Trust in Managers - Case Study Example

Name Class Unit Introduction Importance of trust in companies In today’s world, trust plays a major part in companies. Trust acts as the building block in organisation which enhances their success (Andersen, 2005). When an organisation lacks trust, it leads to skeptism among the customers, investors and stakeholders. This was evidenced after the financial crisis of 2007-8 where corporation’s trust dropped to less than half of the population. It becomes hard for an organisation to become effective and working relationship among the employees and stakeholders is destroyed due to lack of trust (Cristina & Bijlsma-Frankema, 2007). Trust acts as a foundation for having effective communication and motivation (Searle & Dietz, 2012). Trust and organisation performance are directly linked. High performing organisations have trust among all stakeholders. Organisation with high level of trust leads to consumer confidence in using their products. Once an organisation trust is lost, they suffer losses as seen in the case of Toyota and Siemens. Organisations with high level of trust are known through their ability, benevolence and integrity (Swift, 2001). A customer is willing to take a risk on a trustworthy organisation. This leads to an organisation making more sales of their products and services. The level of trust in an organisation determines its effectiveness in carrying out its processes (Brien, 1998). Control and coordination in an organisation is based on trust (Swift, 2001). Trust is associated with employees and customers satisfaction. When an organisation destroys their trust, it takes year to rebuild it. The case study analysis critically analyses the cases of Toyota and Siemens in relation to loss of trust and rebuilding it. Siemens Siemens is a German engineering firm with presence in several countries globally. The multinational corporation was involved in a scandal where employees were found to have siphoned off a lot of cash through unethical acts such as phoney consultants, contracts and false bills with an aim of paying massive bills and win contracts. The management was accused of condoning the irresponsibility that was exhibited in the firm. Siemens faced loss of trust from the shareholders and public. The organisation’s employees were humiliated and its trustworthiness and integrity was put into question (Dietz & Gillespie, 2012). Siemens approach to the scandal was highly praised by many experts. The first response to the scandal was not appropriate as the management downplayed it. The company termed the scandal as an affair of few million Euros, but within a month it was estimated at 420m Euros. Senior executives distanced themselves from the scandal leading to blame games. The initial response to the scandal was incompetent though the management were able to restore firm reputation after several months (Dietz & Gillespie, 2012). The diagnosis phase involved four international investigations as well as own internal enquiry. The firm involved a rigorous approach into the investigation which showed the pressing urgency of the reforms. The employees who volunteered themselves were given amnesty, CEO and chairman resigned. The scandal had been contributed by systematic elements such as aggressive growth strategy, decentralised matrix like structure and poor checks and balances system. Siemens had a corporate culture that allowed bribes to be tolerated (Dietz & Gillespie, 2012). The reforming interventions started with the appointment of Michael Hershman who is a cofounder of Transparency international as an adviser. This move was praised by many as an act of trustworthiness demonstration. The organisation was able to associate itself with a well known corruption expert. With Hershman guidance, Siemens was able to come up with strict rules and regulations which were against corruption. They came up with a global compliance program that was made up of three pillars (preventing, detecting and responding). The number of the compliance officers was raised to 500 from 86. For trustworthy conduct, Siemens hired former Interpol official to lead their investigation unit (Dietz & Gillespie, 2012). Siemens came up with compliance help desks and hotlines as well as an international ombudsman based online. To evaluate risk between the client and suppliers interactions, a web portal was created. The main aim of these interventions was to ensure that employee integrity was shaped by enhancing their ability. Despite changing the processes, people and procedures, the organisation needed to change their organisation culture. Siemens started a comprehensive training for the employees on anticorruption practices. The organisation was able to have more than 400,000 employees who were trained on anticorruption by 2008 (Dietz & Gillespie, 2012). To show a change in strategy, Siemens announced that they will not be competing in areas which are known for corruption such as Sudan. The organisation announced that they will also cease from getting World Bank funding for a period of two years. Siemens was also bound voluntarily to a fifteen years program with the World Bank where they had to pay $100 million to non profit organisations fighting corruption. This was a substantial gesture by the organisation as it showed remorse and benevolence. Voluntary penance is a great way to restore trust. The stakeholders were able to see that Siemens had learnt their lesson and were ready to change. This showed that Siemens was concerned over the damaged relationships. The firm then engaged in internal disciplinary actions which were over 900. The actions included dismissals as both CEO and Chairman resigned. The matrix organisation structure which was complex was replaced with a more streamlined structure