Impact of Unethical Practices On Business Environment: A Case Study On Toyota
Impact of Unethical Practices On Business Environment: A Case Study On Toyota
Impact of Unethical Practices On Business Environment: A Case Study On Toyota
ABSTRACT
Purpose: This paper tries to identify the unethical practice carried out by the Toyota. It also
tries to examine the impact of these unethical practices on their respective employee
performance, their employee relations, company credibility, and on the society. Lessons can
be learned from these experiences and preventive measures can be applied across
international borders to improve business conduct in other developing economies.
1. Introduction
way involves distinguishing between “right” and “wrong” and then making the “right”
choice. It is relatively easy to identify unethical business practices. For example, companies
should not use child labour. They should not unlawfully use copyrighted materials and
processes. They should not engage in bribery.
According to Investopedia, “Business ethics is the study of proper business policies and
practices regarding potentially controversial issues, such as corporate governance, insider
trading, bribery, discrimination, corporate social responsibility and fiduciary
responsibilities. Law often guides business ethics, while other times business ethics provide
a basic framework that businesses may choose to follow to gain public acceptance.”
2. Literature Review
Ferrell, Fraedrich and Ferrell (2004) suggest that business ethics comprises moral principles
and standards that guide behavior in the world of business. Whether a specific behavior is
right or wrong, ethical or unethical is often determined by the public as embodied in the
mass media, interest groups and business organizations as well as through individuals,
personal morals and values. Thus, ethics in business is directly related to social values,
norms and global business trends and is negatively related to corruption in society. In this
research, evidence of social discontent with business conduct is sought through a review of
significant business issues reported publicly as unethical practice. 1.1. What is ethical
behavior in business? Sobhan (2000) argues that the supreme ethics in any society must be
founded on the principle of justice. A society, which deprives its most productive citizens of
resources despite their proven integrity in the use of such resources, is likely to perpetuate
poverty as well as underdevelopment and will in the process erode the foundations of a
democratic society. Wood (1992) suggests that ethical actions are not, in the final analysis,
the responsibility of the individual alone. Instead, most actions are the result of managers
and employees following the norms of accepted behavior in the companies in which they
work. As Bangladesh is an economy in transition the evolutionary process of transforming
its business ethical values, norms and moralities has greatly hampered its organizational
development. Business organizations are not yet fully implementing international standards
or codes of ethics. Trevino and Nelson (1995) define ethics as the principles, norms and
standards of conduct governing an individual or group. They also comment that two types of
factors influence ethical behavior: characteristics of the individual and the characteristics of
the organization. England (2006) suggests that ethical decisions are made by business
people, based on the following considerations: 1) how employees can feel fulfilled
professionally; 2) how customers can be satisfied; 3) how profit be assured for the
stakeholders or shareholders; and 4) how the community can be served. Trevino and Weaver
(1997) linked the matter of concern about ethics in business practices to three factors: a)
ethical failures diminish reputation; b) articulating ethical standards now makes it easier to
respond to criticism later; and c) adoption of ethical standards is a hallmark of a profession.
Shafique (1996) commented that ethical behavior appears to be largely influenced by a range
of factors including the law, government regulation, social pressure, industry sector, ethical
codes and personal standards. He observed that banking, despite being a highly regulated
industry in most countries, has not gone untouched by ethical crises. He identified some
unfortunate examples of unethical practices including abuse of inside information for
personal gain, theft, discrimination, embezzlement, pursuit of profitability at the customer‟s
expense, money-laundering and insider-loans. Boatright (2004) observes that the financial
services industry still operates largely through personal selling. Personal selling creates
innumerable opportunities for abuse and although finance professionals take pride in their
level of integrity in the industry misconduct does occur. Shaw (2007) emphasizes that if
people within business are to build their reputations on integrity and have a keen sensitivity
to the ethical dimensions of their decisions, they must be guided by sound moral standards.
4. Methodology
5.
This paper is based on the TOYOTA case study and is used to examine the impact of
unethical practices on the business environment.
