Question

Jerry is the CEO of XYZ Motors, a large automotive company that produces affordable four-passenger cars for the typical lower-income class family. Each model is typically driven only five years. The model from two years ago, the XYZ-8, which sold for $8,000, has been involved in four car crashes where the cars, when struck from the rear when the right blinker signal is activated, causes the fuel in the gas tank to ignite. There have been no fatalities, but several injuries. Victims have begun organizing into a class action lawsuit against the company.

A technician at the company discovered the issue with the blinker circuit soon after the last explosion was analyzed. He wrote the following memo to his superiors:

“We can recall each of the XYZ-8 models that we have sold and replace the blinker circuit with a new lining. It is highly likely this will correct the issue. This will lead to a cost to the company of $20 per car for the repair and an estimated $50 in lost labor revenues, since we cannot charge for the refit. There are an estimated 500,000 cars that are affected. Estimated cost to the company of this refit program: $35 million. If we do not act soon, there could be an estimated two explosions per year.”

Soon after reading this memo, Jerry gives his accounting department a hypothetical scenario: what would be the cost of settling a class action lawsuit out of court for ten low-income families? Estimating the present value of typical future earnings from a blue collar worker, aged 18 to retirement age of 65, the accountant gives a figure of $600,000 per family, amounting to a total settlement of $6 million.

Jerry orders his legal counsel to proceed with settling the class action lawsuit and does not inform his board of directors about the technician’s memo. Discuss.

Answer 1

Ans:-

The final action by to have his legal counsel to proceed with settling the class action lawsuit to a total settlement of $6 million and not informing his board of directors about the technician’s memo is absolutely unethical code of conduct. He has violated the professional code of conduct by being unethical and unfair in his role. He preferred to pay a lesser amount ($6 million) than actually replacing the faulty parts for $35 million. His focus was on the financial aspect of the situation rather than rectify the problem. He never gave importance of the lives of the innocent people who are in the danger zone. Customers who bought the XYZ-8 is under the risk of accidents. However, Jerry never thought about the lives and the injuries to the customers. His only concern was to resolve the problem at the earliest to protect his company from getting any bad reputation. He thought that out of court settlements would avoid any consequences. But in reality this is not so.

Additionally, his action of concealing to his board of directors about the technician’s memo is an unfair practice because as a CEO it is important for him to inform the board of directors of any potential threat the company might face.

According to the Utilitarian ethical theory, it is advised that Jerry disclose to the board of directors the faulty products in XYZ-model and the resulting potential consequences of two accidents per year. Together they should arrive at a solution of recalling the faulty products and replacing them with the new ones for $35 million. This theory reflects that an action is considered best if it does maximum good to a greater number of people. In this case, saving the customers from any potential threat of accidents due to the XYZ-8 model car is the best action. Jerry needs to be fired for his unethical trade practices.