CSRnightmare at General Motors
GeneralMotors is among the top five vehicle manufactures around the world.After suffering a decline during the 2008/09 global financial crisis,the firm has registered impressive growth in the last few years.However, the firm is not performing well compared to its peers Ford,Toyota Motor Corporation, BWM group and others as its market share inthe US continues to drop from 19.6% in 2011 to 17.9% in 2013 (Klaymanand Ingrassia 2014). After being bailed out by the government in 2009after declaring its bankruptcy, more trouble is on the way. The socalled New GM has been served a $10 billion lawsuit over serialrecalls from vehicle owners and dealers of 27 million vehicles. Thedrivers and dealers are seeking payment for fallen prices of carsowned or leased between 2009 and 2014 and payment for any damagesresulting from the faulty ignition switches. The firm was subject toa congressional hearing and several public protests have been stagedagainst the firm. In addition, the firm is also under transition witha change in management following early retirement of Vice Presidentand the General Counsel. In short, GM is facing a CSR disaster. Thequestion is how did the firm get here? The paper looks at key CSRconcepts and addresses the failures or mistakes GM has committed tobe in the current situation and what it can do to rectify it.
GM has been accused of coveringup the faulty ignition switches. The firm has exonerated itself fromsuch accusations made by Congress through a 325-page report thatindicates there was no cover up (Sandler 2014). The delayed recall ofvehicles with faulty ignition switches has been attributed to‘plodding culture’ at the firm and “a pattern of incompetenceand neglect” amongst some of its employees (Bunkley and Colias2014). To address this supposedly negative culture, 15 employeesincluding eight executives were fired. Among the accusations leviedagainst these employees was failure to act on data and evidenceprovided on faulty ignition switches. One engineer was in particularblamed for failing to recognize the safety risk posed by vehiclesshutting off as airbags could not function and thereby exposingdrivers to higher risks (Sandler 2014).
The agency theory can partlyexplain the current situation facing GM. According to this theory,the relationship between owners/shareholders and theiragents/executives does not always achieve what it is intended to.This means that while shareholders appoint an executive with amandate to maximize their profits or investments, the executives maybe led by other interests other than those of the shareholders. Thetwo parties may also have different levels of information leading todisjointed decision making and poor strategy (Kumar and Schmitz 748).The case of GM shows well the different levels of information betweenthe two sides. Senior executives at GM claim they were not aware ofthe risks involved as the issue was largely privy to the engineeringsection. In 2005 the management reasoned that possible fixes were toocostly or inadequate and thus the engineering executives at the firminstructed dealers to advice customers to remove heavy items fromtheir car key holders to alleviate the problem. It was only in 2007that a design change to the ignition switch was made but there wereno significant changes as problems persisted.
The management of GM failed itsconsumers. The argument that the switches were too costly to replacewas clearly a management’s decision and blaming that solely on theengineering department is shifting blame. The CEO of the companyshould be well informed about developments within the firm and theproducts being developed as a representative of the shareholders.Nonetheless, her mandate being to shareholders rather than consumersresulted in a decision that favors shareholders. Any recall moveimplies additional costs, affects company’s financial performance,brand image among others. Human life to the management is not thefirst priority. In this case, there is conflict of interest. Whilethe management team is trained on proper management ideals such asethical and moral conduct of businesses, their job positions relymore on their ability to make profits (Hora, et al 779).
There are two possible ways toensure that organizations conduct business ethically. One of the waysis self regulation by these organizations. As indicated earlier, anorganizations management’s loyalty is to the shareholders and themandate is to grow profits. However, as entities operating in givencommunities, organizations have a responsibility towards thesecommunities and stakeholders and thus must be responsible corporatecitizens whose conduct is ethical and morally upright by localstandards. This requires shifting their orientation from shareholdersto stakeholders and thus factoring in external actors and theirinfluence on decision making and strategy in the firm. In the case ofGM, manufacturing and distributing safe automobiles is a coreresponsibility to their clients as the primary stakeholders but alsoto other road users who might be affected by faulty vehicles on theroads. Such a broad-based orientation leads to additional costs tothe firm, delays in decision making pending consultations withstakeholders, complexity in business performance assessments amongothers. As such, it is the wish of many firms to minimize these costsby grouping stakeholders in groups of convenience. Organizationaldecisions that best matches the majority of the stakeholder needs aregiven priority. In most cases, external stakeholder needs implyadditional costs to the firm hence firms go for the bare minimum. Therecalls, one of the key stakeholders needs, was carried only afterthe accidents claims and reported deaths increased.
