Business Ethics

Workshop

Ford-Firestone Debacle

Ford-Firestone Debacle- A Timeline

• 1978, Firestone recall 14.5 million tyres due to tread separation.• 1988, Bridgestone (Japan) takeover Firestone & save them from

financial collapse due to the 1978 recall.• 1991, Bridgestone/Firestone AT, ATII, & Wilderness AT tyres fitted as

standard on Ford Explorer SUV.• 1992, Ford start to receive complaints about Firestone tyres.• Mar. 1999, Confidential memo from Firestone to Ford: everything’s fine!• 1999, Ford start replacing Firestone tyres on models in 16 countries (not

USA) without telling NHTSA ‘federal’ regulators. • 2000, The Houstan, Texas TV station, KHOU did a story on ‘tread

separation’ on Ford Explorer SUV. 46 deaths & > 300 incidents; more complaint reported after.

• Aug. 2000, 6.5 million Firestone Tyres recalled in USA. Disagreement about tire inflation pressure (Ford 26 psi; Firestone 30 psi) & report that Firestone plant was “rife with quality-control”

Ford-Firestone Debacle- A Timeline continued

• Sept. 2000: – Firestone (memo of Mar’99): “major reservations” about a plan to

replace tyres overseas.– Ford: no obligation to report overseas recalls.– Ford: no warranty data on tyre recalls.– Firestone: damage claims (Nashville), warrenty adjustments (Ohio)– Trend identified after-the-facts – by the New York Times– Dept. of Transportation: no funding to track all data– NHTSA: “our testing is clearly outdated”

• Bridgestone President: lack of quality control was management’s fault.• Personal Injury Lawyers: identify trend (1996), but did not report to

NHTSA until 2000.• 192 deaths & 500 injuries –attributed to Firestones tyres.

Ford-Firestone Debacle

Ford Explorer:

was it the high centre of gravity due to cost

control & defective vehicle design?

FirestoneAT Tyre:

was tread separation

due to cost

cutting & poor build quality?

Firestone recalled tyres from Ford's Explorer– 271 deaths & hundreds of injuries in high-speed

blowouts & rollover accidents.– Ford’s cost: >$2 billion (2000-01).

Ford's Jacques Nasser, left, and Bridgestone's John Lampe: irreconcilable differences.

‘Companies try to pin blame on each other, but others say both are at fault’ – Forbes

1991, Ford Explorer overturned in St. Petersburg after another car slid into a barrier in front of it.

Ford-Firestone DebacleWhat is Tread separation?

• Tread separation occurs when rubber tread separates from steel belts inside the tyre.

• Occurs because difficult to adhere rubber to steel.

• Tread separation becomes more likely at higher speeds & warmer climates.

Ford/Firestone should have...

• Firestone: Nylon overlays; known alternative remedy to prevent tread separation.

• Cost of nylon overlay; $1 per tyre.• 10 million tyres recalled...you do the maths!• Company spent $1.7 Billion in legal fees &

settlements...

• Ford: review under-vehicle design: design – chassis & engine mounting etc.– Lower centre of gravity

National Highway Traffic Safety Administration NHTSA

• NHTSA Mission Statement: ‘To save lives, prevent injuries and reduce traffic-related health care and economic costs.’

• NHTSA provides important information to the consumer, including crash test ratings and vehicle safety information

• NHTSA report said; ‘Belt-leaving-belt’ tread separations reduce the driver’s ability to control the vehicle. It is especially dangerous when the separation occurs on the rear tyres.’

• Belt edge separation leads tread detachment. This tends to occur more frequently at high speeds & warm climates.

• Design feature; ‘belt wedge’ is used to prevent belt-edge cracks.– Belt wedge on Firestone tyres was found to be narrower gauge than peer tyres.– Weak spots were found around tyre circumference due to the narrowing of the wedge

gauge at the shoulder pocket

• National Traffic & Motor Vehicle Safety Act; ‘Burden-of-Proof’ with NHTSA.

• NHTSA investigation concluded tyre defects came from named plants.

Ford-Firestone Debacle ‘All Party’ Ethical Issues

• Individuals hid information (lawyers & executives)• Data not stored (lack of funding)• No obligation to report overseas actions• Didn’t have a tool to detect trends easily• Relationship of organizations prohibited a rapid

solution– Ford & Firestone had a long relationship (100 years),

but did not communicate on issues– Ford & Firestone did not report data to the

government if it might cost them– Legal community hid information from government

for 4 years to protect their lawsuit

Ford-Firestone Debacle Conclusion

• No ‘information sharing’ culture• All parties not collecting the correct data• Problem Investigation not proactive• If Ford/Firestone had practiced the courage of

ethical conviction they would have:– Spent extra money on technical solution (vehicle

redesign & tyre ‘nylon overlays’.)– Notified the proper authorities at the first indication

of product failure.– Developed an in-house vehicle & tyre safety &

testing programme.

Albert Einstein (1879-1955)German-born American theoretical physicist

“Everything that can be counted does not

necessarily count; everything that counts

cannot necessarily be counted”

An Ethical Decision Making Model

• Identify the problem. • Apply a Code of Ethics. • Determine the nature and dimensions of the

dilemma. • Generate potential courses of action. • Consider the potential consequences of all

options, choose a course of action. • Evaluate the selected course of action. • Implement the course of action. “There is rarely one right answer to a complex ethical dilemma. However, if you

follow a systematic model, you can be assured that you will be able to give a professional explanation for the course of action you chose.”

(American Counseling Association (2005). Code of Ethics. Alexandria, VA)

Firestone & Ford Case Analysis

Questions for Case analysis:

a. What are the ethical & social issues (systematic, corporate & social) in this case?

b. Who are the stakeholders & what are their stakes? How do organisational structure, culture and management style affect their ethical performance and is the consumer the main priority?

c. Firestone and Ford. How do Ford & Firestone measure up in

fulfilling their various social responsibilities?

d. Who is at fault in the tyre separation controversy - Bridgestone/Firestone? Ford Motor Company? Department of Transportation? The NHTSA? or Lawyers?

Jones’ (1991) Moral Intensity Construct Model

conducting accounting ethics research1. Recognition of ethical issue or ethical sensitivity.

2. Making ethical judgment3. Establishing ethical intent4. Engaging in ethical behaviour

Jones (1991) identifies six variables/characteristics of the ethical issue (i.e. MI factors) that will impact on the

ethical decision making process.• Magnitude of consequences• Social consensus • Probability of effect• Temporal immediacy• Proximity• Concentration of effect

Seven Signs of Ethical CollapseDr. Marianne Jennings (2006)

Seven Factors that predict ethical crashes...

1. Pressure to maintain the numbers

2. Fear & Silence

3. Young ‘Uns & Bigger-than-Life CEO

4. Weak Board

5. Conflicts

6. Innovation like No Other

7. Goodness in Some Areas Atones for Evil in Others