Firestone: A Reputation Blowout

To what extent do companies need to make a proactive effort to collect and analyze data concerning possible safety issues?

Companies facing safety issues relating to their products need to consider six factors in their determination of proactively relating to a possible safety issue.  These factors are Company Policy, Ethical Guidelines, Governmental Policy, Consumer Care, Cost and Company Reputation and Liability.

Company Policy

Companies in the first instance need to have clear and accountable policies on how they will deal with product/service safety issues.  This policy would need to be transparent to company employees, boards, the public and stakeholders.  If the company is a global distributor, this policy needs to be able to be globally implemented.

An ideal company policy would include a commitment to product safety and how it is fundamental to the integrity of their brands and their business; commitment to actively promote responsibility and concern for the safety of their customers and the general public in all aspects of their business; compliance with all regulatory requirements for product safety testing and labeling; continual assessment of products, labeling and raw materials to ensure the health and safety of the public; applying consistent product safety standards across all regions; an active participation in scientific, regulatory and consumer discourse on product safety issues; transparent disclosure of product safety information to government, the public, stakeholders and professional associations; implementation of responsibility for product safety at the highest level possible within the company structure and lastly clear policies on how the company will deal with initial reporting of safety issues and instigate follow-up investigations and distribute information to the relevant stakeholders.  Timeliness should be factored into all aspects of product safety issues from initial reporting to product recall. 

Ethical Guidelines

Ethical guidelines and adopted policies for companies taking a proactive approach to product safety would need to adhere to both regulated and moral standards accepted by society as a whole.  Companies need to prioritize ethical guidelines as a key part of their mission and business, not as something they consider when weighing up the other factors.

Some key ethical guidelines that can be integrated into core company policies are to hold paramount the safety, health and welfare of the public in the performance of their professional duties; to issue public statements only in an objective and truthful manner and finally to act in professional matters for each stakeholder.

Government Policy

      Following the Firestone-Ford controversy, the Government has passed the T.R.E.A.D Bill.  Although concerns remain that this Bill did not go far enough to ensure that incidents such at Firestone/Ford do not occur again.  The act and discussion of making CEO’s criminally liable for their actions, ensures more accountability and responsibility for decisions taken in regard to safety issues.  In marketing their products to the public, companies also take on the Government and other regulatory bodies as part of their stakeholders.  When companies recognize these agencies as stakeholders accountability and positional responsibilities for safety issues become mandatory within Company policy and structure.

Consumer Care

Policies and regulations on a company’s responsibility to care of the consumer are deeply integrated into all of the six factors.  Another perception that companies need to consider is the consumer as a stakeholder, and makes a determination that the interests of that stakeholder should be paramount. 

Cost

How much is a human life worth?  Unfortunately, there have been some instances where companies have decided against addressing safety issues, by determining their financial risk is lessened if they instead pay compensation for death and injury.  No one has been able to determine what a human life is worth.  Liability tends towards records of payouts in assessed damage cases.

One case that is relevant to this particular case study was Ford’s decision in the 1960’s not to address the fuel tank issue in the Pinto.  Instead, Ford’s Board then determined that the cost of compensation for victims of the faulty fuel tank would be less than the cost of a total product recall and refitting of the fuel tanks.

Costs of recalls, human life and injury are not the only factors that companies need to consider.  There is cost of public perception of a company that produces faulty products; this cost has been borne out in the long-term by Ford and by Firestone.  Officially, over 700 injuries and 270 deaths have been attributed directly to the Ford/Firestone case.  However, the claimant costs and long-term public perception costs are not available.

Company Reputation and Liability

As referred to under costs, both Ford and Firestone have suffered long-term affects on their company reputations and their liability.  Areas of both companies were aware in the early to mid-1990s that there was a safety issue.  Neither company chose to deal with the issue publicly until faced with the NSHTA investigation.  With consumers being able to access vast amounts of information and demanding a higher standard in their products, companies need to see their overall handling of safety issues as being integral to their ongoing viability in a competitive market.  Court cases and liability not only cost Companies millions of dollars, they also sustain a tainted public perception of the company and their brands. 

What mistakes did Ford, Firestone, and NHTSA (National Highway Traffic Safety Administration) make in their early attempts to handle costs?

Ford

      Ford became aware at least a year prior to the NHTSA investigation that there were issues with tires on its some of it vehicles.  In 1999, Ford had already offered free replacements to customers in Venezuela, Saudi Arabia, Malaysia and Thailand.  Although Ford was aware of issues with the tires they tended to blame the driving habits of the customers rather than test the tires.  Ford did not test the tires until July 2000 after NHTSA has launched its investigation and issued Ford with an official letter asking for further information.

