Question

Scandals and Ethical issues in Finance

In this discussion, choose a company that has either done something completely illegal or walked a fine line with regard to ethics. Specifically, report on the company including what the company did or is alleged of and the outcome that resulted from being caught. Then, how would you have consulted your chosen company to prevent them from making unethical and/or illegal decisions? Please be specific,

Thanks and your response will be well-rated,

Answer 1

Lawsuit claims Toyota ignored safety issues

Toyota Motor Co ignored evidence of acceleration problems in its vehicles for most of the past decade and failed to install a brake override system it knew could have prevented accidents, an amended federal lawsuit filed.

The revised lawsuit was filed in U.S. District Court in Southern California on behalf of nearly 40 consumers and businesses for claims of economic losses, including diminished vehicle values, stemming from complaints of Toyota cars racing out of control.

Plaintiff lawyers say they expect the litigation will encompass some 40 million U.S. consumers if class-action status is conferred on the lawsuit as intended.

The amended suit cited an internal company memo as saying that Toyota’s U.S. sales arm had requested a “fail-safe (brake override) option” in 2007, three years before the company committed to making that safety feature standard.

Toyota also failed to address a marked spike in complaints involving sudden unintended acceleration starting in 2002, the year a new electronic throttle control system became standard equipment in its cars and trucks, the lawsuit claims.

Toyota has insisted the only defects causing their vehicles to speed out of control were ill-fitting floor mats and sticking gas pedals — both addressed in safety recalls.

The company says many unintended acceleration cases stem from driver error — motorists hitting the gas pedal instead of the brakes — and has steadfastly denied the existence of a glitch in its electronic throttle system.

“Toyota firmly believes that the system is completely safe and that reliable scientific evidence will demonstrate the safety of our vehicles in the investigations currently under way and, ultimately, to the court,” it said in a statement.

DRIVER ERROR OR DEFECT?

But the suit says the number of unintended acceleration complaints with U.S. safety regulators increased nearly five-fold for Toyota’s flagship Lexus ES luxury sedan in the first year that Toyota introduced new throttle technology.

Complaints jumped by a factor of 14 when the electronic system replaced mechanical controls on Toyota’s Tacoma pickup trucks, the suit says.

“They keep saying it’s always the driver. The problem is, look at the statistics,” said Steve Berman, a lead attorney for the plaintiffs. “The Tacoma had a 14-fold increase in acceleration complaints. According to Toyota, that means that a huge number of consumers, coincidentally, can’t figure out which pedal to use.”

Toyota, however, pointed to the fact that its legal adversaries have not identified any specific defect in the electronic throttle system. The automaker also rejected claims of economic damages resulting from its recalls.

Concerns over the rising trend of Toyota acceleration complaints were raised by an investigator for the U.S. National Highway Traffic Safety Administration and separately by insurer State Farm as early as 2004, according to the lawsuit.

The Japanese automaker has recalled over 5 million vehicles in the United States this year, a record number that has damaged Toyota’s reputation for quality in its largest market.

The amended complaint filed Monday is a consolidation of dozens of similar consumer claims brought against Toyota in federal courts around the country and merged in April with U.S. District Judge James Selna for pretrial proceedings.

The new 158-page filing draws partly on a review of internal Toyota documents that were turned over to congressional investigators under subpoena earlier this year.

Plaintiffs lawyers have only just begun to examine those documents deemed confidential by Toyota, Berman said.

He said the entire discovery process — in which the two sides exchange information to prepare for trial — could take up to two years. A hearing on whether the lawsuit can proceed as a class action is not likely until 2011.

The slow-moving legal battle shaping up in a federal courthouse a short drive from Toyota’s U.S. headquarters in Torrance, California, underscores the lingering risk to its finances and reputation from its safety issues.

Toyota has lagged a sales rebound in the U.S. car market this year. Its sales are up 10 percent compared with a 17 percent gain in the market as a whole.

Toyota has hired an outside safety research firm to evaluate its electronic controls. The automaker said last month that its own investigation of 3,600 consumer complaints of unintended acceleration had found no evidence that its throttle control technology, known as ETCS-i, had failed.

How To Prevent Poor Ethical Decision-Making

Over the last decade, Americans have witnessed a preponderance of poor ethical decision making. Examples include the bribery charges against Siemens, which led to the resignation of both the board chairman and the chief executive officer in 2007 and within this blogger’s local area, the firing of the superintendent and the chief financial officer of the Seattle Public School System due to alleged misappropriation of school district funds in 2011. So what’s a manager to do to reduce the chances of unethical acts?

Although there are ethical people, to reduce the chances of acting unethically, it is important to:

Recognize common characteristics of poor decision making: Ethical employees may make poor ethical decisions when they are overconfident, do not understand the complexity of the issues, and when corporate governance structures are weak or non-existent. While it’s important to be confident in business, don’t let overconfidence lead to illogical rationalizations or overlook the complexity of problems or issues. Because weak or non-existent governance structures can lead to poor ethical decision-making, ensure proper business controls and oversight at all time. Just look at what happened to Enron – their lack of corporate controls and oversight led to questionable business transactions, leading to the eventual downfall of the company.

Learn ways to resist requests to act unethically: This actually isn’t as hard as it sounds. The first step is to recognize when a request is unethical. Read your company’s employee manual and ethics guidelines to ensure you are clear on what is acceptable and unacceptable behavior. Not sure if a request is unethical? Buy time (second step) so you can conduct some research to find out. Human resource (HR) professionals and the company’s legal department are terrific resources for these types of discussions. Then, (third step) if the request turns out to be unethical (or illegal), consider seeking help from the company’s HR or legal professionals to determine the best course of action.

Understand ways to lead ethically: One of the most important steps to leading ethically is to act ethical. Working for a boss who behaves unethically engenders little to no respect from the manager’s direct reports. Further, employees may “be tempted to rationalize their own unethical conduct when they see their leaders acting unethically (Mallor et al, 2010, p. 119). According to Boatright (2009), another way to lead ethically is to communicate the company’s core values, code of ethics, and guiding beliefs, “An effective code of ethics that is enforced in an organization provides employees with a tool for resisting pressure to perform unethical or illegal actions” (p. 398). Another way to lead ethically is to reinforce ethical behavior and punish unethical acts with appropriate consequences.