The case study method is a “preferred strategy when “how” or “why” questions are being
posed, when the investigator has little control over events, and when the focus is on a
contemporary phenomenon within some real-life context” (Yin, 1989, p.13).
5.1. Hypothesis
i. H0: There is no significant impact of unethical practices on the stakeholders of
Toyota.
On January 26, 2010, the company suspended the sale of eight models and announced that
beginning the following week it would temporarily shut down five North American
assembly plants. The company did not make public that it took these steps at the direction of
the federal government, but the next day, Department of Transportation secretary Ray
LaHood effectively called Toyota on the carpet by publicly stating that his agency had
directed Toyota to suspend its operations—a statement that Toyota had to confirm.
On February 5, Toyota president Akio Toyoda finally appeared at a press conference. Facing
the media, he apologized and announced a task force involving outside experts. But by
now—after multiple explanations—the damage had been done.
Toyota temporarily shut down its manufacturing plants at a cost of $54 million a day;
monthly car sales dropped below 100,000 for the first time in more than a decade; Toyota‟s
U.S. market share fell to its lowest level since January 2006; the company‟s stock dropped
16 percent; Consumer Reports removed its “buy recommendation” on eight Toyota models;
the Department of Justice and the Securities and Exchange Commission initiated
investigations; and Congress opened up its own inquiry, complete with public hearings.
By 2011, two years after ascending to the top, Toyota was passed by GM as the number one
carmaker in the world.
And even though a subsequent NHTSA study came out generally supporting Toyota‟s claim
that there were no defects in the technical sense, and Toyota has since worked to claw its
way back to its previous position in the public eye, Toyoda acknowledged that Toyota‟s
crisis response, like the warden and prisoners in Cool Hand Luke, suffered from a failure to
communicate.
ii. People no longer trusted the brand and opted for other cars
iii. They have to halt the sales of eight of its top selling models in the U.S and recalled
more than nine million cars worldwide. Because of this they have suffered billions of losses.
iv. In order to be a market leader in terms of quality, Toyota ignored the safety measures
v. People lost their lives due to uncontrollable acceleration in Toyota cars
vi. Toyota weren‟t honest with the public. They played a blame game an held suppliers
responsible of the problem.
vii. Unwillingness of Japanese executives to work with North American regulators. The
result for Toyota was a public rebuking from the NHTSA and the public perception that the
company had something to hide.
viii. Loss of revenue as they had to pay $66 million in civil penalties.
ix. Lack of transparency as Toyota was accused of hiding the data accelerator pedals.
Thus the null hypothesis will be rejected and alternative hypothesis will be accepted
6. Conclusion
Toyota‟s reputation was based on its commitment to quality, reliability, customer focus, and
excellence in design and manufacturing. The problem begins when an off-duty California
policeman was driving a Toyota Lexus that accelerated in excess of one hundred miles per
hour and crashed, killing the officer and his family. The incident received news coverage
that featured a recorded cell phone call to 911 documenting that the acceleration was
uncontrolled, and the driver had no part in the sudden acceleration. This incident due to
uncontrollable acceleration led to the recall of 3.9 million vehicles in the U.S. on September
29, 2009 ascribed to floor mat problems leading to sticking accelerator pedals. The problem
grabbed national attention in late January and early February 2010: An additional 2.3 million
vehicles were recalled for sticking accelerator pedals. Toyota suspended sales of eight
models in North America, expanded recalls to Europe and China, and shut manufacturing
plants.
Later, Toyota‟s responses were seen as inadequate and began to strain the trust of the public,
car buyers, regulators, and government officials. Toyota vehicle sales in the U.S. fell 16% in
January 2010 and 8.7% in February compared to the same months in 2009.
Also lack of transparency, unwillingness to cooperate with the regulatory body caused a
sense of insecurity between their stakeholders especially between their customers and
suppliers. This resulted in the decline of sales as no one was willing to buy the Toyota cars
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International Journal of Marketing & Financial Management, Volume 4, Issue 5, Jul-2016, pp 11-17
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like Lupe. She is still traumatized by the accident, and she refused to buy another Toyota
car. So, Lupe opted for a Honda Accord.
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