Toyota's or Wall Street Ethics in Question?

Wendy Kaufman, of NPR in her article, "Toyota Seen Facing Lawsuits on Several Fronts", states that earlier this month, Toyota said costs related to the massive recalls could total about $2 billion. Some experts believe the lawsuits could cost Toyota even more. Attorney Todd Walburg in the San Francisco office of Lieff Cabraser Heimann and Bernstein says "We have to prove there was a design defect or prove there was a failure to warn," Walburg says. "At this point, we are pursuing both theories." (NPR, February 22, 2010) In a related story, the BBC news, on February 19^th, had reported that Moody's was looking into Toyota's credit rating in a story called, "Toyota recalls thousands of Prius cars worldwide

The BBC news reports the following Toyota timeline thus far:

September 2007, US: 55,000 Camry and Lexus cars in floormat recall

October 2009, US: 3.8m Toyota and Lexus vehicles recalled due to floormat problem

November 2009, US: floormat recall increased to 4.2m vehicles

January 2010, US: 2.3m Toyota vehicles recalled due to accelerator pedal problems (of those, 2.1m already involved in floormat recall)

January 2010, US: 1.1m Toyotas in floormat recall

February 2010, Europe: 1.8m Toyota's in pedal recall

February 2010, Japan, US: 200 reports of brake faults in new Prius. Cars recalled

February 2010, worldwide: 436,000 hybrid vehicles in brake recall. Also, 7,300 Camry vehicles recalled in the US over potential brake tube problems (BBC News)

Did Toyota Follow the Rules for the Recall Process?

What seems to be the central issue is manufacturer liability and whether or not Toyota knew about the defects and whether they changed their own production standards first before notifying the public. A report by the BBC in "Toyota Receives Request for Recall Documents,' shows that among the documents sent to US congressional investigators is an internal company presentation made by Toyota's US boss Yoshi Inaba in July 2009.

It features a page entitled "Wins for Toyota - Safety Group." This lists a series of items where it says Toyota saved money by delaying rulemaking and avoiding defect investigations. One of the items refers to a "negotiated equipment recall" of floor mats involving 55,000 Toyota Camry and Lexus ES350 vehicles, which the document says saved the company over $100m (£64.6m). (BBC)

Toyota's credit rating knocked down

On February 26, 2010, Moody did indeed knock Toyota's credit rating down a peg.

It seems not much is going right for Toyota these days. But Forbes reports, "Though scratched, Toyota's Teflon reputation remains intact. With oodles of cash to tide the company over, its new boss as of this June, Akio Toyoda, will have an easier job reviving the company founded by his grandfather than his rivals at Ford (nyse: F - news - people ), General Motors (nyse: GM - news- people ) and Chrysler in the United States. Current boss Katsuaki Watanabe's effort to slash away at Toyota's flab is also beating a path for the heir apparent."(Forbes)

So the bottom line, it seems is the question that I tend to ask of all publicly traded companies on Wall Street, "What is the difference between ethical behavior and making the quarter?"Pardon me if I laugh here, but Lt. Col Todd Henshaw, a professor at Columbia University, is Academic Director of Wharton Executive Education. Previously, he directed the leadership program at the U.S. Military Academy at West Point. Mr. Henshaw, listed on the Washington Post's Web site as quoted by his blog, "Business schools need to "step up" to take some responsibility for the leadership skills and ethical orientations of their graduates. (Washington Post)

Does education make people ethical?

Dude! I was educated about ethics, and I know right from wrong, but have you ever worked in a corporation and tried to report unethical behavior? You become lambasted, known as a non-team player, are dismissed from the room when conversations begin to get too revealing, managers don't trust you, and then they put you on a lay-off list.

Mr. Henshaw states: "Wall Street is in dire need of courageous leaders who can restore the values of trust and fairness in business rather than the prevailing values of greed and exploitation. Effective leadership in our financial system creates value for shareholders while caring for and preserving the integrity of the system and its stakeholders." (Washington Post)

What is the definition of a corporation, anyway?

I don't think the problem is leadership. I think it is the system itself that is in trouble.

If we look up the definition of the word, 'corporation,' we find, that "a corporation is defined as a legal entity or structure created under the authority of the laws of a state, consisting of a person or group of persons who become shareholders. The entity's existence is considered separate and distinct from that of its members.

"A corporation can enter into contracts, sue and be sued, pay taxes separately from its owners, and do the other things necessary to conduct business. Since a corporation is an entity in its own right, it is liable for its own debts and obligations. As a result, providing that corporate formalities are followed, the corporation's owners (the shareholders) enjoy limited liability, and are legally shielded from the corporation's liabilities and debts."

Mazlow's Law of Hierarchy and my opinion of ethics on Wall Street

Mazlow's law of hierarchy of needs state that people will instinctively try to achieve and protect a progressive system of needs, starting with bodily needs including food, shelter and clothing (can't speak up I need my income); safety, which would include stability and job security (if I am blackballed I won't get that promotion and I might get laid off); social needs; that would include keeping up with the Jones (new cars, nice homes, nice clothes, good food, tickets to events, hobbies, travel); esteem (this would include having the respect, honor and trust of fellow workers of not ratting on them or costing the company money by doing something stupid, after all we're all stock holders in the companies we work for - right?) and finally, the last stage is "self-actualization" - a place of Nirvana, where having perfected the first four stages, others see you as a Master, Leader, Mentor, Sensei or other person of high regard.

Wall Street and focus on making profits for the quarter is the problem!

I think for these reasons, that any hopes we have for companies like Toyota, GE, UTC to operate ethically is just a dream. Their purpose is to make profits, and that's it. Yes, we hope they have the customers, safety and the communities they reside in and sell to, in mind, but those are secondary to them making a profit on Wall Street!

If we cared more about those things and less about profit, then maybe we would change the system and force executives to be obligated for their corporations' liabilities and debts. That would change the playing field, and it would perhaps make the culture in an organization less likely to blast those that would like to operate ethically but can't for fear of losing their jobs.

Believe me, I worked in a big company and anyone that said anything negative or if they spoke the words, "unethical" out loud, it was like "whack- a- mole" mentality. Managers would do whatever they could to squelch it, including making that person so miserable they hoped they got laid off.

Sources:

'corporation', Allbusiness.com

Moody did indeed knock Toyota's credit rating down a peg, Forbes.com

Mazlow's law of hierarchy, Allbusiness.com

"Toyota recalls thousands of Prius cars worldwide, BBC News

Toyota Seen Facing Lawsuits on Several Fronts, NPR News

Mr. Henshaw, listed on the Washington Post's website, Washington Post

"Toyota Receives Request for Recall Documents', BBC