General Motors and the Breakdown of Corporate Social Responsibility

Rebekah Frank

 

Over the last number of years, with concerns about what our rapidly changing climate might mean for the future of the planet, people across the globe have been engaging in discussions of ways to increase sustainability.  According to the United States Environmental Protection Agency (EPA), the idea of sustainability is based on the simple principle that “everything that we need for our survival and well-being depends, either directly or indirectly, on our natural environment.” 

 

The EPA then elaborates that “sustainability creates and maintains the conditions under which humans and nature can exist in productive harmony, that permit fulfilling the social, economic and other requirements of present and future generations.”  We all, it seems, have a responsibility to maintain, and even improve, the world around us.  While this responsibility certainly includes individuals, the actors that perhaps hold the most ability to impact our surroundings, both negatively and positively, are large corporations. 

 

Corporations not only have the power to effect our natural environment, but also our cultural norms and expectations.  They provide us, for a price, access to the goods and services that we require in order to successfully get through our days.  We place expectations concerning the proclaimed levels of quality and safety on those products and trust that what we are getting in return is in keeping with those expectations.  Occasionally, corporations do not hold up their end of the bargain.  Such was the case over the past few months with General Motors and its recall of over 28 million cars in the year 2014 alone. 

 

One of the tenets of a working society, and of sustainability, is the ability for individuals to trust that the entities with which they do business have more than simply their bottom line in mind.  This is one of the key aspects of what is known as corporate social responsibility (CSR), an idea that is central to the idea of sustainability. 

 

In his 1999 article “Corporate Social Responsibility” in Business and Society, Archie B. Carroll makes the argument that our modern understanding of CSR began in earnest in the 1950s with the publication of Howard R. Bowen’s book Social Responsibilities of the Businessman.  According to Bowen, the social responsibilities of businessmen, now called CSR, “refers to the obligations of businessmen to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society.” 

 

This idea was expanded upon by Keith Davis in his article “Can business afford to ignore social responsibilities?” in the 1960 edition of California Management Review.  Davis argues that CSR refers to the “decisions and actions taken for reasons at least partially beyond the firm’s direct economic or technical interest.”  Davis’ idea, according to Carroll, is that socially responsible business decisions have a good chance of bringing the firm long-run economic gains, thereby repaying it for its earlier inputs.  “If business has the power,” Davis argues, “then a just relationship demands that business also bear the responsibility for its actions in these areas.”  This led Davis to his “Iron Law of Responsibility” which states, “in the long run, those who do not use power in a manner which society considers responsible will tend to lose it.”

 

Perhaps one of the most important contributions of the 1970s to the concept of CSR was not from the literature, but instead took the form of Nestle’s huge public relations disaster that stemmed from its marketing of baby formula in developing countries.  Nestle, perhaps most famous for its chocolates, is a multinational food and beverage company based out of Switzerland that has brands as diverse as Coffee Mate, Purina, Hot Pockets, Dreyer’s and Maggi, a Nestle subsidiary that offers pre-packaged seasonings for soups and other dishes. 

 

Nestle also owns Gerber, the baby food company, and as of 2010 was the market leader in sales of breast milk substitutes and controlled almost 30 per cent of the international babyfood market.  Nestle has long been an important player in this market and with consistent control of market share has historically been the focus of consumer organizations that promote breastfeeding.  Back in the 1960s and 1970s Nestle, along with other companies selling baby formula in the developing world, was the focus of a long-standing boycott that tested the power consumer groups held in terms of forcing CSR on large, multi-national companies.  Although it wasn’t until the 1970s that consumer-rights activists really got active in respect to baby formula, the history of the dangers of using baby formula, and especially in the developing world where sanitary water supply was hard to come by, runs very deep.

