Managing Reputational Risk: Some Observances

"Ethical evils" may occur when an organization is anxious to introduce a new product or a new service, or, as in the case of Toyota, when faced with situations that seem to be out of control. The pressure to release the new product or service, or to first deny and then to correct product/service problems may result in an inappropriate decision: release before ready, or deny that correction are required. Companies are sometimes willing to bring out the product before all of the bugs have been worked out, before all of the problems have been addressed and reconciled. The automobile makers have, for years, been guilty of too early releases, based on the premise that the consumer will alert the manufacturer to the problems that should have been corrected before delivery; often, these problems were known and understood, again, Toyota.

Ethical evils abound in the market place. They exist in all sectors of the economy. They are prevalent in government (at all levels) they exist in education and in the not-for-profit world. Ethical evils seem to be all around us. They encourage expediency based decision-making.

Here is a case-in-point. Recently, a large community college in California announced the installation and implementation of a state-of-the-art telephonic registration system. A student could dial the school's telephone number on a touch-tone phone, enter his or her student identification number, as prompted by the registration computer and enter the ticket numbers of the students' desired courses. The system's computer would check to see if the classes were available, add the students' names to the roster and calculate the required fees. Payments were to be made by credit/debit card, the card's to be keyed into the system via the telephone. If the desired class(es) were not full or otherwise not available, the system would suggest alternatives. The students would receive hard copies the transactions through the mail or, if requested, via fax. Sounds great, right? Wrong! There were only two in-coming telephone lines to handle registrations for nearly 30,000 students.

The school's desire to put the new registration system into service hid the fact that there were insufficient telephone lines. The phone company was back logged and had scheduled new line installation later in the year. In order to look good, the community college ended up looking very bad. A well publicized promise had not, could not been kept. The students had been led to believe, unethically, that the system was open to handle the registrations and that the long lines which were usually associated with the beginnings of a new semester were gone forever, hence, the "ethical evil." Again, sounds like Toyota and the failure of brakes and/or uncontrolled acceleration.

At the same time, we must guard against providing simple answers to complex issues. What is the point of always waiting for perfection? Expediency-based decisions often emphasize short-term profitability while sacrificing long-term satisfaction. Expediency based decisions may try to cover up mistakes, on the theory that the customer might not notice the product's short-comings. A few months ago, a large bank's computer doubled all ATM transactions. When a customer withdrew twenty dollars from an Automatic Teller Machine, the computer debited the account twice, i. e., two transactions showing twenty dollars each for a total of forty dollars coming out of the account. This continued, unnoticed, for several days. Several thousand dollars were involved. Customers who had made large ATM withdrawals, of course, suffered the most. Checks trying to clear those accounts were returned for "not sufficient funds" (NSF).

Many of the bank's customers were unaware of the problem until the bank began mailing out routine debit memos charging those customers a returned check charge of twenty dollars. The bank, of course, reversed all of the incorrect entries and returned the fees, but the problem remained. The bank did not see fit to issue letters explaining the situation, leaving many customers trying to account for the duplicate entries on their monthly statements. The bank felt that by not "advertising" their errors, no one would notice. The "ethical evil" was that if the bank admitted the mistake via letters to their affected customers, the bank would have appeared to be less than competent. There was also a belief that those customers with large balances might not even realize what had happened. One wonders if there was not a similar situation at Toyota or at Ford Motor Company and the Pinto whose misplaced fuel tanks tended to explode when rear-ended.

Clearly, these are only examples of what might well be the tip of a very large iceberg. Expediency based decision making is far more prevalent than one might expect.

This sort of decision making places far greater value on the short-term results than on the means to achieve those results. Organizations must ethically ask, "what does the customer really want?" "How can we best serve the customer?" "How can we avoid the blue sky that comes with and through expediency based decisions?"

The ethical issues involved are clear. They must be brought to the consumers' attention. It is not enough to pledge high ethical standards. The "ethical evils" must be eliminated.

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Forum Library, The Business Forum Journal and the Calendar Pages.