Toyota Developments Provide Reminders for Businesses Dealing with Regulators and Internal Investigations

As Toyota's president prepares to testify before Congressional committees tomorrow, it is a good time to consider some basic principles when businesses learn of possible defects, safety risks or violations of law. The Toyota vehicle acceleration recalls and similar reports present a good case study. Apart from the underlying vehicle design, performance and correction issues, Toyota now faces even more attention, not to mention potential sanctions, over its handling of and response to the situation.

For example, the automaker has received subpoenas from several federal agencies that will review its approach. And, an internal presentation touting a Toyota's team success in minimizing corrective measures required by NHTSA and realizing huge costs savings has come to light, raising questions about priorities in the response. So, this story quite possibly will turn into another installment of: "what did they know and when did they know it" or "was the cover up worse than the crime?"

It may well turn out that Toyota has acted completely appropriately in responding to defect and safety concerns. Just like UFO sightings, it's not as if every consumer complaint has merit. And, it is reasonable to respond in a measure fashion when it is not clear exactly what is going on.

In any case, my experience with scores of regulatory, health and safety matters has led to a few basic starting guidelines. The old saying "safety first" still rings true. Take the initiative with potential problems and regulators and be proactive. And, do not put anything in writing in an unprivileged setting that you do not want to see on the front pages next month or next year.

In essence, although there always is an imperative to avoid unneeded expenditures, usually it is better to deal with potential safety problems as quickly and effectively as possible. In addition to putting human welfare over the bottom line, it's a basic quality matter and brand management. These problems usually only get worse and more expensive to address over time. Dealing with them upfront sends strong, positive messages to all constituencies: customers, employers, suppliers and regulators. In the long run, taking short cuts leads to illusory savings.

All that said, it is not always easy to decide what the right course of action is and it is important to have full and frank discussions when there is a crisis or potentially damaging or expensive problem. The purpose of the attorney-client privileges is to promote those types of internal conversations and reviews, by shielding certain (even potentially embarrassing) communications with counsel from disclosure. But, when a privilege is not applicable, and even when they are keep safety first in mind, executives and managers always should ask themselves whether they would want that PowerPoint slide, memo or email to be presented in a courtroom before sending it around.

Our Chicago and Illinois business lawyers are experienced in regulatory and risk management matters and would be happy to discuss this topic in further detail.