CSRand Ethical Standards in Business Corporations-General Motors Case
Modernbusiness organizations are bound by CSR and business ethics, whichset the standards of operation for businesses. Although there arelegal standards to protect businesses and consumers, CSR and ethicalstandards are internal regulation mechanisms for businesses that keepcompanies in check. Legal standards are the oldest mode of operationthat was meant to protect businesses and consumers (Coda& Palgrave Connect, 2010).The two are so important that most businesses have made them part oftheir strategic goals.
Thecase of General Motors’ defective ignition system and the reactionof the company to the crisis was a case of how organizations canhandle crisis that arise from their activities. The decision torecall 12.8 million cars across the world was an accommodative crisismanagement method, where management accepts responsibility and setsout to fix the problem (Pollock,2014).GM took the ethical responsibility to correct the problem as part ofa crisis management action in order to protect the company and itsinterest. The decision was made since the company could have lost itscustomers, who are the most important stakeholders.
However,the decision to compensate only 13 injured consumers was a proactivemethod of handling the crisis. According to a lawsuit against thecompany, the engineers were aware of the ignition problem, that wouldhave cost very little to repair. The fact that documents in thepossession of management revealed such knowledge indicated that thecompany acted in negligence and ought to face legal consequences forthe resulting accidents. The company stands to lose on its socialcapital with its primary stakeholders who are the clients (Mellahi,Frynas & Finlay, 2005).Given that management knew about the defective ignitions and refusedto compensate other victims of the problem demonstrates that thecompany has poor ethical standards.
GeneralMotors also failed in its legal obligation of ensuring that itsproducts met the required manufacturing standards of the ignitionsystem. The purpose is to protect consumers from defective goods thatcan result in danger to them (Coda& Palgrave Connect, 2010).The laws also protect companies from legal problems due to defectivegoods. General Motors, however, failed to meet its legal obligationsof ensuring that the ignition system was up to the legalmanufacturing standards (Pollock,2014).This amounts to negligence as the company failed in its socialobligation of ensuring that manufacturing standards were up to healthand safety standards.
Theresultant recall of 12.8 million cars to repair the defectiveignition systems was a way of avoiding court systems, which arecostly and have long standing business consequences. General Motorsmay have, however, lost customer trust as it emerged that themanagement was aware of the manufacturing problem. Customers usuallylose faith as it appears that such a company placed profits ahead ofcustomer safety. The problem was a case of misconduct that furthersthe organization’s agenda, as the lawsuit against the companyrevealed that the company would have incurred a cost of only fiftyseven cents to fix each ignition that was found faulty (Isidore,2014).This was an ethical misstep on GM that eroded customers’ faith inthe company.
Responseto the crisis
Thecompany’s reaction to the crisis requires immediate action toensure that it restores its customers’ faith. The company mustfirst ensure that it reveals all the information regarding the crisisand acknowledges liability for the ignition problem. Thisdemonstrates high moral responsibility and dedication to correct aknown problem. According to corporate governance structures, anyresponsible company is supposed to ensure that it adheres to ethicalstandards that guide how directors protect the needs of the companyand customers (Isidore,2014).Directors have an ethical duty of loyalty, which holds themaccountable to the interests of both the company and stakeholders(Mellahi,Frynas & Finlay, 2005).GM’s case demonstrated that the directors failed on this duty asthey were aware of the problem with the ignition.
Thefact that the management chose to stay blind to the ignition problemis a shareholder model of corporate governance in which the directorsare only concerned with maximizing the profits of investors (Pollock,2014).This explains why there are legal guides as to the corporategovernance structures of companies by the state. The idea is toprotect consumers from companies with narrow CSR structures as theirpurpose is to maximize on profits at the expense of its primarystakeholders (Mellahi,Frynas & Finlay, 2005).The pledge by the management of GM that they would ensure that thiscrisis does not occur again while recalling faulty cars is anindication that the company is now committed to ethical standards soas to protect its market share.
Inconclusion, CSR and ethical standards are the new guides on howcompanies relate to their primary and secondary stakeholders.However, there are legal and corporate governance structures that aremeant to protect both the business and its customers. The legal andcorporate governance structures were developed after it emerged thata free market was open to abuses, and this would have resulted inhealth and safety problems. However, each company has an ethicalobligation to ensure that it serves its customers well while stayingcompetitive.