 

 

Cecily Williams, a pioneer in protein-energy malnutrition, wrote extensively about the dangers of over-diluted and unsanitary use of baby formulas in the developing world as early as the 1930s.  In the late 1960s she wrote that “a falling-off of breast-feeding is usually found…because of harmful effects of ill-advised and inappropriate advertising of expensive proprietary milk preparations.”  In their 1980 article “Infant and Young Child Feeding:  An Analysis of the WHO/UNICEF Meeting” in the academic journal Studies in Famly Planning, Edward Baer and Leah Marguiles report that leading pediatrician Dr. Derrick B. Jelliffe estimated at the time of publication that more than 10 million cases of malnutrition and infectious diseases in the developing world were directly linked to bottle feeding.  Companies such as Nestle were sending promotional materials, gifts, hospital equipment, travel grants, etc. to underfunded doctors and facilities in the developing world to encourage them to promote Nestle’s products. 

 

Perhaps even more brazen, these companies would occasionally send sales women dressed as nurses into maternity wards and the homes of new mothers where they would give women free samples of powdered infant formula.  These new mothers would then feed their babies the free formula, thereby affecting their own ability to make enough milk to adequately nourish their child.  Subsequently they would be forced to purchase formula, placing a serious strain on already meager incomes.  Oftentimes mothers, unable to afford sufficient formula, would significantly dilute the formula, resulting in rapid weight loss and cases of serious malnutrition.

 

As reports of ill babies started making headlines around the world, consumer activist groups such as the Interfaith Center on Corporate Responsibility and the Infant Formula Action Coalition (INFACT) called for a worldwide boycott of Nestle products that started in the United States in the late 1970s and spread to Europe in the early 1980s.  This boycott, and the educational materials that accompanied it, got the attention of the World Health Organization (WHO) and UNICEF who, in 1979, held an international meeting on infant and young child feeding.  In 1980, the 33rd World Health Assembly adopted the recommendations that came out of the WHO/UNICEF meeting and charged the two organizations with drafting a code for the marketing and promotion of infant formulas.  The International Code of Marketing of Breast-milk Substitutes was adopted by the World Health Assembly in 1981 and was ultimately supported by 118 countries, with only the United States voting against it.

 

Despite the fact that the United States voted against the Code, multinational corporations started taking notice of the benefits of CSR for their public images as well as their bottom lines.  According to Gay W. Seidman, author of “Beyond the Boycott:  Labor Rights, Human Rights and Transnational Activism,” corporations “do best when they incorporate ethical concerns into their business practices.”  This newfound feeling of responsibility to those people living in the places where companies conducted their business led to a large shift in international business discourse.  According to Seidman, “if managers were more willing to police themselves, and if public pressure could ensure that violations carried real costs, then privatized, voluntary regulatory schemes” could be a serious possibility. 

 

 

Furthermore, this change in thinking, according to Seidman, could mean a move towards a more important role for civil society and non-governmental organizations (NGOs), and a shift away from state-centered action.  Perhaps changes seemed nigh in the 1980s, but given recent events it seems we have drifted off course. 

 

Over the past few months, General Motors has recalled over 28 million vehicles due to safety problems associated with faulty ignition switch in many of its models, most notably the Chevrolet Cobalt.

 

For years before the recall of millions of vehicles, engineers inside of General Motors called the ignition switch on the Chevrolet Cobalt the “switch from hell.”  Apparently the steering column of the Cobalt, as well as some other small GM cars, was designed so poorly that it could easily slip out of the run position, causing the engine to stall.  GM engineers were well aware of this problem:  according to the Associated Press, “as early as 2004, a Cobalt stalled on a GM test track when the driver’s knee grazed the key fob. 

 

By GM’s admission, the defective switches caused more than 50 crashes and at least 13 deaths.”  This safety problem went unmentioned and unfixed by GM engineers for 11 years.  The problem, according to a report conducted by Anton Valukas, the former federal prosecutor who was hired to produce a report into the causes of the recall, noted that the switch, which was developed in the late 1990s and approved for use as early as 2002, was plagued with problems from the beginning.  When Ray DeGiorgio, the engineer who designed and redesigned the switch to keep it in line with GM specifications, finally approved the switch despite knowing it had problems, he signed his final email to the switch supplier, “Ray (tired of the switch from hell) DeGiorgio.”  Almost immediately after this switch started being installed in cars, GM started receiving complaints.  As complaints rolled in, engineers figured that “even if the engine stalled and power steering went out…drivers could still wrestle the cars to the side of the road.”  Safety, it seemed, was not a concern.

