly denied the claims that the engine could malfunction to provide extra acceleration. The plaintiffs to the case were also unable to prove the same. Apart from damaged reputation, decline in stock prices and negative publicity, the long ordeal of recalls and judicial investigation cost the company $1.2 billion as penalty to the justice department and they also had to pay $50 million to the national highway traffic and safety administration. The situation suffered by the Toyota Company offers a number of learning points for businesses and customers alike. MEASURES TO RECTIFY THE ETHICS SITUATION Toyota took several positive steps to rectify its issues as a result of the recall crisis. Firstly, blatant public acceptance of the company’s fault and legal pay-out as a measure to pay for their lapses proved to be a positive move to retain many of its enthusiastic loyalists. The company launched a $250 million program aimed at providing component coverage to the vehicle owners. It revamped its brake systems to include an over-ride option to limit the possibility of the recurrence of the problem. Driver education programs and investing in development of safer and more efficient technology enabled the company to stand up from its position of weakness and bear the consequences of their lapses with a strategic mindset. The above situation begs the question about the extent to which it is acceptable for a company to jeopardize the lives of the customers for cost cuttings. Toyota, known for its problem solving approach, accepted its lapses in the vehicle production and did not shy away from confronting the courts to bear the brunt of their doings. They also took a proactive approach to rectify the situation by revamping the compliance function of the business. With global network of suppliers and markets, the company levied extra emphasis on ensuring that strict quality standards are met and that the laws of all the respective countries of operations are met, effectively. The Toyota motors corporation set up additional in-house councils to explicitly monitor its activities forms the perspectives of all stakeholders. The aim of doing so is to affectively implement their global strategy, enhance the production speed and capacity, increase organizational transparency and ensure that the social obligations of the company to meet the needs of the people and the society are fulfilled. The culture of the company emphasizes in taking preventive measures to solve prospective problems and solving problems proactively in case these occur. This is the reason why the company recovered from the challenge it faced in 2010 to actively revamp its operations to become one of the leading automobile companies of the world once again. The company strengthened its management and internal controls by taking one major step of reducing the number of directors who are also the decision makers. In this way solutions are sought and implemented more quickly. Out of the seven auditing companies hired by Toyota, four are external bodies that are required to rigorously monitor the management and operational processes. In 2011, the company focused upon bringing the global network to one level of quality by setting up regional advisory committees. These committees are required to communicate regional problems and receive advice to effectively manage situations. The internal controls were standardized to regulate processes in the most efficient manner possible. The first approach was to generate a positive attitude among the employees and decision makers by establishing an environment that supports respect for people. This was accompanied by the regulation of work processes and structures to maintain checks and balances regarding operations and management. Legal compliance by directors and employees, ensuring their execution of duties, risk management measures in case of losses, assistance of the auditors, transparent disclosure to auditors etc. were part of the basic policy to regulate internal controls in the company. COMPLIANCE Toyota motors corporation’s core principles indicate that the company aims to honor the law of every country and strives to align its activities according to fairness and ethics to become responsible citizens of the world. For this purpose the compliance aspect is of great importance to the company and support is offered through the implementation of code of conduct framework, HRD and training to promote responsible operations by each of the subsidiaries worldwide. In the wake of the recall crisis of 2010, the company emphasized on the improvement of compliance structures for its subsidiaries as well. More comprehensive checklist was formulated and continuous improvements in the list of particulars helped the company strengthen its corporate integrity as a responsible business worldwide. The company recognizes that in order for the compliance aspect to become an undeniable part of its global operations, it is important that the employees ranging from the top management to the low level workers are educated and trained adequately regarding the compliance measures. Company-wide learning programs are conducted periodically to relate the importance of compliance attributes like products liability laws, safety regulations, security controls, copyrights etc. the Toyota’s code of conduct is a framework that was revised in 2006 to highlight the necessary attributes that all the employees are expected to demonstrate. These attitudes included obeying the law, being honest, respecting the community, performing responsibilities, using good and fair judgment and avoiding conflicting actions that may harm the interests of the stakeholders or the company. In order to ensure that the employees have an unbiased avenue to voice their problems and seek a solution, the company has setup a confidential compliance hotline that may also be used by the employees to voice their concerns about the operational processes as well. CONCLUSION The ethical dilemmas faced by Toyota had a severe impact on the brand’s image majorly because it had enjoyed an uninterrupted success streak since it entered the developed markets like the US. This led to high expectations of the people which were greatly affected when the vehicles produced by Toyota had issues with safety and efficiency, two values that Toyota stood for. On one hand these recalls served as a wakeup call for the company’s management that had started taking the company’s success for granted. The emerging competition makes the market heavily competitive, leaving no room for compromise on quality. The crisis of 2010 led to the company revamping its organizational structure, strategy alignment, improved production facilities and operational monitoring that helped it gain some of the image that they had lost amidst the continuous recalls (Hammond, 2013). The loyal customers of Toyota are willing to see the lapse of the company as a mistake and eagerly give it the benefit of the doubt. The recalls served as an affirmation to the company’s commitment to providing the customers with safe and reliable vehicles (Mittal, Dholakia & Sambandam, 2010). REFERENCES: Toyota-global.com,. (2014). Toyota Global Site | Overview. Retrieved 13 August 2014, from http://www.toyota-global.com/company/profile/overview/ Mittal, V., Dholakia, U., & Sambandam, R. (2010). Toyota steers clear of reputation damage. Vikas Mittal, Rajan Sambandam, \& Utpal Dholakia (2010)," Toyota Steers Clear Of Reputation Damage," Marketing Research, Summer, 9--13. Hammond, R. (2013). Sudden Unintended Used-Price Deceleration? The 2009--2010 Toyota Recalls. Journal Of Economics \& Management Strategy, 22(1), 78--100. Finch, J. (2009). Toyota Sudden Acceleration: A Case Study of the National Highway Traffic Safety Administration-Recalls for Change. Loy. Consumer L. Rev., 22, 472. Allen, K., & Sturcke, J. (2010). Timeline: Toyota's recall woes. the Guardian. Retrieved 13 August 2014, from http://www.theguardian.com/business/2010/jan/29/timeline-toyota-recall-accelerator-pedal Read More