Ethical Culture and Legal Liability: The GM Switch Crisis and Lessons in Governance

51 Pages Posted: 17 Nov 2015 Last revised: 16 Sep 2016

See all articles by Marianne M. Jennings

Marianne M. Jennings

Arizona State University

Lawrence J. Trautman

Prairie View A&M University - College of Business

Date Written: December 14, 2015

Abstract

During 2014 news stories emerged that eventually revealed and caused General Motors (GM) to admit that the corporation took more than ten years to recall millions of vehicles because of an elaborate cover-up related to defects in its engine ignition switches. Beyond the tragedy of at least 100 deaths attributed to the ignition switch failures, there is the company’s internal failure to address and timely disclose what was a material event evident in the earliest stages of the use of the switch and clear evidence of the company’s awareness of the defects. Within the past fifteen years there have been significant examples of ethical lapses, all with the common factor that the evolution of the lapses within the companies took place over a period of time with many in the organization aware of the growing problems. The ignition switch problem at GM follows the same pattern. The purpose of this article is to examine the GM ignition switch debacle in light of its culture and past practices and search for insights to aid other companies in how to detect these material events and decisions in their early stages. First, we discuss what went wrong at GM, including findings from the report conducted by attorney Anton Valukas at the request of GM’s board. Second, we explore GM’s several appearances before Congress due to this ignition switch safety issue. Third, we look at what GM is reported to have done so far. Fourth, we provide thoughts about what GM needs to do. Next, we discuss lessons learned from this ethical crisis. Finally, we conclude and offer advice. We believe this paper offers a recital of the facts surrounding an egregious lapse in U.S. corporate ethical conduct as it provides constructive thoughts about future prevention of the causal management conduct, failure of corporate governance and regulatory oversight. The GM experience offers many lessons about the importance of organizational integrity, “truth telling” at all levels within large corporations, and the costs and issues that result when there are failures in corporate governance.

Keywords: Audit Committee, Automobile Safety, BP, Clawbacks, Code of Ethics, Congressional Oversight, Corporate Governance, Cover-up, Criminal Probe, Crisis, Culture, Ethics, Executive Compensation, General Motors, Ignition Switch, Risk, Valukas Report, Volkswagen

JEL Classification: F13, F23, G38, K13, K14, K22, K32, L62, M14, O33

Suggested Citation

Jennings, Marianne M. and Trautman, Lawrence J., Ethical Culture and Legal Liability: The GM Switch Crisis and Lessons in Governance (December 14, 2015). 22 Boston University Journal of Science and Technology Law (2016). Available at SSRN: https://ssrn.com/abstract=2691536 or http://dx.doi.org/10.2139/ssrn.2691536

Marianne M. Jennings

Arizona State University ( email )

Tempe, AZ 85287-3706
United States
480-964-1701 (Phone)

HOME PAGE: http://mariannejennings.com

Lawrence J. Trautman (Contact Author)

Prairie View A&M University - College of Business ( email )

Prairie View, TX
United States

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