 

In his report, Valukas writes that GM continued to view the switch problem as “annoying but not particularly problematic.”  Once the problem was thusly defined, Valukas continues, “the switch problem received less attention, and efforts to fix it were impacted by cost considerations that would have been immaterial had the problem been properly categorized in the first instance.” 

 

 

This was also problematic because engineers failed to properly investigate the possible side effects of the faulty switches, one of which was the fact that if there was a crash resulting from a stalled engine, the air bags wouldn’t properly inflate, leaving people completely unprotected from impact.  This fact was discovered by the Wisconsin State Trooper and crash reconstruction specialist Keith Young following a crash in 2006 that killed the two teenage passengers of 17-year-old driver Megan Ungar-Kerns. 

 

Following an investigation into the crash, Young found that the ignition had been turned from the “run” to the “accessory” position, causing the car’s engines to shut down and disabling the airbags.  Young subsequently sent a report to the United States National Highway Traffic Safety Administration (NHTSA) reporting what he had found.  The NHTSA, whish is tasked with keeping dangerous cars off the roads, did nothing with the information until after the recall this past February.  Consumer safety organizations have said that the NHTSA should have put pressure on GM to issue a recall as early as 2007.  Following the report he sent to the NHTSA, Young got in touch with a team from Indiana University who, upon searching the database of the NHTSA, found that there had been at least six consumer complaints concerning the faulty ignition switch cutting off the engine. 

 

As a result of the release of the damning information over the past few months, the new CEO of GM, Mary Barra, released a statement in an official press release.  She said, “Our customers deserve more than we delivered in these vehicles.  That has hardened my resolve to set a new industry standard for vehicle safety, quality and excellence.”  The question, though, is whether or not a mea culpa is going to be sufficient enough to undo all of the damage that has been done to General Motor’s reputation over the past eight months. 

 

This is a company that was bailed out using taxpayer money, that then did not go through proper avenues to determine the causes and effects of the dozens of accidents that occurred in their vehicles.  Instead, as a cost-saving mechanism, GM allowed millions of people worldwide to continue driving incredibly dangerous cars, cars with engines that could cut off as a result of something as simple as the key fob hitting against a hand or a thigh. 

 

In the years following the Nestle boycott, it seemed possible that a new dynamic was forming between consumers and corporations that bypassed the state.  It seemed as though consumer groups, upon learning that the United States did not sign on to the International Code Of Marketing of Breast-milk Substitutes, decided that the state was simply not the appropriate avenue through which to make changes to improve the health and well-being of mothers and babies worldwide. 

 

Instead, these groups put pressure on Nestle where it hurt: its bottom line.  They essentially told the company that if they did not change their approach to marketing in a way that was more ethically sustainable, then the boycott, and the negative press that accompanied it, would continue. 

 

In the case of the recent GM recalls, the same approach might be necessary.  Again, a state agency, NHTSA, willfully ignored information concerning the health and safety of people traveling the highways of the United States and did not put pressure on General Motors to address the issues at hand.  And yet, as it stands, there have not been major calls to arms amongst consumers concerning urging the changes in transparency and accountability that are absolutely necessary for the sustainability of our society at large. 

 

Have we passed the point where we can assume certain levels of corporate social responsibility?  Can individuals and corporations together, as the EPA mentions, fullfill “the social, economic and other requirements of present and future generations?”  Or will GM’s irresponsible use of power, as Davis predicted, cause the company to lose its impact in the car market?  This all remains to be seen.

 

Author Bio:

Rebekah Frank, a contributing writer at Highbrow Magazine, is a Brooklyn blogger and bartender. She writes on topics ranging from the service industry to feminism to everything in between at franklyebekah.com. Follow her @franklyrebekah.

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