Magazine article Strategic Finance

Legal Compliance and Ethical Blunders at Ford/Firestone

Magazine article Strategic Finance

Legal Compliance and Ethical Blunders at Ford/Firestone

Article excerpt

A COUPLE OF MONTHS AGO, FORD AND FIRESTONE MADE THE NEWS WHEN THE treads started to peel off of several varieties of Firestone tires. At least 88 Americans died before Firestone recalled the tires, which were installed on new Ford Explorers and other SUVs. Most troubling from an ethical standpoint is that both companies may have known of the defects in 1993, when an overseas recall began. The decisions in this case provide the latest horrific example of how unethical actions can result in enormous losses.

Short-term, Bridgestone's estimate of tire replacement costs amounts to $350 million. Fines and punitive damages that will undoubtedly be tacked onto lawsuit settlements may run the total cost into the billion-dollar range. Both Ford and Firestone will pay huge sums.

More important, the long-term cost to their brands is incalculable, and the historical Ford-Firestone relationship is cloudy. Potential prison sentences for executives' criminal negligence add to the mix of corporate misery. Bridgestone took over a weakened Firestone as a result of its last recall. This time perhaps Bridgestone itself could be vulnerable.

Adding to or perhaps even causing the tragedy was the choice to cover up problems based on a narrow legal interpretation. In early 1999 the Bridgestone/Firestone legal department was successful in convincing Ford to avoid a broad program to replace defective Firestone tires found abroad. Later evidence of high lawsuit claims and warranty costs was dismissed as "not a safety problem." If not solved properly, ethical dilemmas always seem to compound.

Apparently, Ford's new slogan of "Customers Are Job One" has failed to sufficiently influence its decisions. Rather than putting customer safety first, it appears Ford chose to try to save a few dollars for shareholders. This shortsighted attempt may go down as one of the classic blunders of American business.

On several occasions this column has discussed the benefits of a values- and stakeholder-oriented corporate culture. Several research studies in addition to my own have shown favorable outcomes from a commitment to a values-based code of conduct. These outcomes include better profitability, a higher market value added (the Stern Stewart metric), a superior reputation (the Fortune survey), and excellent human resources experiences.

Continuing studies of 400 public companies by consultants Watson Wyatt Worldwide show a strong link between better shareholder returns and companies having superior stakeholder practices. …

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