In 2015, Honda Company was fined for failing to respond to safety issues that affected its cars, which were fitted with defective airbags (Lippert). The company learned about the dangers of the airbags supplied by Takata but failed to respond immediately. Instead, the leadership of Honda Company opted to conceal the information to protect the organization’s profit and public image. Jensen avers that an ethical dilemma arises when institutions choose to cover information that could harm various stakeholders in the name of protecting their reputation and maintaining performance. The leadership was torn between reporting the issue and losing customers and concealing the information to guarantee continued sales. The management of Honda Company argued that computer errors contributed to its delayed issuance of public alert regarding the faulty airbags (Jensen). Nevertheless, this was not an adequate excuse as the company ought to have implemented a backup plan to cater to such errors. Additionally, it did not respond immediately after realizing that there were reporting errors. Even though the Honda Company recalled all the vehicles that had the problem, the move came late and was bound to affect its reputation. The hefty penalties, coupled with negative publicity altered Honda’s performance. Additionally, the scandal changed the company’s relationship with stakeholders. This paper will discuss the ethical dilemma that Honda Company faced and its impacts on the organization’s relationship with stakeholders. It will also give alternative solutions that the company could have used to address the problem.
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Summary of the Dilemma
Honda Company has been gradually losing its reputation as a leading car manufacturer because of the numerous challenges facing the business and its vehicles. One of the issues that the company is grappling with began a decade ago. In 2008, Honda started to recall some of its car models after learning that they were equipped with faulty airbags. The following five years saw the company evoke thousands of cars. According to Weinstein, Honda relied on Takata for the supply of airbags. In 2008, it was found that Takata’s airbags posed an immense danger to drivers and passengers. They could deploy at any time upon a minor collision, spraying shrapnel into the driver’s cabin. Takata argued that the propellant fitted in the airbags was not accurately developed before being installed. The company stated that the propellant was too powerful for the airbags. Hence, it advised Honda and other companies that used its airbags to recall all their cars.
Despite Takata recommending a recall of all vehicles equipped with the faulty airbags, Honda took time to respond. The company argued that it could not act immediately due to computer reporting errors. Nevertheless, reports from customers showed that Honda was reluctant to address the problem (Weinstein). One customer complained that Honda failed to repair his car even after returning it to the company. The service department assured the client that it had rectified the faults in the airbag. However, a week later, the airbag deployed as the customer was driving, leading to them sustaining injuries. Such complaints continue to emerge, affecting Honda’s reputation.
In 2009, Honda Company realized that its vehicles were fitted with flawed airbags after one of its cars was involved in a fatal accident attributed to the airbag. The company did not see the urgency of recalling the affected vehicles. Instead, it requested Takata to alter the design of the airbags. Additionally, the corporation did not notify the United States regulators. Honda Company understood the danger that faulty airbags posed to drivers and passengers. The United States traffic laws demand that automobile companies share information regarding safety risks and the measures they have taken to mitigate them with the National Highway Traffic Safety Administration (NHTSA). However, the leadership of Honda Company claimed that it did not see the need for alerting regulators about the redesign of airbags. According to Woodyard, Honda took the measures to avert future manufacturing errors. In other words, the company’s actions did not signify its acknowledgment of a widespread design flaw in the airbags. Further identification of defects led to Honda initiating a campaign to recall all the vehicles installed with Takata airbags.
Impacts on Stakeholders
The airbag issue affected many parties. The chief stakeholders, in this case, included customers, management, employees, suppliers, and shareholders. The incidence impacted the various stakeholders differently.
Customers had trusted in the quality of Honda automobiles for many years. It underlines the reason the company could make significant sales of new models of cars after every launch. The airbag issue had substantial impacts on customers. It subjected their lives to immense danger. Deployment of the airbag could result in death or injury of the driver. Failure by the management to respond promptly after learning about the issue affected Honda’s relationship with customers. The customers’ position on the matter was that Honda had an obligation to alert them regarding the safety issues and take urgent measures to address the problem. Hence, they laid the blame on the company’s management. Clients could no longer trust the company as they did before. They developed a perception that Honda was out to increase its revenue at their expense. The company did not care about the safety of its clients as long as it made a profit. With time, Honda started to lose clients to competitors as many customers could no longer trust in its automobiles. The company’s decision to recall all cars with Takata airbags was meant to salvage its reputation. Currently, Honda is in the process of regaining consumer trust, and it hopes to rebuild its reputation.
Organizational management bears the consequences of the decisions that it makes. Every choice that a manager makes must have impacts on one of the company’s stakeholders. The management was responsible for reporting safety issues to regulators and alerting the public. The decision to request redesigning of the airbags without notifying the NHTSA and customers did not augur well with the public. The management’s argument that the airbag issue was a ‘supplier problem’ was against regulatory practices and traffic laws. Its position on the issue was that Takata had a duty to guarantee the quality of the airbags. Honda had no power to influence the manufacture of airbags. It underlined the reason it failed to report the issue to regulators. The management had a hand in the fatalities that occurred due to failure to notify the public about the defective airbags. The lawsuits that commenced after the incidence served as an eye-opener to the management and changed its relationship with Honda Company. Since the incident, the administration demands that airbags are tested before being installed on the vehicles. Moreover, it is keen to ensure that the company complies with the traditional car manufacturing regulations. It no longer hesitates to recall Honda cars upon suspecting that they pose a danger to customers due to one reason or another.
