Legal and Ethical Issues in Ford Motor Company
Abstract
Corporate entities usually deal with ethical issues that arise as they carry on their business. Businesses have to adopt an approach that effectively achieves their objectives to maintain business image and profitability. The entity must first have the right goals that it seeks to achieve. Ford experienced an ethical dilemma when its business managers wanted to release the Ford Pinto into the market. It had to choose between maximizing its returns and ensuring that its product was safe for consumer use. The managers chose the former. Their approach resonates with Milton Friedman’s idea of the free market. They sought to make a higher profit for their employers, which, according to Friedman, is their sole responsibility. The better approach would have been the stakeholder theory. This approach would ensure that the managers created a balance of interests between all stakeholders of the company. Ford has experienced other legal issues in terms of environmental impact, employment, and breach of trust. Business managers should ensure that they adopt approaches that are sustainable in the long run.
Keywords: ethical theory, profit maximization, social responsibility, managers
Legal and Ethical Issues in Ford Motor Company
Introduction
Every company or other business entity has to grapple with ethical issues during their operations. Ford Motor Company is a large multinational corporation within the automotive industry. It has been in business since 1903 when Henry Ford, its founder, incorporated it. 2020 Forbes rankings place it at number 486 globally (Murphy et al., 2020). Ford has faced several legal and ethical challenges in the past. The Ford Pinto Case was a particularly huge issue that affected approximately 50 years ago. The company received a massive backlash after the incidents that followed its release of the Ford Pinto in 1970. An ethical dilemma came to light about the company’s approach to the car’s defects. The company knew about the defects but, upon carrying out a cost-benefit analysis, found that it would be more expensive to cure the defects than to settle product liability cases that would arise (The Spokesman Review, 2008). Their approach directly relates to Friedman’s theory of free-market ethics. However, taking a stakeholder approach to business would enhance the performance of business since the interests of all parties involved would be balanced and satisfied to some extent. Companies should also not violate human rights at the expense of profitability. This paper will analyze the Ford Pinto dilemma and correlate it with Friedman’s theory and propose the stakeholder theory as an alternative. Further, it will address environmental impact, employment, and breach of trust as they apply to Ford.
The Ford Pinto Ethical Dilemma
The Ford Pinto, one of the most promising products from Ford, created an ethical dilemma. In 1971, Ford launched the Ford Pinto. It was a reaction to Volkswagen, its competitor, that had released fuel-efficient vehicles (Weiss, 2009). Ford marketed the car as cheap, compact, and fuel-efficient. However, consumers later discovered that the vehicle was a fire hazard. If hit from the back, the car doors would fasten and block its inhabitants from escaping. Further, the gas tank design was so defective that it would burst into flames on impact (The Spokesman Review, 2008). Several incidents took place where Ford Pintos caused death and severe injuries on their users. The National Highway Transport Safety Administration (NHTSA) conducted investigations into the state of the vehicle. It reported that within four years, around nine thousand people succumbed to burns while inside vehicle wreckages after accidents (The Spokesman Review, 2008). Further, tens of thousands were severely injured and maimed for life. The engineers who designed and made the vehicle had met all the federal safety requirements before Ford released the cars to the market. However, some critics suggest that the engineers may have compromised on product safety as they tried to meet the standards (Weiss, 2009). Ordinarily, one would expect that federal government inspection would have revealed the vehicle’s defects. This inefficiency presents the possibility that government standards are not foolproof.
The company played a role in allowing the vehicles to be used by consumers without ensuring that they had no defects. This inaction is where the ethical question arises. The company had conducted tests before releasing the Ford Pinto. The tests revealed that a rear-end collision at 20 miles per hour could puncture the gas tank (Jeurissen, & Van de Ven, 2007). One of the tests even indicated that after such a collision, fuel would flow as far as the front seat. Ford knew the potential defects and the possibility that the flaws would harm its consumers. Later, a non-profit organization leaked an internal memo titled “Pinto Memo” (The Spokesman Review, 2008). The note involved a circulated discussion among Ford’s corporate executives. It showed the results of a cost-benefit analysis run by the company concerning the Ford Pinto two years before its release. The investigation revealed that the company would have to pay $11.00 to modify each vehicle to cure the defects. The total amount was $121 million since 11 million cars were scheduled for release. On the other hand, the estimated cost of settling cases that the company predicted would arise from injuries and deaths caused by the defects was $49.53 million. This estimation was significantly lower than the cost of modification, prompting Ford’s management to release the vehicles without curing the defects.
The approach taken by Ford raises several ethical issues. Firstly, the company expressed the value of human life in monetary terms (Jeurissen & Van de Ven, 2007). According to Ford, the cost of human life was $200,000, while the value of severe burns was $67,000. This valuation of human life goes against the inherent dignity and right to life of a human being. It shows a blatant disregard for human rights. Human life is so valuable that people should not express it in monetary values. Also, the fact that the company chose profit maximization over the wellbeing and safety of its consumers is inherently immoral. Secondly, consumers were not aware of the risks that driving a Ford Pinto posed in their lives. Ford did not afford them a chance to either accept or refuse the risk. The company forced consumers to risk their lives in a car that could potentially cause death or severe injuries if an accident occurred (Jeurissen, & Van de Ven, 2007). A company should give its potential consumers full information on the product that it sells to them, including the risks they would bear, to allow the consumer to make an independent and informed decision on whether to purchase.