      Ford then moved to focus the issue on Firestone rather than themselves.  In choosing this path, Ford did not calculate the cost liabilities of civil action, public perception and company reputation.  The court proceedings against Ford escalated and although they won some judgments, the proceedings extended to both Government and individual claims.  The costs associated with this liability are un-calculable as settlements were also made out of court.  The first blow to Ford’s public perception and company reputation involved the faulty product and product labeling on their cars mainly SUV’s.  The second blow in terms of consumer trust was the exposure that Ford knew about the problems prior to them being publicly aired.  The long-term costs of not addressing this product safety issue in an honest and ethical manner has cost the company in terms of sales and long-term consumer confidence.

      Costs of this safety issue for Ford that could be calculated are (Dutta, 2003):

• 500mn for cost of recall in August 2000
• Explorer sales plummeted 21% in 2001
• Ford’s share of the US auto market dropped 1.7% in 2001

Firestone

Firestone became aware of issues with the tires as early as 1994.  The company did not publicly announce a recall until August 2000 after the NHTSA had approached them for more information and Ford had requested their analysis of the tire fault.  Firestone then dealt with the issue as a product problem and not as a company safety issue.  In both delaying an investigation into the safety issue and then focusing on a product issue, Firestone did not calculate the liabilities civil action, replacement costs, exposure in a competitive market, key stakeholder liabilities and public perception including their company reputation.

If Firestone had addressed the tire safety issue in the mid-1990’s their exposure to civil action would have dramatically decreased.  By being forced to deal with the issue in mid-2000 their civil action liabilities exposure had increased.  Replacement costs of the faulty tires increased exponentially over the period of time that Firestone chose not to deal with the safety issue.  With the urgency of the product recall and replacement program, Firestone and Ford had to depend on other competitors in the Tire market to help in the replacement program.  The publicity material for the competitors as safe and trusted tire makers over Firestones faulty tires damaged their market share considerably.  Also, Firestone did not calculate their liabilities in terms of their lost relationship with Ford.  By concealing the safety issue and exposing a key partner to a large product recall and civil liability cost situation, they lost a key partnership that was almost 100 years old.  The public perception and reputation of Firestone products has taken a severe blow with the Ford/Firestone case, but has not ended there with further recalls during the following years.  The cost can only be calculated in loss of market share.  Although it could be argued that Bridgestone/Firestone has clawed back some of its reputation and market share.  This may be related to the performance tire market.

      The long-term costs of not addressing this product safety issue in an honest and ethical manner has cost the company in terms of partnerships, sales and long-term consumer confidence.

     Costs of this safety issue for Firestone that could be calculated are (Dutta, 2003):

• Bridgestone recorded a net loss of $250.3mn for first half of 2001 due to tire recall
• Firestone recorded a loss of $570mn in June 2001 due costs of recall and lawsuits 

NHTSA

The NHTSA did not take any action about the tire safety issue until early 2000; they had been advised as early as 1998 that there might be a safety issue.  Although financial liability was not a cost to the NHTSA, their reputation and the cost of further injuries and lives during that two-year period is incalculable.

The following diagrams Fig 1 and Fig 2 illustrate the death and injury crashes related to the Firestone case (Dutta, 2003): 

What are the possible ethical implications of accepting responsibility versus blaming others?

Companies that are operating ethically accept their responsibility in terms of protecting both their company and their consumers.  By accepting responsibility to investigate and fix safety issues at an early stage, they can embrace other stakeholders and put pressure on them to do the same.  However, if you have two parties unwilling to accept responsibility and blame each other, then they have lost sight of the paramount ethic of “do no harm”.  For while companies work through disputes with each other, the consumer is using their products with the full belief that they can do what a manufacturer says they can do.  If companies adopt and adhere to strict ethical guidelines, they have solid foundations for solving conflict and preventing harm to their consumers.  Whilst specific blame can be investigated and liabilities can be argued, preventing further harm should be first and foremost to either an individual or set of companies.  Companies also have an ethical responsibility to take a transparent and truthful approach with their partners, in letting Ford’s exposure grow with each sale of vehicles fitted with faulty tires; Firestone did not follow this ethic.  In the end, the Firestone/Ford partnership ended after almost 100 years. 

Suggest measures that firestone could take to improve tire quality in the future.

The quality of Firestones tires in the future does not solely depend on their technical know how or research and development.  A whole of company approach to the ongoing safety of their tires and their governance of safety issues would need to be adopted.  After their role in this incident, they need to make sure measures are in place to ward off incidents in the future.

These measures should include an examination of their quality assurance and testing for the problem tires; implementation of an improved tire testing regime eliminating the quality assurance issues from this incident; analysis of their company approach to the Ford/Firestone issue and implementation of strict policy and guidelines addressing problem areas; a holistic company governance through company policy, ethics guidelines, governmental regulations, consumer care and stakeholder relationships.

 References

Dutta, S. (2003). The Firestone tire controversy (ICFAI Centre for Managment Research). . India.

Engineering, A. C. O. (1980). Companies ethical guidelines. Retrieved April 14, 2007, from <http://onlineethics.org/codes/acec1980.html>.

Ferrell, Fraedrick, & Ferrell. Business ethics.

Ford Pinto. . Retrieved April 14, 2007, from <http://www.fordpinto.com/blowup.htm>.