General Motors' recalls reflect a defective culture

Nashville Business Journal

July 25, 2014


General Motors is currently recalling more vehicles than it sold in the last eight years. The number of vehicles recalled is 29 million and counting. This is an amazing statistic, and the recall seems to affect multiple models across all of the GM brands. That means that anyone who owns a GM car or truck is likely to be on a recall list.

The financial cost of this debacle, according to GM, was $1.3 billion during the first quarter of this year and $1.2 billion in the second, and outside professionals estimate the total cost could top a whopping $7 billion dollars! The damage to the company’s reputation is incalculable, and the human cost is unforgiveable. The actual number of people killed or injured is not yet clear, and it’s impossible to measure the degree of personal loss for the families and communities who trusted GM with their lives.

How could something this monstrous actually happen? 

Anyone who pays attention to the news knows that much of this problem revolves around a defective ignition switch, but the real reason is even more frightening, because all of it could have been prevented.

The root cause is a culture that fueled a dysfunctional environment.  Poor leadership, lack of communication, and selective listening made the GM culture far more defective than the single flawed part that was discovered, ignored, and left unchecked. It took nearly a decade to acknowledge and implement a simple recall that could have saved an (as of yet) undetermined number of lives.

Every company has a culture, and the strongest of those cultures are intentionally driven by senior leadership.  Top executives set the tone for every organization, and from that deliberate direction a distinct way of doing business emerges. When the leaders regularly talk about the values and the mission of the company, employees and front-line managers listen and fall in line. When senior leaders talk openly about ethics and practice what they preach, their organizations will follow.

On the other hand, when employees are criticized for delivering bad news or are ignored when they make unpopular recommendations, they tend to avoid tough decisions, follow the easiest course of action (or inaction), and choose the lowest-cost (or no-cost) option in order to protect themselves. When bosses only want to hear good news, important information is inevitably suppressed. And when employees become more concerned with their status and career safety than with the safety of whatever they are producing and selling, bad things happen.

The ignition switch issue stems from a culture that does not discuss and, as a result, does not value integrity. When I ran Tractor Supply Company, we discovered that the best way to make integrity and ethical action a priority was to talk about it. Discussing the importance of “doing the right thing” was a central responsibility of every front-line manager and is an integral part of the company culture.

A well-run organization encourages the reporting of important issues and rewards workers who help solve problems.  Well-run organizations celebrate the discovery of potentially dangerous or damaging long-term issues and publicize those findings throughout the company to encourage others to speak up.

It’s tough to overstate the importance of setting a high ethical bar and maintaining an open, “no secrets” work environment.  The situation at GM should be seen as a lesson to top executives across all industries. Business leaders have a moral obligation to lead with clear, solid, and regular communication, not only about the vision for the future, but also about current and essential organizational values.

Ethical leadership is everything—whether in business, in politics, or in life. Those who walk the high road will win in the long term regardless of the many bumps along the way. While it is pretty clear that GM’s issues didn’t develop overnight and have likely been growing for decades, it is also clear that in the long run, a breakdown in the culture of integrity will inevitably catch up with any of us who ignore our moral obligation to our employees, our shareholders, and—most importantly—our customers. 

Joe Scarlett is the retired CEO of Tractor Supply Company and
Founder of the Scarlett Leadership Institute

Comments and Discussion:

GM and others

Posted Aug 7, 2014 at 4:09 PM by Anonymous
Very well stated. Substitute VA, DOJ, IRS, etc and the statement still applies. I fear our culture is headed in the wrong direction.

GM Culture

Posted Aug 6, 2014 at 1:32 PM by Fred Lane
Joe, It is astounding how the pattern of kicking the proverbial can down the road results in far greater financial and reputational costs to the organization. Boards everywhere should pay heed.

General Motors Recall

Posted Aug 6, 2014 at 10:03 AM by Ken Nevar
Amen!!

Ethical Leadership

Posted Aug 6, 2014 at 9:27 AM by John Cerasuolo
Well said Joe! This is so important it should be at the core of every business school's curriculum.




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