Reference no: EM131323978

Five months before the new 2002 Lexus ES hit showroom floors, the company's U.S. engineers sent a test report to Toyota City in Japan: The luxury sedan shifted gears so roughly that it was "not acceptable for production." The warning was sent to Toyota Executive Vice President Katsuaki Watanabe on May 16, 2001. Days later, another Japanese executive sent an e-mail to top managers saying that despite misgivings among U.S. officials, the 2002 Lexus was "marginally acceptable for production." The new ES went on sale across the nation on Oct. 1, 2001.

In years to come, thousands of Lexus buyers would discover firsthand that the vehicle's transmission problems, which caused it to hesitate when motorists hit the gas, or lurch forward unintentionally, were far from fixed. The 2002-2006 ES models would become the target of lawsuits, federal safety investigations and hundreds of consumer complaints, including claims of 49 injuries.

In an August 15, 2005, memo explaining the company’s position, a staff attorney wrote: "The objective will be to limit the number of vehicles to be serviced to those owners who complain and to limit the per-vehicle cost."

In 2010, Toyota was fined a record $16.4 million for delays in notifying federal safety officials about defects that could lead to sudden acceleration. The reaction of a Toyota spokesperson was: "Given the concerns raised by some customers about this drivability issue, we did not meet the very high customer satisfaction standards we set for ourselves. However, we fully stand behind the engineering and production quality of the vehicle, as well as our after-sale customer service and technical support."

Evaluate Toyota’s actions from a corporate governance perspective. How would you characterize the ethical culture at Toyota at least with respect to the Lexus incident? Can you draw any parallels between the Toyota experience and how Ford handled the matter with the Pinto?