Business Management and Strategy

Business Management and Strategy
ISSN 2157-6068
2018, Vol. 9, No. 2
www.macrothink.org/bms
129
Constructing Ethical Corporate Social Responsibility
and Citizenship in Auto-Industry Operations: Why
Consumers Deserve the Best
Robert Pech (Corresponding Author)
Khalifa University of Science and Technology, PO Box 127788, Abu Dhabi, United
Arab Emirates
Tel: 971-2-401-8000 ext. 8521 E-mail: Robert.pech@ku.ac.ae

Received: Nov. 7, 2018Accepted: Nov. 28, 2018Published: December 28, 2018
doi:10.5296/bms.v9i2.14140URL: https://doi.org/10.5296/bms.v9i2.14140

Abstract
This article focuses on the need to accompany contemporary innovation and manufacturing
with ethical management, operations and production. The investigation emphasizes
operations in the automotive industry through the spectrum of Corporate Social
Responsibility and Corporate Citizenship. Corporate Citizenship is seen in a new light. In
recent years, the profit versus consumer-safety problem has led to injuries and deaths of
hundreds of consumers in the automobile industry, some of which are evidently the result of
human negligence and abnegation of responsibility often in efforts to reduce overheads and
maximize profits. This erosion of corporate social responsibility may not only lead to
consumer death, injury or disillusionment but also to company ruination because it sets in
motion a downward spiral in consumer confidence, followed by investigations, law-suits, and
fines resulting in corporate disarray. The research draws a distinction between CSR and CC to
help analyze the auto-industry.
Keywords: Ethical operations management, Profit versus consumer-safety problem, Public
perception, Corporate social responsibility, Corporate citizenship, Corporate self-defeat
Business Management and Strategy
ISSN 2157-6068
2018, Vol. 9, No. 2
www.macrothink.org/bms
130
1. Introduction and Background
This article focuses on the need to accompany contemporary innovation and manufacturing
with ethical management, operations and production. By “ethics” the author means “the
principles, norms, and standards of conduct governing an individual or group.” (Trevino and
Nelson, 2011, p. 17). Although the issue is manifest in many industries we will highlight the
auto-industry as one notable example. Innovations, as normally found in a plethora of
consumer products, usually comprise high technology as the result of long research processes
and large investment. Innovative products enter the consumer market at a prodigious rate to
meet or create demand; therefore, the need for reduced-cost production often means increased
risk to achieve first-to market advantage in ever more competitive environments. The risks
are not only financial and can involve the welfare and safety of consumers who often assume
that products have been satisfactorily tested over time to assure safety and quality. Regardless
of products’ convenience, better service or cheaper cost, safety in their usage is not
guaranteed.
Customers should not tolerate ethical compromise when it occurs. There are disconcerting
discrepancies between manufacturers and consumers in some industries from time to time
which indicate that there are indeed troubling ethical gaps. Manufacturers may ignore them to
achieve commercial success or continue commercial success without interruption. Companies
that commit primarily to their shareholders have been known to do so at the expense of their
customers and the general good. Examples of imperfect innovative technology and
expediency in recent times include the volatility of Takata airbags which led to death and
injury and then the recall of millions of vehicles worldwide; the fatal ignition problems
experienced with some General Motors saloon models, leading to 124 deaths; and the
fraudulent actions by Volkswagen with regard to their emission controls. The ethics relating
to consumer safety in each case can be seriously called into question, and a failure to comply
with ethical standards has impacted the reputation of each brand.
Therefore, it is fair to ask to what extent high-tech industries and businesses pay attention to
ethical operations in safeguarding consumer and other stakeholder protection. There is no
FDA equivalent for companies’ products and they are market leaders – and so there was no
regulatory inspection, and no effective consumer protection. Design faults were either
overlooked or inadvertently missed by these companies’ quality control procedures, which
undermines their very purpose. To be fair, there are times when visual inspection cannot
detect defects and companies must place trust in their suppliers.
