Moral outrage. Muted apology. Multiple investigations. This is what we heard when Mary Barra, the CEO of General Motors, testified before House and Senate committees earlier this month about the company's failure to address faulty ignition switches in millions of Cobalts and other vehicles for close to a decade.
It is a predictable pattern in response to institutional failures—or moral meltdowns, as some call them. It is certainly familiar to me, as a faculty member at Penn State, a university still recovering from its own meltdown, the Sandusky crisis.
Although there is much we don’t know, it is clear that GM employees had long been aware there was problem. But a number of ill-advised decisions followed.
First, GM decided not to replace the defective part with a switch that met the company’s specifications. It did so because the cost, less than a dollar per unit, would not have been offset by the projected savings.1 This decision had obvious safety implications, not to mention ethical dimensions. But it was treated as a simple business decision, one made with short-term profitability in mind.
In the longer-term, of course, this decision—and the ensuing decade’s delay in the recall of now more than 2.6 million vehicles—has proven extremely costly.
The company also worked hard to conceal its tracks. When the defective ignition switch was replaced, an employee tried to mask the substitution by retaining the same part number. When GM was sued following a number of fatal accidents, the company’s lawyers made confidential settlements with the plaintiffs, thereby keeping vital information about a potential health hazard out of the public domain.
It is not hard to anticipate what happens next. Various investigations will identify a small handful of individuals as the culprits. These employees will lose their jobs. Prosecutions and more civil law suits are likely to follow.
GM’s lawyers will argue that the company is not liable for accidents occurring prior to its bankruptcy in 2009. This contention will be disputed. But the company will settle the claims it considers most damaging, commercially and politically. The services of Ken Feinberg will come in handy here. But, most of all, GM will rely on Mr. Feinberg’s reputation as impartial administrator of the 9/11 compensation fund.
There will be talk about a new institutional culture at GM. A public relations campaign will begin, and the company will rebrand itself in an effort to restore confidence in GM and its products—and to stave off increased regulation.
Congress is likely to feel some pressure to respond. But car manufacturers will lobby hard to take the teeth out of prospective reforms. GM spent more than $8.8 million last year on lobbying alone. And many members of Congress—including those currently investigating GM—have received money from GM’s PAC.2
In time, we will move on, and forget about the scandal, just as most of us have forgotten about the Ford Pinto. This debacle from the 1970s survives only as a business ethics case study taught by professors like me. There too, the company failed to address a life-threatening defect—a fuel tank that ruptured during low-speed rear-end collisions. Executives figured it was cheaper to pay damages when people were killed or injured than to spend $11 per car to fix the problem.
There was moral outrage then too. A jury awarded more than $125 million dollars in punitive damages, but this was reduced substantially on appeal.
If we want to try to prevent these kinds of moral meltdowns, we must be careful not to embrace “patches” or symbolic measures that appear to address yesterday’s crisis. Companies need to take serious steps to address structural incentives and institutional cultures that promote the kind of decision-making that occurred in GM—and that is almost certainly occurring, as I write this, in many other companies.
Too often we are told that regulation stifles innovation. We should be more skeptical of such claims. Who is making them, and why? Effective regulation can and should play an essential role in protecting the public from defective products.
And there is work that state lawmakers and their staffers should begin immediately. Some states have laws or rules of procedure that prevent courts from approving confidential settlements where hazards to public health and safety are involved. But many states do not. Litigation may not be the most effective means of addressing public health hazards. But it can be a powerful way of highlighting that the systems employed by both industry and regulators are far from adequate.
Jonathan H. Marks is director of the Bioethics Program at Penn State where he teaches ethics, humanities, law, and philosophy. He is also a network fellow at the Edmond J. Safra Center for Ethics at Harvard.
1. GM, Internal email communications, September 2005, http://blogs.wsj.com/corporate-intelligence/2014/04/01/emails-show-cost-to-gm-of-a-better-ignition-switch-90-cents/.
2. Robbie Feinberg, “Many Lawmakers Investigating GM Have Long Been Helped by Auto Maker,” OpenSecretsBlog, March 31, 2014, http://www.opensecrets.org/news/2014/03/many-lawmakers-investigating-gm-have-long-been-helped-by-auto-maker.html#.Uzw0KgIxWDo.email.