GM’s Corporate Social Responsibility Considerations

GM’sCorporate Social Responsibility Considerations

GM’sCorporate Social Responsibility Considerations

Settinga good record is one of the key goals that the majority, if not allorganizations aim at achieving. Most of the organizations seek toachieve and maintain their reputation by formulating strong corporatesocial responsibility policies (Valdes &amp Yellin, 2014). However,many organizations fail to implement their CSR policies, which inturn reduce their capacity to manage the relationship between theorganization and its stakeholders, including the customers,employees, and the shareholders. General motors, similar to otherorganizations have a CSR policy that is based on the key principles,such as safety, respect, and integrity (General Motors, 2014).Despite the existence of such a strong CSR policy, General Motorshave experienced a significant glitch about its capacity to protectits customers from potential threats. This paper will analyze theGM’s CSR considerations that resulted from faulty ignitionswitches.

Background

Althoughit is generally believed that the ignition problem with the Generalmotors cars was discovered in 2004, the some engineers had reportedsome problems as early as the year 2001. According to (Valdes &ampYellin, 2014) some engineers detected some problems with themechanism that was expected to hold the car’s ignition key to itsplace during the pre-production tests. However, the main challengewas discovered in 2004 when a sudden loss of power occurred duringthe post-production test of the Chevrolet Cobalt. Since then, themanagement of the General Motors has been receiving reports, bothfrom its engineers and the regulatory agencies, regarding thepotential security threats that the faulty ignition switch caused tothe GM consumers. The management of the General Motors had ignoredthese reports for more than ten years, until the year 2014, when thecompany decided to recall more than 27 million cars (Hemphill, 2013).

Delayedrecall and its effect of the GM CSR

Itis evident that the management of the General Motors had deliberatelydecided to sell cars with faulty ignition switches. The General Motorengineers had notified the management about the problem with theignition system in 2004 (Hemphill, 2013). The main reason gives forthe failure by the management to address the fault is the costimplications that would be associated with the process of redesigningthe ignition system. Although this may appear to be part of the dutyof loyalty (protecting their funds) on the part of the shareholders,it demonstrates the failure on part of the management to assume theduty of care for the consumers. It is estimated that the faultyignition system has caused about 13 deaths, which can be attributedto the failure of the top management to promote an ethical culture.

Thereare two major possibilities that brought about this phenomenon.First, the General Motors could have been under pressure to excel andsave the company out of its financial constraints that began duringthe global crisis (Hemphill, 2012). This might have forced themanagement to avoid the cost of redesigning the ignition system,which culminated in tarnishing of the GM’s record of corporatesocial responsibility. Secondly, the failure by the executiveofficers to consider all concerns raised by the technical staff(including the engineers) is a sign of problems in the relationshipbetween the management and other stakeholders (including employees).This is because the management of the General Motors neither valuesthe contributions made by employees nor perceives the impact of thecompany products on consumers.

Failureto comply with the regulations and its impact on the GM’s CSR

Compliancewith the government rules and regulations, especially those that areframed to protect consumers, is one of the appropriate ways ofassessing the suitability of the company’s CSR policies. Accordingto the National Highway Traffic Safety Administration, GM failed tocomply with the Federal Safety regulations that are also part of itsown CSR policy (Hemphill, 2013). This attracted a penalty of $ 35million, which was a significant loss for the shareholders. Apartfrom the fines, the company was required to recall the faulty carswith the faulty ignition system, which is an additional cost on thepart of the GM. This means that the company will company will lossits revenue and reputation as a result of the failure to observe thelaws that are well stipulated in the government and the companypolicies.

Thedecline in the reputation of GM will resonate with customers becauseit will influence their future car buying decisions. This decreasesthe company returns and subject it to further financial constraintssimilar to its experiences during the global crisis. Studies showthat the GM share prices have already started declining since theannouncement of the recall of millions of cars (Hemphill, 2013). Thismeans that the GM will continue losing its popularity among investorsas well as consumers. The act of deviating from the acceptable safetystandards has culminated in the lack of trust among the stakeholders,lawsuits, and customer dissatisfaction. However, the future of the GMwill depend on how the management will manage its reputation afterthe recall.

Strategicmanagement of the GM’s stakeholder relationships

Theconventional assumption that corporations exist to make financialgains for their shareholders is an outdated notion that the GM’smanagement should avoid at all costs. The management adopted thenarrow definition of the term stakeholders, which resulted in itsmain focus on the shareholders, while forgetting that its productshave significant impacts on consumers. To secure its futurereputation, GM has to embark on the strategic management of therelationships between its stakeholders. There are three major stepsthat the GM’s management should adopt in managing the relationshipsbetween its stakeholders in the long-run. First, the company shouldidentify all its stakeholders and diagnose them in terms of theirpotential cooperation (Blair, Payne, Rotarius, Whitehead &amp Whyte,2000). Secondly, GM should formulate strategies that will help in themanagement of the relationships between its stakeholders, includingthe consumers and shareholders. Lastly, the company should evaluatethe implications of effective management of these relations (Blair etal., 2000). This process should specifically focus on therelationship between GM and its customers who have expressed asignificant level of dissatisfaction. The effective management ofthis relationship will salvage the GM’s reputation.

Conclusion

Thefact that the management of the General Motors had been informedabout the faulty ignition switch before 2004 confirms that thecompany was attempting to sweep the issue under the rug. Although themanagement was under pressure to reduce financial constraints byavoiding the cost of redesigning the switch system, it was unethicalto subject consumers to the risks (including death) associated withfaulty switches. In addition, the possibility of a poor relationshipbetween the executive and the technical staff raises the concern thatthe top management deliberately ignored the warning issued by thecompany engineers. However, these facts have been revealed when thereputation of the GM has already been tarnished.

References

Blair,D., Payne, G., Rotarius, M., Whitehead, J. &amp Whyte, E. (2000).Strategicmanagement of stakeholders’ relationships.Lubbock, TX: Texas Tech University.

GeneralMotors (2014). Aboutthe General Motors Foundation.Detroit, MI: General Motors Foundation. Retrieved November 15, 2014,from http://www.gm.com/gmfoundation

Hemphill,T. (2013). GM set a record, and its story gets even worse. RealClean Market.Retrieved November 7, 2014, fromhttp://www.realclearmarkets.com/articles/2014/05/23/gm_sets_a_record_and_its_story_gets_even_worse_101074.html

Hemphill,T. (2012). The new General Motors: A paragon of socialresponsibility? RealClean Markets.Retrieved November 7, 2014, fromhttp://www.realclearmarkets.com/articles/2012/06/08/the_new_general_motors_a_paragon_of_social_responsibility_99712.html

Valdes,P. &amp Yellin, T. (2014). GM:Steps to a recall nightmare.Washington, DC: Cable News Network. Retrieved November 15, 2014, fromhttp://money.cnn.com/infographic/pf/autos/gm-recall-timeline/