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PART ONE

Introducing the Contemporary Business World

Concluding Case 4-2

Questionable Behaviour
Jos Ignacio Lpez de Arriotua has had an interesting business career, including being the chief purchasing agent for General Motors huge purchasing operations, and later, for Volkswagen. But in May 2000, Lpez was charged by the U.S. Justice Department with stealing secret General Motors documents and turning them over to rival Volkswagen. The Justice Department said it would try to extradite Lpez from Spain to stand trial in the U.S. The story began in 1993, when Lpez was the head of GMs purchasing. His job put him at the centre of key strategy decisions and financial forecasts. For one thing, Lpez handled on a daily basis the kind of top secrets that would in large part determine GMs success throughout the 1990s. Indeed, two days before announcing his resignation, Lpez had attended an international strategy meeting at GMs Opel subsidiary in Germany. During the meeting, he was introduced to GM Europes model plans, sales projections, and financial forecasts up to the year 2000. Fearing that Lpez had taken confidential information away from the European strategy meeting, GM demanded written confirmation that Lpez had not taken any documents with him pertaining to [GMs] present and future corporate plans. Fueling GMs deepest fears were Volkswagens subsequent efforts to lure away other GM employees. With Lpezs help, Volkswagen had tried to recruit more than 40 managers at Opel and GM, often enticing them with offers of doubled salaries. Before an injunction put a stop to its recruiting forays, VW had succeeded in hiring away seven key GM executives. Although VW denied allegations of industrial espionage and corporate raiding, the charges left both Lpez and the German carmaker under a legal and ethical cloud. That cloud became heavier when the district attorney of Darmstadt, Germany, discovered confidential GM documents at the home of a former GM executive who had, like Lpez, defected to VW. At stake for Volkswagen was the publics perception of company ethicsan intangible factor that could affect the firms sales. When a German polling organization asked 1000 Germans what they thought of the Lpez affair, 65 percent believed that there was something to the allegations, while only 7 percent deemed them unfounded. GM filed a civil suit against Volkswagen claiming that Lpez stole GMs plans for new cars, parts lists, price lists, and plans for a secret manufacturing plant. It claimed that VW used this information to lower its costs and to gain market share at GMs expense. In early 1997, Volkswagen agreed to give GM $100 million in cash and to purchase $1 billion in parts from GM through 2004. Lpez also resigned from VW, and GM agreed to drop its civil suit.

CASE QUESTIONS
1. As a result of Lpezs resignation, GM decided to require all top officers to sign formal contracts restricting their ability to work for a competing company for three years after leaving GM. How do you feel about this contract provision? 2. Does an employee have an ethical responsibility to maintain the confidentiality of information gained on the job with one company when taking a job with a competing firm? 3. Should Volkswagen be concerned with the publics reaction to the Lpez affair? 4. GM allowed Lpez to reveal suppliers proprietary information in order to elicit lower bids. Considering its behaviour, did GM demonstrate a double standard in its reaction to the Lpez affair? 5. The ethics of both VW and GM were called into question by the Lpez affair. How will the ethical misjudgments of both companies affect their relationship with customers, suppliers, and employees?

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