(http://www.strategy-business.com/blog/The-True-Lesson-of-an-Airbag-Disaster?gko=bcbc1).
They tacitly assume that the responsibility for safety lies with the suppliers and that this is
understood and agreed upon by both parties. (Ibid. p.3).
In examining this matter, it is necessary to distinguish between corporate social responsibility
(CSR) and corporate citizenship (CC). These two concepts are closely allied and discussed in
the literature. However the literature so far does not define their differences with clarity. A
case will to be made that CSR refers to a company extending a share of its profits outwards to
Business Management and Strategy
ISSN 2157-6068
2018, Vol. 9, No. 2
www.macrothink.org/bms
131
the society that it serves, and CC on the other hand is the company looking inwards to its own
culture and the needs of its production stakeholders, such as its employees. Where all of these
are appropriately aligned, a company is less likely to deviate from its corporate objectives by
avoiding the descent into making defective products.
General Motors’ ignition defects led to 124 deaths. The company’s newly appointed CEO at
the time of the ignition-switch debacle, Mary Barra, was notified in January 2014 that there
was a serious problem with the switch in some models. At first, 2.6 million vehicles had to be
recalled. Upon investigation, the faulty ignition was responsible for 124 deaths and more than
500 injuries. As an outcome of the report compiled by former US attorney Anton Valukas, a
$400 million victim-compensation fund had to be established. His 325 page report came to
the conclusion that people inside the company had been aware of the faulty switch since 2001.
For 13 years none of them had the initiative nor the audacity to confront the problem. Mary
Barra had to contend with investigations into her company by the US Department of Justice,
the Securities and Exchange Commission and settle an accumulation of private law-suits. But
as 2014 continued, the company recalled almost 30 million vehicles world-wide. These did
not involve only vehicles with ignition problems but also other issues of generally poor
engineering. The consequences of this neglect were not only serious for the consumer but
also the producer.
Similarly, there was a vehicle recall of unprecedented proportions by several auto makers due
to the Takata airbag they carried. Their airbags were found to be defective because a volatile
inflator and propellant gases could shoot metal fragments towards the driver and passengers.
A New York Times report in September 2014 claimed that a total of 139 injuries could be
attributed to this fault. More than 34 million vehicles had to be recalled.
In many countries, there is no external, independent overview of product safety when an
innovative product or component product is launched. Of course, accidents can and do occur
periodically, and by their very nature cannot be avoided – that is an accepted fact. Human
error and circumstances beyond human control do happen. But when they occur regularly in a
product or process, they are no longer accidents. This is particularly so when employees
within companies sabotage their own best efforts by failing to report problems, or worse still,
when negligent management ignores their reports of safety breaches. Takata and General
Motors appear to be cases in point for lack of responsibility in this regard. The problem is
difficult to resolve. The interests of consumers and shareholders appear to be diametrically
opposed. Both parties are becoming equally vociferous.
2. Literature and Theory
Chui, (1999); Kogan, Papanikolaou and Stoffman, (January 2013); Hall and Rosson (2006);
and Papanikolaou again in 2014 raised the issue of winners and losers in this scenario. Hall
and Rosson wrote that “Innovative activities thus create both winners and losers, making it a
major focus of both management and policy makers.” (64: p.231). Furthermore, they argued
that “a key challenge facing new Internet companies, incumbent firms and other stakeholders
Business Management and Strategy
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is to understand the interconnected relationships between technological innovation and
sociopolitical legitimacy.” (Ibid. p.232.) This is further supported by Baron (2012). Meel and
Saat took a pragmatic view opining that “the problem of product safety is inseparably
connected with business effectiveness: how much can we spend on product safety without
making or production unprofitable?” (2002, p.21). And to that they added the very relevant
point of the length of time that companies and consumers are prepared to wait before all
potential dangers have been addressed. (Ibid. p.23). To Meel and Saat, a product’s ethical
life-cycle consists of the stage of producer/consumer ignorance, the stage of an ethical
dilemma when problems are caused by the product, and the stage of legal regulation when
governments intervene to ensure safety. (Ibid. p.23). But it is their “malevolent disregard”
epithet that is particularly relevant to this investigation as will become clear. (Ibid. p.25).
