Recent Examples of Corporate Ethics Failures

Big corporations are failing America because they continue to place profits ahead of responsible behavior. Many use a cost-benefit analysis to conclude that it would cost too much to fix product defects compared to any benefits derived. Until recently, few if any corporate CEOs have been held liable for their role in fraudulent product marketing.

Marketing Unsafe Products

Just think about the scandals in the last few years. The hot topic today is the push to market flavored e-cigarettes to under-age kids while knowing there are potential health risks. According to the National Institute on Drug Abuse, “early evidence suggests that vaping might serve as an introductory product for preteens and teens who then go on to use other nicotine products, including cigarettes, which are known to cause disease and premature death.”

Another example is the marketing of opioids in a way that encourages more and more frequent use to get the same benefit of the drug all the while becoming addicted to the drug. Pharmaceutical companies have understated the risks all in the name of market share and profits.

Going back in time, we have the Johnson & Johnson scandal where scientific studies have indicated that women who use baby powder manufactured by J&J regularly for feminine hygiene have higher rates of ovarian cancer.  J&J has denied the allegations, but just recently the company was ordered by a St. Louis jury to pay $4.69 billion to 22 women and their families in an ovarian cancer lawsuit. 

Agribusiness giant Monsanto has been accused of selling an asbestos-laden product, Roundup, which the company denies is linked to health problems. Three US juries have disagreed, and the company is facing 13,400 plaintiffs who claim the most commonly used herbicide in the world is the reason they have non-Hodgkin’s lymphoma.

VW Defeat Device

It's been dubbed the "diesel dupe". Back in 2015, the Environmental Protection Agency found that many Volkswagen cars being sold in America had a "defeat device" - or software - in diesel engines that could detect when they were being tested, changing the performance accordingly to improve results. The German car giant has since admitted cheating emissions tests in the US. 

Full details of how it worked are sketchy, although the EPA has said that the engines had computer software that could sense test scenarios by monitoring speed, engine operation, air pressure and even the position of the steering wheel. When the cars were operating under controlled laboratory conditions - which typically involve putting them on a stationary test rig - the device appears to have put the vehicle into a sort of safety mode in which the engine ran below normal power and performance. Once on the road, the engines switched out of this test mode. The result? The engines emitted nitrogen oxide pollutants up to 40 times above what is allowed in the US.

Wells Fargo

The most egregious case of corporate irresponsibility may be that of Wells Fargo. The city of Los Angeles sued Wells Fargo for alleged customer account abuses, including pushing employees into opening unauthorized accounts to make sales quotas. Wells Fargo has been ordered to pay more than $185 million in refunds and penalties. Wells Fargo employees regularly misused customers’ personal information, opening nearly two million unwanted accounts and failing to close the unauthorized accounts despite complaints from customers. These actions, allege the government, were taken as a result of sales targets and compensation incentives offered by the bank. To resolve the issues, Wells Fargo is required to pay at least $2.5 million in full refunds to all affected account holders.

Boeing 737 Max

Now, we have the ongoing saga of Boeing's 737 Max plane. Four months before the first deadly crash of Boeing's 737 Max, a senior manager, Ed Pierson, labeled a whistleblower by The NY Times, approached an executive at the company with concerns that the factory that made the plane was riddled with production problems, making the jet potentially unsafe.

Employees at the Renton, Washington factory where the Max is produced were overworked, exhausted and making mistakes, Pierson said in an interview with the Times. A cascade of damaged parts, missing tools and incomplete instructions was preventing planes from being built on time. Executives were pressuring workers to complete planes despite staff shortages and a chaotic factory floor. “Frankly right now all my internal warning bells are going off,” Mr. Pierson said in an email to the head of the 737 program in June 2018 that was reviewed by The New York Times. “And for the first time in my life, I’m sorry to say that I’m hesitant about putting my family on a Boeing airplane.”

Holding CEOs Legally Liable

Until recently, it seemed like the government was letting CEOs of culpable companies get away with the crime of selling a product with defects or providing services using fraudulent activities. However, on January 23, 2020, it was announced that eight executives at Wells Fargo are facing almost $59 million in fines and former CEO John Stumpf was barred from the banking industry and fined $17.5 million. The Office of the Comptroller of the Currency said that Stumpf  "was or should have been aware of the problem and its root cause [at VW]," and that "there was a culture in the Community Bank that resulted in systematic violations of laws and regulations." This wasn't a secret at the Bank. Employees submitted many complaints about pervasive pressure and illegal sales activity to Stumpf's office, but he didn't respond to them according to the OCC.

In another case, John N. Kapoor, the founder of opioid maker Insys Therapeutics Inc, was sentenced to 5 1/2 years in prison for his role in a racketeering conspiracy to illegally boost sales of his company's prescription fentanyl drug. In May 2019, Kapoor and four other former Insys executives and managers were convicted of conspiring to bribe doctors and defraud health insurers. The Wall Street Journal reported that the convictions marked the first successful prosecution of top pharmaceutical industry executives for illegally promoting prescription opioids, according to the U.S. attorney's office in Boston, which brought the case.  

Auto Companies and Product Defects

Auto companies have a history of selling products that in one way or the other are unsafe. On January 22, 2020, Reuters reported that Toyota is recalling 361,000 more vehicles worldwide to replace Takata air bag inflators that could explode and hurl shrapnel. They’ve already recalled hundreds of thousands of cars.

On December 20, 2019, Ford Motor announced it is recalling more than 600,000 cars to fix a hydraulic defect that could lead to crashes. Ford has identified at least 15 accidents that may have occurred because of the defect. Those crashes caused at least two injuries.

In 2014, Toyota agreed to pay $1.2 billion to avoid prosecution for covering up severe safety problems with “unintended acceleration,” according to court documents, and continuing to make cars with parts the FBI said Toyota “knew were deadly.”

The bottom line is safety has taken a back seat to market share, sales and profitability. The companies made a calculated risk analysis, deciding that it would cost more to fix the cars than any benefit derived by the public. These kinds of cost-benefit analyses are dangerous because they ignore the rights of the public to use a product or receive a service that works as intended. Corporations have a social responsibility to market and sell products that serve the public interest, not their own self-interest.

Posted by Steven Mintz, aka Ethics Sage, on February 4, 2020. Dr. Mintz is an award-winning blogger. His Ethics Sage blog was recognized as one the top 100 in philosophy (#23) by Feedspot (https://blog.feedspot.com/philosophy_blogs/). Steve's Workplace Ethics Advice blog was included in a list of the 30 Exceptional blogs on CSR by Market Inspector (https://www.market-inspector.co.uk/blog/2015/09/30-exceptional-csr-blogs). He recently published a book Beyond Happiness and Meaning: Transforming Your Life Through Ethical Behavior that is available on Amazon. You can sign up for his newsletter and learn more about his activities on his website: https://www.stevenmintzethics.com/. Follow him on Facebook at: https://www.facebook.com/StevenMintzEthics.