Big Corporations, Big Lawsuits Essay
Big Corporations, Big Lawsuits
The lawsuit over the defective design of Firestone tires put on Ford Explorers was perhaps the most publicised event when a company was sued for defective produce. This defect also resulted in a large number of accidents causing over 200 deaths and 700 injuries in the US alone, in addition to accidents in Venezuela, Columbia, Ecuador, the Arab Gulf Coast, and East Asia. The massive tire recall by Ford and Firestone on August 9, 2000, sent ripples through the American public and added fuel to the legal fire, causing both manufacturers and the public to rethink many issues.
Summary of the Lawsuit
On August 9, 2000, “Ford Motor Company and Bridgestone/Firestone jointly announced a recall in the United States of approximately 6.5 million ATX, ATXII and Wilderness AT tires made in Decatur, Illinois because of tread separation problems” (Eto, 2006). This recall came after the increased incidence of driver deaths in accidents in which Ford Exlorers rolled over triggered widespread public concern. At the time, the company was already faced with multimillion lawsuits. For instance, the lawyers for Edelio and Norma Herrera who died in May 2000 overturning in their Ford Explorer on the way from Disneyland demanded $1 billion from Firestone (BBC).
The lawsuits filed, for instance, by the law firm Lieff Cabraser Heimann & Bernstein, LLP, were based on the claim that Firestone and Ford were guilty because it had failed to address the concerns in the testing process. Thus, on June 15, 1989, the auto maker’s engineers prepared a report to the company management in which they “recommended eight design changes to address the rollover problem and improve the safety of the Explorer” (Lieff Cabraser Heimann & Bernstein, LLP, 2006). However, the management refused to make the major improvements recommended by engineers, willing to complete the design by the previously announced deadline.
Impact on the Corporate World
The lawsuit triggered a nation-wide discussion about the liability of auto manufacturers, business ethics, the need to produce quality products, and the regulation of the industry. The fact that Ford’s management had accelerated production at the expense of safety concerns only to face billions of dollars in lawsuits and a major blow to their reputation later on was a lesson to many managers.
The way Firestone and Ford were heaping blame on each other was also an important lesson of how companies should not handle a scandal. To demonstrate commitment to improvement, Ford, for instance, “ended its relationship with the tyre-maker” (BBC, 2001). The scandal affected one of the largest US auto manufacturers, causing the resignation of its Chief Executive Officers, Jacques Nasser.
Impact on Regulations
The lawsuits have also alerted the American public and regulators at the National Highway Traffic Safety Administration (NHTSA) that new, tougher laws on safety standards have to be adopted. In 2000, US Congress adopted new legislature that aimed to raise safety standards. However, it was clear that such laws should have been adopted long ago when the danger of rollover crashes in SUVs became apparent. The law required tire makers to submit to the regulators far more information about their produce than before.
Impact on the Companies
The lawsuits that have been partially successful and partially settled out of court cost both companies, especially Firestone a lot. Thus, the tyre manufacturer found itself spending over “$1.6 billion in 2001 due to the recall and litigation costs” (Online Lawyer Source, 2004). The company spent $149 million to settle 30 class-action suits all over the US. In 2001, Ford warned its shareholders that “it could face up to $10bn in lawsuits arising from the Ford Explorer deaths” (BBC, 2001). The result was disastrous publicity for both companies. Firestone in particular took a long time to recover. As of 2004, it was spending several times more on recovering publicity than in the year before (Online Lawyer Source, 2004).
Thus, the scandal resulted in massive financial losses for the two companies involved and blows to their corporate images. It also made the public pay closer attention to manufacturers’ ethical decision-making. On the government level, safety standards had been strengthened resulting in increased requirements for manufacturers.
Eto, G.C. (2006). Firestone Tire Recall. Retrieved April, 1, 2006, from http://www.garyeto.com/firestone-tire-recall.shtml
BBC. (2001, June 17). Firestone faces $1bn lawsuit. Retrieved April, 1, 2006, from http://news.bbc.co.uk/1/hi/business/1393055.stm
Lieff Cabraser Heimann & Bernstein, LLP. (2006). Ford Explorer Rollover Danger – 2006 Update. Retrieved April, 1, 2006, from http://www.vehicle-injuries.com/ford-explorer-lawsuits.htm
Online Lawyer Source. (2004). Firestone Recall Information. Retrieved April, 1, 2006, from http://www.onlinelawyersource.com/firestone/information.html