Mission 'trust'.

Author:Choudhary, Amod
Position:Discussion
 
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INTRODUCTION

The late 2009 and most of 2010 was an unforgettable one for Toyota and BP. Toyota was accused of either stalling or not being fully truthful about accidents allegedly caused by faulty accelerators in their automobiles. By fall of 2010, Toyota had recalled approximately 8.5 million cars and trucks that could speed up and lose control due to gas pedals jamming or being stuck under floor mats (Tabuchi, 2010). Toyota's problems worsened because the CEO only acknowledged the accidents associated with accelerators some six months after the alleged problems were reported to the company. For reasons unknown--most likely the fear of potential legal liability--Toyota chose to not acknowledge the accelerator problems earlier. The result was that by February 2010, Toyota's once great engineering reputation was replaced by that of a company that is untrustworthy and one that puts profits before safety.

In spring of 2010, BP's oil rig--Deepwater Horizon--caused an explosion of an oil well in Gulf of Mexico that is now considered the worst oil spill in history of United States (Goodman, 2010). After the accident, BP took inordinate time in taking responsibility for the oil explosion, and blamed its subcontractor for the explosion. Meanwhile, the oil leaked for a much longer period than anticipated. By the time the oil leak was stopped, BP replaced its chairman and its reputation as an environmental visionary was destroyed. The accident also cost BP billions of dollars in oil cleanup and lost shareholder value (Goodman, 2010).

In March 2008, Bear Stearns--an 85 year old investment firm--was forced to sell to J.P. Morgan Chase & Co., when within 72 hours Bear Stearns went from being liquid to illiquid (Kelly, 2009). When the Chief Executive of Bear Stearns announced the sale of Bear Stearns to J.P. Morgan Chase & Co., he stated it was the right thing to do. The assumption being that the Bear Stearns CEO meant that the sale was beneficial for shareholders, employees and the management under the difficult circumstances. Around the same time, Lehman Brothers went bankrupt, followed by acquisition of Merrill Lynch by Bank of America later in the year. All three of these venerable Wall Street firms were victims of so-called toxic mortgage-backed securities. In addition, Citigroup also faced illiquidity due to toxic mortgage-backed securities on its balance sheet. In Bear Stearns and Merrill Lynch's case, their problems stemmed from few high-level employees making big bets on mortgage-backed securities that resulted in big profits in the short run and financial ruin in the long term. More importantly, these high-level employees acted in their self-interest, and not necessarily in the interest of other stakeholders of the organization.

Approximately ten years ago; Enron, Tyco, Adelphia, WorldCom, and HealthSouth Corporation either went bankrupt or suffered heavy financial losses due to the malfeasance of their senior managers. In essence, the officers of these corporations acted in their self-interest rather than of shareholders. Toyota & BP severely harmed their reputation by not communicating truthfully, the Enrons and Tycos of the world made malfeasance a common thing, and the financial firms such as Merrill Lynch, Bear Stearns and Lehman Brothers took catastrophic risks with the investors' money and other stakeholders trust. Ultimately, all these organizations are grouped in the whirlpool of organizations that betrayed the trust of general public, media and most importantly their shareholders. This paper analyzes the Mission Statements of these firms and the Mission Statements of Fortune magazine top 20 most admired companies in the world. It also recommends modification of Mission Statements so that they become a guiding document for navigating through life threating corporate crises.

DISCUSSION

While managing an organization during tranquil period is not necessarily easy, during a crisis the risks of decisions made increases exponentially. Experts have described a crisis as "situations that are unwanted, unexpected, unprecedented, and almost unmanageable and that cause widespread disbelief and uncertainty" (Boin, 2004). Crisis faced by BP certainly meets this definition. However, what happened to Enron, Tyco, Adelphia, Toyota, Merrill Lynch, Bear Stearns and Lehman Brothers only meet certain parts of the above definition. The public relations crisis for Toyota was self-inflicted in sense that a problem of that magnitude would eventually find its way through to media. Toyota made it worse by not giving a timely and appropriate response. The problems faced by Enron, Tyco, Adelphia, WorldCom, and HealthSouth Corporation were expected since wrongdoing on their balance sheets--mainly by accounting gimmickry--was bound to be discovered. Unfortunately, for the stockholders and regulators, the extent of the malfeasance was unprecedented and unfathomable. Maybe a more suitable definition of a crisis given that there have been scandals involving corporations at least since the late 1800s (Jensen, n.d.) would be "an unstable period, esp of extreme trouble or danger" (Dictionary.com, 2011). Thus, in a nutshell, a crisis is an extremely troubling time wherein the survival of an organization is at stake.

Experts of crisis management agree that during a crisis the organization needs to communicate. This becomes crucial for publicly owned organizations since the value of their stocks depend critically on the public and financial markets' perception. This is even more perilous in the age of Twitter, Facebook, YouTube and other 24x7 media sources. Financial firms such Bear Stearns, Merrill Lynch and Lehman Brothers could not survive the negative impact of toxic mortgage-backed securities they were saddled with on their balance sheets. Mortgage-Backed Securities are debt obligations that represent claims to the cash flows from pools of mortgage loans, most commonly on residential property (Mortgage-Backed Securities, n.d.). When the U.S. housing industry crashed, the value of the mortgage-backed securities similarly plunged. A perfect example of detrimental impact of negative news related to mortgage-backed securities on stock price was the free fall in stock prices of Merrill Lynch and Bear Stearns. Bear Stearns's stock price was $170 per share around March 2007 (Shan, 2008), then a year later on March 12, 2008 at $61.58, followed by March 13, 2008 at $57, March 14, 2008 at $37 and finally when acquired by J.P. Morgan Chase & Co. on March 16, 2008 at $2 per share (Legal Help for Bear Stearns Investors, 2011). Essentially, "the firm spiraled from being healthy to practically insolvent in about 72 hours" (Kelly, 2009). Similarly, although not as dramatic, Merrill Lynch's stock went from $63.34 per share (Rosenbush, 2007) to $17.05 in early October 2007, and then to $29 when sold to Bank of America in fall of 2009 (Bank of America to Purchase Merrill Lynch, 2008). Thus, information disseminated through traditional media, social networks on the Internet (Facebook, Twitter, and YouTube to name a few) and gossip coupled with lack of proper response by an affected organization can have a crippling impact on the financial and goodwill...

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