made of three divisions. The organisation structure allowed a clear line of responsibility and transparency. This enhanced the speed of communication between the managers and direct reports (Dietz & Gillespie, 2012). Through the use of a systematic evaluation, the firm was able to review the bank statements available, documents and transactions carried out in 2008. This led to Siemens being praised for their efforts to identify the bad practices that happened and making sure that they could not happen again. At the end, the scandal cost Siemens 2.5bn where 2bn was incurred as fines. The rest was used through analysis of its transactions, paying bails for executives and fees to the advisers. Siemens was stopped from carrying out business with several clients. The company employees had to endure the shame and public scrutiny (Dietz & Gillespie, 2012). Siemens actions in dealing with the crisis are commendable despite the poor immediate response. The organisation was able to realise that downplaying a scandal that was unfolding was disastrous and could only increase in loss of trust for the company. The approach used led to restructuring the lost reputation in a great way. If Siemens failed to address the issue, they would have lost a lot of revenue and loss of market due to diminishing trust. Participating in unethical behaviour is very costly for the firm. Dismissing the scandal would have just compounded the original problem. The incriminating evidence would have been presented in court leading to loss of business and heavy fines. Loss of trust is an issue that would have haunted Siemens for years if they did not act on the problem in timely manner. I believe that Siemens has been able to rebuild and strengthen their reputation due to the right actions that they have already carried out. Siemens has been able to end corruption and the task ahead is to continue strengthening their reputation which was damaged by the scandal. The organisation has to work in ensuring that they have an organisation culture that is driven by ethical standards. This is a gradual process that will take time. The fact that the organisation has shown efforts in the right direction shows that they will be capable of rebuilding their reputation and avoiding future ethical issues. Toyota Toyota faced a threat to its reputation in 2009 after a Toyota Lexus was involved in a fatal crash due to acceleration issues. The company which was well known for quality and reliability faced a huge crisis based on trust. The company reaction made the matters worse. The company used belated apologies and communications which led to more damage than the initial accident. This led to loss of sales and consumer confidence in their products. Investors and consumers’ confidence dropped to 19% from 30%. The company failed to identify the problem in the first place until it was forced to take action. Recurrent recalls of more than 8.5 million vehicles made by Toyota led to violation of trust (Dietz & Gillespie, 2012). Two days after the San Diego crash, the company issued a statement to show that they acknowledged the accident and were regretful for the loss of lives. The company made a promise to carry out full investigation working with the National Highway Traffic Safety Administration (NHTSA). The company could not comment on likely cause of the accident, citing the ongoing investigations (Dietz & Gillespie, 2012). Though Toyota response was immediate, it lacked swift and decisive actions against the known or likely cause. The company failed to issue the customers with a warning on their all weather floor mats which was part of the problem and had been implicated earlier. The warning on all weather floor mats took 19 days to be issued and the warning was not given directly. The recall of more than 3.8 million affected vehicles was done a month after the crash (Dietz & Gillespie, 2012). The diagnosis phase started immediately. When NHTSA released the report, Toyota uploaded a statement claiming that the finding were in accordance with their floor mat warning and asserted that their vehicles were among the safest in the road. This step was condemned by NHTSA which was a major blow to Toyota. This led to damage of the company original intentions and damaged the remaining trust with the stakeholders. Though the company admitted to a defect on accelerator pedal and issued a recall, there was public skeptism and the efforts failed due to existing mistrust (Dietz & Gillespie, 2012). There were claims that the causes of these crashes were deeper than design. The company aggressive expansion strategy had compromised the quality of their products. The company had expanded rapidly with an aim of becoming a global leader in automobile within a decade. The company culture based on continuous improvement and inspecting problems at source was compromised leading to the fatalities. Toyota was reluctant to concede shame due to its reputation in excellence (Dietz & Gillespie, 2012). The Toyota diagnosis process was carried out up to March 2010. The reform process began with safety warning on the floor mats which led to the recall of 3.8 million vehicles. Other new problems led to further recalls in 2010 of further 1.66 million vehicles. The company was trying to demonstrate its ability to detect future accidents, tackling crisis and integrity through disclosures. Toyota wanted the customer to see that they put the customer safety first. The consumers became more wary due to increase in recalls. The immediate response was poor and led to a large damage to the Toyota credibility (Dietz & Gillespie, 2012). The company first apology came in October 2009 from Akio Toyoda. This was seen as a message that the company was taking a new direction and changing its strategies. Toyoda travelled