Ethics, product recalls, and public opinion

The View from Taft

BusinessWorld

January 14, 2016

Before 2015 ended, the incidents of alleged sudden unintended acceleration (SUA) related to the Mitsubishi Montero received a lot of media attention. The large number of reported cases prompted complainants to demand a recall of the popular SUV.

The leading car companies in the country, including Mitsubishi, have recalled their vehicles before. These recalls were all voluntary, though, and no accidents or untoward incidents triggered them.

The latest high-profile issue is unique because of the large number of incidents reported all over the Internet and the more serious stakes involved. For the company: reputation, investor returns, and jobs. For consumers and other people on the road: physical safety, psychological well-being, and, sadly, even human lives.

The company has reported the results of its investigations into the complaints, bought back several of the vehicles, and settled with the owners involved and made public assurances that based on its investigations, the SUA incidents were not caused by defects in the vehicle itself. It has also intensified the offering of safety-oriented services for its customers.

The Department of Trade and Industry (DTI) did not find sufficient basis to order a recall. Instead, it recommended a third-party investigation into the complaints to determine more clearly whether a recall is necessary.

While Mitsubishi is not legally compelled to recall the Montero pending the results of the third-party investigation, it must consider whether it should do so voluntarily for ethical reasons and to protect its reputation as a provider of safe vehicles.

Notable companies have dealt with recall decisions in different ways with corresponding effects on their reputations as a result. Handling recalls is never easy, and the decision to voluntarily recall or not falls on the shoulders of responsible managers with input from technical staff.

In the early 80’s, a number of people in the Chicago area died from taking Tylenol capsules that had been laced with cyanide. Johnson & Johnson, makers of Tylenol, became the gold standard for recalls when it pulled out all the market-leading Tylenol from the US market even though the tampering had been done after the capsules had left the company’s factories.

Other companies’ responses have been less than stellar. The Ford Pinto case in the 70’s in the US is perhaps the most discussed ethics case in business schools around the world. In 1972, Lily Gray was driving a Pinto with passenger Richard Grimshaw, a 13-year-old, when they were rear-ended by another car. Gray was killed in the resulting fire, and Grimshaw suffered horrible injuries. In the suit against Ford, the courts eventually awarded Grimshaw $3.5 million in punitive damages.

Dennis Gioia, then the Ford recall coordinator for the Pinto, and now a noted management scholar based at Pennsylvania State University, explained his decision not to order the recall at the time, even after several incidents of rear-end collisions involving Pintos resulted in deadly fires: “After I left Ford, I now argue and teach that Ford had an ethical obligation to recall. But, while I was there, I perceived no obligation to recall, and I remember no strong ethical overtones to the case whatsoever. It was a very straightforward decision, driven by dominant scripts for the time, place, and context.”

Scripts, according to Gioia, are automatic ways by which managers think about and decide on every day. While they make work more efficient in general cases, scripts can cause managers to be insensitive to the demands of a specific case.

After growing media coverage and increasing complaints, the National Highway Traffic Safety Administration eventually ordered Ford to recall the Pinto, reversing its initial finding that there was no sufficient basis for a recall.

Most people have come to believe that the Pinto had a major design flaw that made it unsafe and that Ford had knowingly released the car thinking that it would be more costly to fix the flaw than to pay for compensating possible accident victims. But not everyone agrees with this interpretation. Gary Schwartz, a law professor from UCLA, has pointed out that most of the public’s views on the Pinto case are myths.

And this is what makes the recent case infinitely more delicate than the Pinto case. Social media has become a real game-changer. The saying that “perception is reality” has never been truer than today, especially among media-hungry Filipinos. The ever-growing number of damning blog posts and YouTube uploads related to Montero SUAs cannot be ignored.

I expect the independent third-party investigation to shed light on what caused the SUAs. We cannot know if the investigation will show basis for legal liability of the company, but it must prepare for such a possibility. Meanwhile, the company’s continuing ethical duty to protect and inform its consumers against harm is vital. Its managers cannot depend on scripts to deal with this issue given the importance of preserving the public’s trust. Today’s social media world can be very unforgiving.

Benito L. Teehankee is associate professor at De La Salle University. He is also Vice-Chairman of the CSR Committee of the Management Association of the Philippines.

benito.teehankee@dlsu.edu.ph