Ethical Business Responsibility Assignment - Honda Auction Case

262 Chapter 8 Making Ethical Decisions in Business

We finally finished the testing project and it was a success. But toward the end I did the lion’s share of it. One day, Tom made me angry by ending a capacitor test at 94 hours instead of the 100 hours you really have to have for validity. He did it be- cause he was late for a privacy task force meeting. Overall, I guess Tom helped a lot, but he didn’t do his share all the way through.

Last month the assistant manager of the radar project left the company and Tom and I both applied for the position. It was a pay raise of several grades and meant getting a lot of recognition. They chose Tom. The announcement in the company newsletter said that he was a “strong team player” and men- tioned both the testing project and the privacy task force as major accomplishments.

I don’t think it was fair.

Was Tom fair to Mary? Was Tom’s promotion fair to Mary? Was the company wrong to promote Tom?

THE HONDA AUCTION Dave Conant co-owned and managed Norm Reeves Honda in Cerritos, California. Naturally, he worked closely with Honda marketing executives to get cars for his dealership. One day, one of these executives, Dennis Josleyn, the new zone sales manager, ap- proached him, asking him to submit a bid on 64 com- pany cars. These were near-new cars previously driven by corporate executives or used to train me- chanics. Company policy called for periodic auctions in which Honda dealers submitted competitive bids, and the high bidder got the cars to sell on its lot. It was Josleyn’s job to conduct the auction.

“I want you to submit bids on each car $2,000 be- low wholesale market value,” Joselyn told Dave Conant. Conant dutifully inspected the 64 cars and submitted the asked-for bids. Meanwhile, Josleyn busied himself creating fake auction papers showing that other Honda dealers bid less than Conant. Of course, others bid near the wholesale price, so their bids were higher. Completing the phony auction, Josleyn announced the winner—Conant’s dealership. The next day he showed up there and handed Conant an envelope.

“I have a little invoice for you,” he said. Conant went to his office, opened it, and found a

bill for $64,000 payable to an ad agency co-owned by Josleyn and his brother. The message was clear. Josleyn wanted a 50–50 split with the dealer on the $2,000 windfall each car would bring, so he was billing

Conant for half the extra $128,000 the entire batch of cars would bring in.

Conant faced a decision. If the invoice was paid, the dealership would make a $64,000 windfall. If he refused to pay, the cars would be rerouted to a dealer who was a “player” and future shipments of new Hondas might be slower. He decided to pay the in- voice. In his own words: “I believed I had no choice. If I hadn’t paid the amount, I would have incurred the wrath of Dennis Josleyn and possibly some of the other Honda gods, and I believe they would have taken our store down.” 1

Conant was not alone. Honda dealers around the country faced a dilemma. After investing large sums to build new showrooms and facilities and hire em- ployees, they soon found themselves having to choose between two paths. If they gave bribes and kickbacks to Honda executives, they secured a copi- ous flow of cars and made a fortune. On average, a favored dealer made almost $1 million a year in per- sonal income. However, if they stayed clean, no mat- ter how modern their dealership and well trained its sales force; they received fewer cars and less profita- ble models. If they went bankrupt, and many did, the Honda executives arranged for less scrupulous own- ers to take over their dealerships.

Many an honest dealer short on cars drove across town to see a rival’s lot packed with fast-selling mod- els in popular colors. Over time, it also became clear that the highest Japanese executives at Honda knew what was going on but chose to do nothing.

Did Conant make the right decision? What would you do in his position?

THE TOKYO BAY STEAMSHIP COMPANY The Tokyo Bay Steamship Company operated a tourist ship between Tokyo and the volcanic island of Oshima 50 miles offshore. It also had a restaurant on the island. It was a modest business until February 1933, when Kiyoko Matsumoto, a 19-year-old college student, committed suicide by jumping into the cra- ter of the volcano, which bubbled with molten lava. Ms. Matsumoto left a poetic suicide note and, through newspaper stories, the Japanese public became obsessed with her story.

1 Quoted in Steve Lynch, Arrogance and Accords: The Inside Story of the Honda Scandal (Dallas: Pecos Press, 1997), p. 106.

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