Business and Economics

Management Ethics and Corporate Governance: MGX3100

Week 3

Anyone who doesn’t belong to a group?

Re-organising: we don’t have anyone in week 5!!!

Ford Pinto Case study

Week 1 Recap: Parts of a Case Analysis Synopsis of case.

Identification of ethical issue (what bothers me?).

Overview of appropriate theoretical frameworks.

Application of frameworks to case.

Possible courses of action (how could issues be resolved).

Conclusion (opinion as to best course of action).

Case Synopsis

In 1978, the rear of a 1973 Ford Pinto was hit by a van.

The gas tank ruptured.

The three teenagers: Judy Ulrich, Lynn Ulrich and Donna Ulrich died.

Ford was tried for reckless homicide. This was an important case for Corporate responsibility and Product liability. Ford won the case.

http://www.youtube.com/watch?v=PAI5T8UecEY

Case Synopsis continued http://www.youtube.com/watch?v=vVq0qCpcCoA

DECISION MAKING AT FORD REGARDING PINTO:

Knowingly put an unsafe car on the road:

Knew that Pinto was an unsafe car due to the position of the gas tank. In-house tests showed the vulnerability to fire.

Cost Benefit Analysis: Decision makers put a $ value on Human life and suffering, and decided to continue with the car. Furthermore they were willing to pay for out of court settlements.

Did not inform customers about the option of installing a safety bladder at a small price.

Actively lobbying against incorporation of higher safety standards since this would have lead to redesigning of the car.

Can of worms: Many Ethical Dilemmas Should Ford have used cost-benefit analysis? Is it ok to put a $ value on

people lives and sufferings?

Is it ethical for a corporation to engage in political lobbying to prevent higher safety standards from being implemented?

IF, Ford is wrong, then who is to be blamed: the managers or the directors.? How can we make them pay: $10,000 each for the homicides?

Ethical versus legal actions of Ford.

Who sets the acceptable standards? What is the role of society in setting these standards? What is the role of corporations in setting these standards?

How do we make these decisions. Are we putting Corporations in 22 situation: Safety and less costly? Crisis of Capitalism?

What are the responsibilities of a corporation? How should organisations structure themselves in order to make ethical decisions?

How can Industry, Government and Society interrelate to form a framework within which such decisions might be made?

SOME ETHICAL QUESTIONS

Were Fords actions legally justified? Were Fords actions ethically justified?

Was Ford ethically wrong in designing and marketing the Pinto, having comprehensive knowledge about its safety issues, and basing its decision on cost-benefit analysis? What makes some actions ethically (morally) right and others ethically (morally) wrong?

Theoretical Frameworks Relationship between Ethics and Law:

It is generally agreed that ethics is the foundation of law – many core laws prohibit actions that are also serious ethical (moral) wrongs. Many of the ethical (moral) rules of our society are underpinned by the law, ie they are also legal rules.

Ford was following the legal standards, however lobbying actively.

The Consequentalist Approach to Ethics:

• ethics determined by consequences.

• According to the Utilitarianism, the morally correct action is that action with most good consequences and least bad consequences.

• Fords Cost benefit Analysis, ok to let 10 people to die, saving American Jobs and providing affordable cars to the society.

Analysis Being legal does not imply being ethical

Right to Live is a moral right of the people(customers of Ford).

A clash between moral and legal rights Ethical Issues.

A mistake is justified using utilitarianism

Calculating the value of human life.

Projecting the companies loss as the cost for the society.

Hint of Prudence.

Failure of Capitalism.

Deontology: the intent of Ford: Kill or letting die?

Some Solutions1. Pay the $11 per vehicle

2. Explore different safety features after in-house testing

3. Restart the project from the planning process

4. Continue with production of the Pinto

Alternative 1: Recall and Redesign the Pinto with improved safety by investing $

11 per vehicle

Benefits

Saving human lives. Regain Customer Confidence. Integrity and brand value of Ford Motors will be increased. Set an example in the industry.

Costs Extra expenditure incurred to repair and produce. May loose competition due to higher price. May loose market share.

Alternative 2 Explore different safety features after in-house testing

Benefits

Prevented human causalities and injuries. Could gain customer belief as a responsible company. Could have set a good example for the industry. A cheaper alternative could be found. Profit margin could be higher than first alternative.

Costs Brand value may be lost in terms of safety concerns. Delay in re-launch. Loss of market share.

My Recommendation Repair the Pinto so that it is a cheap, safe car that will please the

customers.

Act as a responsible company and not expose customers to unknown risks.

Implement a more cost effective option than adding the $11 safety addition.

Save lives by not releasing unsafe Pintos.

Set Industry Standards.

Can we put a price on Human Lives?

http://www.youtube.com/watch?v=faSa3r8WIU0

Class Discussion

The debate

Also, Ford workers were afraid to talk to Iacocca about the safety defects.

In Feb. 1978, Ford was sued for $128 million – more then 3 times the amount they had predicted.

May 1978 – Department of Transportation announces defects with the Ford Pinto – Ford recalls 1.5 million Pintos.

Mar. 1980 – Ford was charged with reckless homicide – acquitted of charges, however they stopped all Pinto production

Student Reflection As a business student, how do you feel about what happened at Ford?

What would have you done if you were an employee at Ford?

Ford Employee Reflection:

http://www.csrconnected.com.au/2013/04/my-biggest-mistake-what-we-all-can-learn-from-the-ford-pinto-case/

Essay Toyota has recently announced that they will cease producing cars in

Australia in 2017.

Use each of the Shareholder and Stakeholder theories of corporate social responsibility to analyse and evaluate this decision.

In your response identify the consequences (both negative and positive) of this decision .

What responsibility (if any) for these consequences is bourne by:

1. Toyota 2. The Australian Government 3. The Australian Manufacturing Workers Union

Word limit: 3,000 words, Weighting/Value: 30%

DUE: APRIL 28, 2014 BY 1.00 PM.

Submission MGX3100 Assignment submission

Assignments must be submitted both in hard copy and online.

Assignments must be placed in letter box marked “MGX3100”, N Building 7th floor (Caulfield).

(Clayton), by 1.00 PM on Monday April 28.

Assignments must also be submitted online on Moodle.

Some tips for Essay References: Use Peer reviewed academic journal articles

Use Books for definitions.

Q Manual, APA/HARVARD

Go to the library!

Resources on Moodle and Reading List

Essay Structure: Introduction, Body and Conclusion (Don’t use too many headings, it is an essay not a report).

Introduction: Clearly state the Aims, purpose, and the scope of the essay & Outline the structure of analysis.

Body: Background of Toyota, Theoretical CSR frameworks and analysis.

Conclusion: Summary and key implications / learning

ANY QUESTIONS??• Next Week: Read the case study from the text book.• Email me if you have any issues.