Milton Friedman’s Free Market Theory
The free-market theory is one of the ethical approaches proposed as explanations of business ethics. The theory suggests that the primary responsibility of business managers and executives is to maximize profit and shareholder value for business owners (DesJardins & McCall, 2014). It explains that markets should be unregulated, allowing individuals to make independent choices without government and other external intrusions. Friedman states that businesses do not have social responsibilities; only individuals do; therefore the ‘socialist’ perception that a company should promote social ends is wrong (Friedman, 2007). He explains that the business manager is an employee and agent of the business owners. Therefore, his/her primary obligation is to make as much profit as possible to his/her employers, while abiding by the basic rules provided by society. He explains that where a corporate executive acts to fulfill social responsibility, he/she acts as a result of individual moral inclinations. The actions do not align with the interests of the owners. Therefore, the executive acts independently as a principal and not an agent of the business owners. Friedman further explains that while performing social duties, the manager takes the position of the legislature, executive, and judicial arms of government. This situation comes about because fulfilling social obligations does a disservice to the business owners and other parties involved in the business. Therefore, he/she decides who will be taxed, the cost of taxation, and the purpose. In his opinion, this violates the separation of powers and amounts to taxation without representation. In a nutshell, Friedman maintains that the only goal a business manager should seek is profit maximization.
The actions that Ford’s management took exhibit a direct application of Friedman’s theory. Friedman would have endorsed their decisions. Ford considered that profit maximization was paramount and decided to pursue it. The managers ignored their social responsibility and moral obligations to their consumers and society as a whole. They chose to pursue profit even if their actions had detrimental effects on their consumers. The main goal was to ensure that shareholders, who are the business owners, received the highest possible profit from the sale of Ford Pintos. In doing so, they acted as agents of the company, employed for the sole purpose of maximizing profit for their employer.
An Alternate Ethical Theory
The company should have applied the stakeholder theory to avert the disaster. This theory posits that a company’s primary aim should be to balance the interests of stakeholders (Freeman et al., 2010). Stakeholders are those parties that affect the business so much that the company would collapse without their support. The theory invites a discourse to evaluate the company’s purpose and the parties to whom managers are responsible. Further, the approach encourages managers to accept moral influence since it gives the company authenticity and leads to a situation where all stakeholders are satisfied (Fu & Ho, 2014). It places human beings and their rights at the core of commercial activity and the corporation as a vehicle for the achievement of benefits. Social responsibility is an essential component of this theory. It involves making decisions and actions that go beyond financial motivation (Fu & Ho, 2014). Companies should, therefore, include social responsibility as part of their strategies, and aim at balancing the wants and expectations of all stakeholders. This strategy would mean ensuring that the business is environmentally responsible, that employees are well protected and have safe working conditions, and that suppliers and vendors are satisfied. Further, it would make the business focus concerned about the welfare of its consumers.
Ford suffered the consequences of its profit maximization approach. The court decided on a $128 million lawsuit against the company (White, 2012). Further, it had to recall 1.5 million vehicles. In 1980, Ford discontinued the production of Ford Pintos (Weiss, 2009). Consumers also lost trust for Ford vehicles, and this led to a significant reduction in its consumer base. These effects show that their approach’s economic cost was extremely high, and it could have avoided them by merely resolving the defects. Applying the stakeholder theory would have meant shifting the focus from profit maximization to balancing the interests of all stakeholders. Ordinarily, Ford would have modified the vehicles to cure defects. The modifications would have ensured that consumers are satisfied while ensuring the sustainability of profit maximization. The company would have continued to receive profits from Ford Pinto sales and also averted the costs that resulted from their decision. Business managers should ensure that their choices create a balance between all the stakeholders since their satisfaction translates to business success.
Other Legal Issues
- Environmental Impact
Environmental issues are both legal and social. If a company’s actions lead to degradation, it can be held liable for the effects of such activities. Since Ford is an automotive manufacturer, it attracts great scrutiny from the public and, more specifically, from environmental activists. The interest is high because carbon emissions from Ford vehicles could negatively impact the environment. Environmental groups have criticized Ford for alleging that their cars are environmentally friendly, while its cars are the least fuel-efficient, according to reports by the Environmental Protection Agency (Szczesny, 2018). Ford should adopt an approach that reduces its carbon footprint.
- Breach of trust
Companies have a fiduciary duty to their consumers. This duty means that they should act in the best interests of the users of their products and services. It includes ensuring that they disclose all material information to them. In Canada, a citizen has proposed a class action suit against Ford for breaching consumers’ trust by lying about its fuel efficiency and emissions (Sotos Class Actions, 2019). Presenting false information to consumers amounts to a breach of trust. If the class action suit succeeds, Ford would have to pay millions of dollars to the consumers.
- Employment Issues
Employment and labor issues directly impact a company. Malpractice suits can attract hefty fines and settlements. Ford decided to lay off 7,000 workers last year (Thibodeau, 2019. Layoffs may attract employment disputes where employees consider that their termination was wrongful. The company should, therefore, approach layoffs with due care. Further, a $4 million discrimination case commenced in January, where a former employee claims that Ford managers gave preferential treatment to Caucasian workers (DiNardo & DiNardo, 2020). The matters may have severe ramifications on Ford’s reputation.
Conclusion
When a corporate entity takes action purely to maximize profit, it may experience consequences that are detrimental to its business. The approaches that a company makes for profit maximization motive may go against the expectations of consumers. When Ford released Ford Pinto, it did not consider its consumers, who are an essential element of its business. Their actions cost them economically since they had to compensate several individuals for injuries and wrongful death. Further, its commercial viability was affected since it lost the trust of its consumers and potential buyers. Companies should take the stakeholder approach, which keeps them focused on creating a balance between the rights of all parties that affect its existence and profitability.
References
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