Mendoza School of Business

The Morning Risk Report: GM, Toyota Recall Ford Pinto

Published: April 2, 2014 / Author: Gregory Millman

A car company knew about a fatal defect that would cost relatively little to fix, but ignored the problem instead. Congressional investigations, lawsuits and reputation damage ensued. Would that be General Motors Co., whose CEO testified before Congress yesterday about its tardy response to fatal ignition problems or Toyota Motor Corp., which recently paid upwards of $1 billion to settle a criminal investigation into its fatal unintended acceleration flaw? Trick question. It’s Ford, whose Pinto endures in popular culture as such a notorious example of a company trading off cost of repair against value of human lives that it even figured in the Brad Pitt movie, “Fight Club.” In fairness, there’s a strong argument that no one at Ford actually made that cold calculation, but experts say that companies can end up with the same results even when trying to do the right thing, if they don’t factor psychology into risk analysis.

Ann E. Tenbrunsel, Rex and Alice A. Martin Professor of Business Ethics at the University of Notre Dame, told Risk & Compliance Journal, “Solutions haven’t focused on why it is that people behave unethically.” Weak monetary fines, she said, can paradoxically encourage unethical conduct, or results that look unethical, by turning a question of right or wrong into a calculation of risk and return. A compliance department can, equally paradoxically, encourage non-compliance, by subtly signaling that there are specialists handling compliance. “We continue to see this cycle because we haven’t been taking the psychology of the decision maker into account,” she said.

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