Ethics Letter: Recalling the Defected Vehicles - Case Study Example

ETHICS Ethics is concerned with issues of moral rightness and wrongness of decisions and actions. It is somewhat linked with the field of philosophy and it relates to the morality of any decision or any act performed. The letter below is addressed to the shareholders; it addresses the ethical issues that the company faces and justifies the decision to recall the vehicles. (ACCA, 2009) LETTER 1 To, The Shareholders Subject: Recalling the defected vehicles As Chairman of the company, I would like to inform the shareholders about recalling the defected vehicles back and installing the “sway bar” in them to provide balance and equilibrium within the vehicles. I would like to provide the reasoning for that decision and would also like to point out the ethical issues that have risen for the company. The company being one of the large automobile manufacturers of the world produces two different types of vehicles, one being the SUV’s and the other being the light trucks. Of late, the company has faced issues remaining profitable for its shareholders. There are about 1,000,000 of these types of vehicles on the road and all of them having a good reputation amongst its customers. The engineers in the company have found some balancing issue in the vehicles and due to that the company had to face five law suits lately. All those law suits had to be settled amounting to $500,000 in total. To fix the balancing issue in the vehicle, it would cost $180 per vehicle after all the vehicles would be recalled. The main ethical issue that is to be considered is the knowledge of the defect in the vehicles not been conveyed to the customers. Although the company has faced five different legal proceedings, it has dealt with them with any disclosure made to the public at large. This issue of not disclosing the information to the public may cause severe damages as all the customers using the vehicles face the risk of death in an accident. This may cause the drivers of the vehicles to face severe accident which may life threatening or may cause any other disability to the drivers of the vehicles. The company has many different ways to solve this ethical dilemma. The options available to the company are; Recall the vehicles; this would cost the company around $18,000,000 but in such a drastic period where profits have been deteriorating, the shareholders would not agree to this. This $18,000,000 would be a major cost that the company would have to bear and because of this cost the other stakeholders that might get affected are the employees. The employees would have to be paid extra for the additional work to be done, this would further upset the shareholders as the profits would further diminish and have a negative effect on the company’s share price. Besides the employees, the customers would be another group of stakeholders who would face the harm of this severe manufacturing fault. The customers may face health and safety issues if the problem is not resolved quickly. Inform the customers about the “sway bar” issue and ask them to get it repaired form the company’s authorized outlets. The cost should also be recovered from the customers individually. The major stakeholders in this decision would be the shareholders, the employees and the customers. The shareholders’ profit would not get affected, the employees’ wages would not get affected and on the other hand, both the shareholders and the employees might get additional profits or benefits respectively. The customers would be the only one who would get negatively affected with this decision. They would have to pay the extra burden of the “sway bar” cost and would also feel that their lives were at stake while they drove those vehicles. Do not recall the vehicles; the existing vehicles should not be recalled and no information shall be leaked out regarding the equilibrium issue, rather the new vehicles should be altered accordingly and delivered to new customer. The shareholders and the customers would be the major stakeholders if such a decision is taken. The shareholders would be happy with their profit and may be happy if the profits go up. The customers on the other hand will have no knowledge of the “sway bar” issue with their lives at stake. There might be some increased legal suites on the company that the company may have to face in the future if such a decision is taken. Regards Chairman LETTER 2 To, The Shareholders Subject: Not issuing a recall on the vehicles. As Chairman of the company, I have decided not to issue a recall on the flawed vehicles. I would like to give my reasons for that decision. Besides the reasoning, I would like to discuss the effect of this decision on all stakeholders. The decision to recall the vehicles would cost $18,000,000 to the company and such an amount is a hefty amount in the circumstances that the company currently faces. On the contrary, the legal proceedings that the company had to face in the preceding two years only were only five which amounted to $500,000. Comparing these two scenarios suggests that the incidence of such legal proceeding is low and the amount considered is not a huge one. Out of the 1,000,000 vehicles, only five have been found worth noticing and that too in 2 years time period. The risk of having other vehicles to bear the same problem is low as there have only been 5 cases in 2 years, besides the life of such vehicles would be around 8-10 years. If 5 cases are reported in 2 years than according to that situation the probability of having cases in 8 more years would equal to 20 amounting to $2,000,000 only. The profits would also be saved and the customers would also remain satisfied with the company. The shareholders and the customers would be the major stakeholders in this decision. Shareholders would get their profit and the customers would have to suffer the risk of travelling in an unbalanced vehicle. Regards Chairman Decision According to the issues the company is facing, it is ethical and better for the company to recall its vehicles back and bear the burden of the “sway bar” cost. This would cost $18,000,000 to the company but would bring in major benefits to the company in the form of advertisement, increased goodwill and increased revenues in the future. This decision may seem costly in the beginning but this has major benefit for the company in the long-run. Besides, the average cost of negotiating with the affected customer is around $100,000, there is a chance that out of the million cars already on the road if only 20% got affected, the company would have to face $20,000,000 settling the legal suits. Besides that, the company might get exposed and might provoke more customers to sue the company. This would not only dent the reputation of the company, it may also make them face a severe financial blow. References Association of Chartered Certified Accountants (Great Britain). (2009). Professional accountant. ACCA complete text, paper P1. Wokingham, Berkshire: Kaplan Pub. Read More