The second way that organizationethical behavior can be enforced is through laws and regulations.This approach is based on the belief that business organizationsexist only for profits. They have no consideration for non-profitableactivities in the name of being socially responsible. Additionally,any CSR moves that businesses make are actually marketing gimmicksthat are highly publicized and provide opportunities for free mediacoverage and benefit the organization more than it does to thesupposed beneficiaries (Bacher 18). Regulation thus enforces CSRactivities for the common good other than for the organization. Thishas seen establishment of regulatory bodies in various industries toregulate behavior such as financial compliance and reporting, faircompetition and most importantly consumer protection against faultyproducts. The benefits versus costs of these regulations aredebatable. An organizational approach views regulation as unwantedgovernment interference and added costs while the governmentalapproach views regulation as a minor cost that bears more benefits.
Consumer protection and safety isany government’s responsibility toward its citizens. With thisclearly stated in law, the government has forced GM to recall thevarious models regardless of the cost or impact on the firm’simage. The government has delayed on act on the firm due to thefirm’s political position. Huge corporations like GM wieldsignificant political power. Their existence is more important thanseveral lives lost given how much they contribute to the US economy.In today’s globalized economy, huge corporations have assumed statelike functions courtesy of their influence on the economy (Schererand Palazzo 903). The power of GM in fact thus captured by the factthat the government was unable to enforce the since the firstincident as reported back in 2001.
The current situation hasimpacted GM’s brand and image. There is need to manage theresulting crisis and address different stakeholders over the sameissue. For instance, the congressional hearings blamed the delayedrecalls on the firm’s Chief Counsel, Michael Millikin. Senatorsdemanded that GM should fire Millikin for his cover up. In response,GM retired the 66 year old man but maintained that he was innocentand loyal to the employer and reiterated that he was not responsiblefor delayed recall. However, it is clear to see that the recallstrategy adapted by the firm is reactive and not proactive. Ethicalconduct from such firms demands proactive recalls to protectconsumers and uphold the firm’s reputation. Prior qualityreputation before a recall does very little to convince consumersabout the severity of the reported problems which validates theclaimed drop in prices of affected models (Grunwald and Hempelmann,266)
From the discussion above, thecurrent crisis of faulty ignition switches at GM has been handledpoorly. The firm has made attempts to solve issue internally butbalancing the needs of all stakeholders has proved an elusive task.The management still retains a historical view of the role of a firmwhich is to make profits which gives the government a key role inenforcing ethical conduct through laws and regulations to protectconsumers. The firm is only reacting to the crisis as result ofpolitical, consumer and public pressure. Other added effects such asimpact on customer loyalty will be realized later and will be furtherdetermined by how the firm will handle the crisis onwards.
Bacher, C. (2007). Corporatesocial responsibility.London: GRIN Verlag,
Bunkley, Nick and Mike Colias. GMDismisses 15 Employees as `Deeply Troubling` Recall
Probeis Released.Automotive News.5 June 2014. Web. 14 Nov. 2014.<http://www.autonews.com/article/20140605/OEM11/140609902/gm-dismisses-15-employees-as-deeply-troubling-recall-probe-is>.
Grunwald, Guido and BerndHempelmann. Impacts of Reputation for Quality on Perceptions of
CompanyResponsibility and Product-related Dangers in times of Product-recalland Public Complaints Crises: Results from an EmpiricalInvestigation. CorporateReputation Review(2010) 13,264–283. Print.
Hora, Manpreet, Hari Bapuji, andAleda V. Roth. "Safety Hazard and Time To Recall: The Role
OfRecall Strategy, Product Defect Type, and Supply Chain Player in theU.S. Toy Industry." Journalof Operations Management29.7 (2011): 766-77. Print.
Klayman, Ben and Paul Ingrassia`New` GM has old problem: stagnant U.S. market share. Reuters.
Web.Jan 13 2014. Web. Nov 12 2014.<http://www.reuters.com/article/2014/01/14/us-autoshow-gm-marketshare-idUSBREA0D03J20140114>
Kumar, Sameer, and StephanieSchmitz. "Managing Recalls in a Consumer Product Supply Chain –
RootCause Analysis and Measures to Mitigate Risks." InternationalJournal of Production Research49.1 (2011): 235-253. Print
Sandler, Linda. GMSued for $10 Billion Over Losses on 27 Million Cars.Bloomberg. Oct 15 2014.
Web.Nov 12 2014.<http://www.bloomberg.com/news/2014-10-15/gm-sued-for-10-billion-over-losses-on-27-million-cars.html>
Scherer, Andreas Georg, and GuidoPalazzo. "The New Political Role of Business in a
GlobalizedWorld: A Review of a New Perspective on CSR and Its Implications forthe Firm, Governance, and Democracy." Journal of ManagementStudies 48.4 (2011): 899-931. Print.