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The airbag issue had significant impacts on employees because it affected their productivity. The most affected workers were those that served in the sales department. Customers could no longer trust in Honda’s cars. Hence, many potential clients avoided purchasing the company’s automobiles. The move affected the sales volume of the corporation, therefore the productivity of the marketing team. The problem also impacted the engineering department staff. One employee expressed his dissatisfaction with how the company handled the issue. The member of staff wrote an email giving details of Honda’s recall of the faulty airbags (Woodyard). Nevertheless, the personnel retracted their statement later due to coercion from the management. The company relieved the employee from airbag-related tasks and transferred them to another department. The move affected Honda’s relationship with employees. Workers could no longer speak openly on matters that affected the organization because they feared to lose their jobs. The employees’ position on the issue was that the company had a duty to ensure that it deals with responsible manufacturers. It also had an obligation to guarantee that its cars were safe.
Suppliers have a role in guaranteeing the success of a company. It underlines the reason organizations insist on due diligence when selecting vendors. Companies opt to deal with suppliers who are environmentally conscious, provide quality products, and respect the rights of their employees. Negative publicity affects both an organization and its suppliers. The airbag issue had dire consequences on Takata. The company lost the trust of many automobile businesses, thus changing its sales volume. The problem also altered Takata’s relationship with Honda Company. It was hard for the latter to trust the former’s products without taking them through a rigorous inspection to ascertain their quality. Even though Honda requested the modification of airbags to enhance their safety, it could not install them on cars without testing their quality. The issue did not only impact Takata but also distributors who sold Honda cars. Their sales volume went down significantly following the recall of the affected vehicles. Some distributors lost hope in the company and opted to deal with other automobile corporations. Takata took the issue of faulty airbags seriously. The company admitted the mistakes and reiterated its commitment to ensuring that all faulty airbags were removed from the market. It pledged to work in liaison with automakers and NHTSA to enhance recall of the affected vehicles and boost the production of replacement airbags.
Product recalls have significant financial implications for the shareholders. In the United States, the consumer protection laws force manufacturers to bear the costs attributed to recalls. One of the impacts of the airbag issue on shareholders was the loss of dividends. The company spent a lot of money to replace the defective airbags. Consequently, shareholders had to forego bonuses. Additionally, the value of the company’s shares went down remarkably, affecting its profit. It meant that shareholders had to receive low dividends for years as Honda tried to salvage its reputation. Many investors lost their money as customers could no longer trust in the company. The shareholders were concerned about Honda’s sluggish share performance and possible costs and loses attributed to recall. Eventually, some of them lost trust in the company and opted to dispose of their shares. Those who stayed agreed that there was the need to conduct a massive recall of all the vehicles with the defective airbags to promote safety and rescue the company from negative publicity.
Mechanical problems in automobiles pose a significant danger to drivers and passengers. Thus, automakers ought to respond immediately after learning about technical issues in their cars. Failure to act promptly would put the lives of many drivers, passengers, and pedestrians at risk. Honda Company had an obligation to guarantee the safety of its cars. Hence, it could not blame Takata for the deaths that involved its vehicles. In my opinion, Honda Company responded in the most ethical manner possible by recalling the cars. However, the response came late as some drivers had already lost their lives. The company should have responded at once after learning about the defects.
Apart from recalling the affected cars, Honda Company had various alternative solutions that it could have used to address the problem. The company could have alerted the public regarding the affected vehicles and requested customers to come in for repairs and inspection. Taking such measures would have gone a long way towards preventing fatal accidents that were reported. It would have also helped the company to safeguard its reputation. Recalling faulty cars is costly as a company incurs all costs attributed to the exercise. Asking customers to come in for inspections and repairs would have saved Honda Company the cost of recalling all the affected cars. It would have given employees ample time to repair all the defective airbags.
Honda Company could have also dispatched a team of engineers to inspect and repair faulty airbags. The team would have visited the affected customers at their homes or workplaces. Such an action would have been costly to the company due to the high number of cars involved. Additionally, it would have taken longer to reach all customers and repair their vehicles, thus subjecting them to dangers. Dispatching a team of engineers to the field would have left the company with few employees. Consequently, the productivity of the organization would have gone down.
The company could have volunteered to give customers alternative cars as it repaired those that were affected. It would have requested the involved clients to return their vehicles and get substitute automobiles until it could fix the airbags. Such a move would have enhanced Honda’s relationship with customers. Clients would have developed a perception that the company was conscious of their safety. On the other hand, the solution would have been costly to the company. Honda would have to repair the substitute cars once the customers return them.
Honda’s decision to conceal information regarding faulty airbags raised severe ethical issues. Even though reporting the problem would have affected the company’s performance, failure to do so posed a significant threat to drivers and passengers. The company hesitated to alert the public and NHTSA, resulting in fatalities. The intentions were to protect its reputation and uphold performance. However, it ended up severing its connection with customers. Honda lost many customers as they could no longer trust in the company. The carmaker’s actions raised questions about the integrity of its management.
Jensen, Christopher. “Honda Expands Takata Air Bag Inflator Recall.” The New York Times, 2014. Web.
Lippert, John. “Honda to Pay $484 Million in Air Bag Malfunction Settlement.” Bloomberg, 2017. Web.
Weinstein, Bruce. “Here is how the Takata Air Bag Recall Could have been Avoided.” The Fortune, 2017. Web.
Woodyard, Chris. “Honda Expands Recall by up to 1 Million Cars.” USA Today, 2014. Web.