Fabian and Fabricant (2014); Bryden and Gezelius (2017); and Fondrona (2013) supported
the view that there was an interconnectivity, “A positive, comprehensive view of ethics will
make us realize that ethics and innovation are closely related: that innovation – like any other
human activity – is deeply rooted in ethics, and that ethics inspires and encourages
innovation.” (p.23). She not only believes that ethics in industry is an end in itself but also a
roadmap towards achieving it, “Ethics not only reflects on what it means to become better
human beings, it also gives us pointers on how to achieve it.” (Ibid. p.24). Porter and Kramer
believed that producer and consumer should reciprocate in a form of “shared value” which
they described as “societal needs, not just conventional economic needs, define markets.”
(2011).
Mintzberg, Simons and Basu concluded that corporations have become too focused on the
creation of short-term shareholder wealth and are now too greedy at the expense of the
long-term interest of the corporation and its shareholders: ‘‘Greed has been raised to some
sort of higher calling; corporations have been urged to ignore broader social responsibilities
in favor of narrow shareholder value; chief executives have been regarded as if they alone
create economic performance … A syndrome of selfishness has taken hold of our
corporations and our societies, as well as our minds’’ (Mintzberg et al., 2002, p. 67).
Consumption, and self-serving behavior have become not only acceptable in society, but may
be seen as a desirable trait in some segments. Cooke (1997) clearly noted that ‘‘greed’’, or the
quest to obtain superior returns, was one of the motivating forces for entrepreneurs to commit
themselves to a start-up. According to Cooke public corporations have a duty to act on the
behalf of their owners and if they do not they are not fulfilling a prime function.
Cooke made legitimate point, echoing Edward Freeman who claimed that corporations only
had a social responsibility to shareholders, (1970). However, Mintzberg has continued to
wage a campaign against wayward producers for over 15 years, calling into question the
manufacturers’ ethics and lack of concern for the consumer public by their display of base
human emotions such as apathy, and abnegation of responsibility. Meel and Saat pointed
out in 2002 that Ford may have produced the Pinto and Manville produced asbestos, but that
both manufacturers did so within legal perimeters. So in 2003, Simon Caulkin criticized
Business Management and Strategy
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Mintzberg of having developed “a pretty outspoken diagnosis,” and observing that the way
Mintzberg perceived his world was “scary.” But more acerbic judgments were yet to come
from Mintzberg in his blog dated 31 March 2016, in which he was particularly caustic in
comparing the “Statement on Corporate Responsibility” issued by the Business Roundtable in
1981 and then its 1997 issue on “Shareholder Value.” The former acknowledged the need for
balance between the interests of the consumer and producer; the latter focused exclusively on
the interests of the producers.
In relation to this conundrum, let us now turn to CSR and CC. CSR and CC are often used
inter-changeably. Andrews (1971) defined the principal concerns of CSR that have attained
general consensus among theorists: “The integration of ethical, moral and stakeholder
considerations into strategy decisions is the essence of today’s corporate social
responsibility.” (p. 100). CSR is an important feature of contemporary corporate life. It has
been described “in terms of the social and environmental impact of systemic organizational
activity,” (Maclagan, 1999 p.43). And Gond (2006) defined CSR simply as “the interface
between business and society.” (Cited in Hemingway, 2013). Both CSR and CC have
organizational values at their base. One definition of CC is, “the commitment of business to
contribute to sustainable economic development, working with employees, their families, the
local community and society at large to improve their quality of life.” (WBCSD, 2000, p.10).