to Washington and faced the congress where he apologised in person. The company took several moves which included a safety system through five accident avoidance technologies. The company undertook major restructuring which involved reducing the directors from 27 to 11. The departments which were responsible for the company corporate planning and social responsibility were restructured. This was done with the aim of enhancing the crisis response. The company used a task force which was global based to help in improving the quality, enhancing communication and seek support from an expert with the company president as the leader. Quality advisory panels were made composed of outside experts to evaluate the company quality control processes. The company settled the San Diego victims’ case in 2010. This was a form of corporate penance where individual penance was carried out by docking management pay by 10%. Toyota committed to the US regulators to enhance the creation of a safe automobile society (Dietz & Gillespie, 2012). Monitoring of the company reforms progress has been ongoing since 2010. The company actions have been aimed at making the issues right. Due to their slow handling of the issue, Toyota was fined $16.4 by NHTSA. The slow response attracted negative publicity and also damaged trust. There is still skeptism on the Toyota ethical stand. The frequency of Toyota faults in their design has made them lose trust. Despite this, Toyota has been recovering through the efforts despite the fact that their initial response led to more damage (Dietz & Gillespie, 2012). I strongly believe that Toyota reputation can continue to be rebuilt and strengthened through enhancing efforts that will help to return stakeholders trust. For example, the company can suspend the vehicle brand suspected of having the technical issues for a specified period. Though the process can lead to loss to the company, it can show that the company is remorseful and act as benevolence. The company has to prove that they are competent by producing vehicles which are accident free as safety is the major concern. By ensuring that the company growth does not happen at the expense of their ethics, Toyota can win back trust. Toyota must be prepared to react first in case of crisis through appropriate action. The immediate, but sluggish action by the company compromised the company initial chance to win back public trust. Toyota will only be able to recover from the crisis if they portray to the stakeholders that they can own up to their faults and come up with feasible actions. Recalls may not be able to fully satisfy the stakeholders since they have been recurrent for Toyota. The company will be required to continue with restructuring their system and prove that they have learned from their previous mistakes. This will take time for the consumers to gain confidence on their products (Dietz & Gillespie, 2012). Summary and recommendations Trust is judged by ability, benevolence and integrity. A company must satisfy the three criteria for the consumers and stakeholders to judge them positively and take risks to deal with them. When a business loses their trust, it becomes hard to deal with them as stakeholders becomes reluctant. Toyota and Siemens have been involved in scandals that have damaged their trust and hampered collaboration, stifled innovation and damaged the relationship. Both companies instant reaction was not able to enhance trust as it damaged it further. Siemens and Toyota must learn from their experience that to restore trust, they need targeted intervention which can control distrust and show trustworthiness. The organisation must learn that trust cannot be repaired by only taking the minimum steps (Swift, 2001). Both organisations will have to strive in showing statements and actions that will prove new evidence of their benevolence and integrity. Though there have been actions by both Toyota and Siemens, a lot still needs to be done especially in the case of Toyota. The immediate response must be followed with an action against the cause. The way Toyota responded to the scandal jeopardised their chance of gaining trust. It is also important for the organisations to know that their business ethics are lined to trust. When ethical misconduct occurs, the organisation trust is jeopardised. This calls for the organisations to ensure that they uphold ethics in their operations. Siemens problems are as a result of poor ethics while Toyota issues are related to integrity and lack of competence. The fact that trust failures takes a long time to resolve and are costly calls for firms to enhance the systems that supports trustworthy conduct. An organisation must ensure that their cultural values are not deviant as they can lead to breach of trust. Trust is repairable as demonstrated by the cases, though it takes time. References Andersen, A. J. (2005). Trust in managers: a study of why Swedish subordinates trust their managers, Business Ethics – A European Review, Vol.14, no.4, p. 392-404. Brien, A. (1998). Trust and distrust in organizations Professional Ethics and The Culture of Trust. Journal of Business Ethics, Vol. 17, no.4, p. 391-409. Cristina, C. A. & Bijlsma-Frankema, K. (2007). Trust and Control Interrelations. Group & Organization Management, Vol.32, no.4, p.392-406. Dietz, G. & Gillespie, N. (2012). The Recovery of Trust: Case studies of organisational failures and trust repair, Institute of Business Ethics, Occasional Paper 5. Searle, R. H., & Dietz, G. (2012). Editorial: Trust and HRM: Current insights and future directions. Human Resource Management Journal, Vol.22, no.4, p. 333-342. Swift, T. (2001). Trust, reputation and corporate accountability to stakeholders. Business Ethics: a European Review, Vol.10, no.1, p.16-26. Read More