A brief article* in the December 2015 The Atlantic magazine asks “What was VW thinking?” then reviews a few classic business cases to show how top management, often CEO, decisions can percolate down through an organization, sometimes with appalling results. The author also describes a couple of mechanisms by which bad decision making can be institutionalized. We’ll start with the cases.
Johnson & Johnson had a long-standing credo that outlined its responsibilities to those who used its products. In 1979, the CEO reinforced the credo’s relevance to J&J’s operations. When poisoned Tylenol showed up in stores, J&J did not hesitate to recall product, warn people against taking Tylenol and absorb a $100 million hit. This is often cited as an example of a corporation doing the right thing.
B. F. Goodrich promised an Air Force contractor an aircraft brake that was ultralight and ultracheap. The only problem was it didn’t work, in fact it melted. Only by massively finagling the test procedures and falsifying test results did they get the brake qualified. The Air Force discovered the truth when they reviewed the raw test data. A Goodrich whistleblower announced his resignation over the incident but was quickly fired by the company.
Ford President Lee Iacocca wanted the Pinto to be light, inexpensive and available in 25 months. The gas tank’s position made the vehicle susceptible to fire when the car was rear-ended but repositioning the gas tank would have delayed the roll-out schedule. Ford delayed addressing the problem, resulting in at least one costly lawsuit and bad publicity for the company.
With respect to institutional mechanisms, the author reviews Diane Vaughan’s normalization of deviance and how it led to the space shuttle Challenger disaster. To promote efficiency, organizations adopt scripts that tell members how to handle various situations. Scripts provide a rationale for decisions, which can sometimes be the wrong decisions. In Vaughan’s view, scripts can “expand like an elastic waistband” to accommodate more and more deviation from standards or norms. Scripts are important organizational culture artifacts. We have often referred to Vaughan’s work on Safetymatters.
The author closes with a quote: “Culture starts at the top, . . . Employees will see through empty rhetoric and will emulate the nature of top-management decision making . . . ” The speaker? Andrew Fastow, Enron’s former CFO and former federal prison inmate.
I used to use these cases when I was teaching ethics to business majors at a local university. Students would say they would never do any of the bad stuff. I said they probably would, especially once they had mortgages (today it’s student debt), families and career aspirations. It’s hard to put up a fight when the organization has so accepted the script they actually believe they are doing the right thing. And don’t even think about being a whistleblower unless you’ve got money set aside and a good lawyer lined up.
Bottom line: This is worth a quick read. It illustrates the importance of senior management’s decisions as opposed to its sloganeering or other empty leadership behavior.
* J. Useem, “What Was Volkswagen Thinking? On the origins of corporate evil—and idiocy,” The Atlantic (Dec. 2015), pp.26-28.