This means that corporations target one or more responsibilities to provide for, or to consider
the needs of, civil communities within society which local and national government may not
think of as having priority but which nonetheless deserve financial and other group support
through a program of assistance. Hemingway goes on to explain that capitalism’s over-riding
preoccupation, the maximization of wealth, is considered by some to have gone to excess,
with the gap between the rich and the poor continuing to divide society. Under CC, industry
and society are often seen as sharing a symbiotic relationship. But many companies consider
that the range of responsibilities and sponsorships to which they commit themselves should
fall into the specific range of interests of their stakeholders – not wider society as a whole.
These limitations are understandable within the huge range of financial needs expressed by a
wide variety of interest and pressure groups within society. No one company can cater to all
demands. Therefore, many of them tailor their support to their employees, for example in the
form of competitive salaries, promotion possibilities and insurance schemes. However,
employees should understand that under CC, giving the best years of their life to a
corporation in exchange for remuneration and benefits, should also mean taking their share of
individual ethical responsibility.
CC is a relatively new element in the lexicon of business; so new, it is not even defined in the
Oxford Dictionary of Business and Management, 4th edition published in 2006. Yet it is not
entirely original – rather a tangential aspect of CSR. Carmen Valor believes that companies
should be in tune with society and that the “individual good citizen” is not difficult to identify.
By inference, she believes that therefore “citizens” should behave that way. (2005). But does
being good need to be enforced or can good behavior be voluntary? Boyton is cited in Stangis
and Valvoda Smith as asserting that “at its heart, corporate citizenship is change management.
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It is about envisioning a different and better future for business and society. Change
management requires the skills of both leaders and managers […] Leaders call for leadership
from every seat. They make it clear that everyone should step up and find their spots as a
leader, regardless of rank, title, or position. (2017, pp. xiv-xv). Stangis and Valvoda Smith
themselves do not distinguish between CSR or CC, “Don’t worry if your company calls it
something different,” (Ibid. P. xxxvi). They believe that “corporate citizenship is [vital] to
every aspect of the business. Managing the environmental and social impacts of your
company and using the assets of business to create value both for the firm and for the world
at large is critically important to the future of our environment, society, and economy. It is the
way that leading companies are creating competitive advantage today.” (Ibid. P. xxxvii). In
fact, their view is that CC is best characterized as a program:
“Corporations integrating these programs into their business strategy are 2.2 times more
likely to gain access to new markets, and 2.3 times more likely to achieve employee
retention. (p. xxxii). The more logically connected your corporate citizenship priorities
are to your company’s strategy, the more authentic and credible your program will be
perceived to be by stakeholders of all types — customers, employees, shareholders, and
community members — and the more value both your company and society will derive
from the investment.” (p. xxxiii).
Carmen Valor observed in 2005 that CC needed a “reconceptualization” and it is clear that
this reconceptualization should begin with a refined definition which separates it from CSR
and the confusion that the interchangeability of its use can cause. Achieving that new
definition then opens a new window to the problems in the auto-industry with possible
solutions because it provides a fresh perspective.
3. The Role of Corporate Citizenship: Towards a More Refined Understanding
Crane and Matten define corporate citizenship as “the corporate role in governing citizenship
rights for individuals.” (2016, p.73). They refer to social, civil and political rights with regard
to the citizen’s protection and the implementation of those rights. (Pp. 69-71). The
implication is that a corporation must in various ways be more accountable for the
consequences of its actions than it would ordinarily be under the traditional concept of CSR.
Yet under the circumstances described in this research, this definition and its implications do
not go far enough. Under the definitions above, the onus of ethical responsibility rests mainly,
if not solely, on the shoulders of management. But we know from post-modern organizational
practice that management cannot always take sole responsibility for everything that occurs in
a company. The responsibility has to be shared between management and all its stakeholders,
especially its employees because they are the ones who actually implement strategy and
produce the products. Hatch and Cunliffe (2006) offer insights including the observation that
“long-linked” technologies distance management from non-management because
manufacturing companies’ transformation processes are linear: there are inputs in one end
and products out the other. Within such a routine operation from day to day, new technologies
Business Management and Strategy
ISSN 2157-6068
2018, Vol. 9, No. 2
www.macrothink.org/bms

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