CLASSIC BUSINESS ETHICS DILEMMAS

WHEN DOING THE RIGHT THING DOES NOT MAXIMIZE PROFITS

The Pinto was just the kind of car that would be popular with young people: cute, small, fun to drive, inexpensive. Manufactured by the Ford Motor Company from 19711980, it was designed to please the consumer. And it did just this, until a serious defect was revealed in the fuel tank engineering. When rearended, even at low speeds, the cars gas tank could rupture. If the fuel leaked, if there was a spark, the car could explode: killing or maiming the cars occupants.

Design flaws sometimes occur in manufacturing. A flawed product is not necessarily unethical. What elevated the Pinto fuel tank flaw from an engineering error to a fullblown business ethics scandal was the way the company responded to the problem. One issue with Fords response is what the company decided to do: after learning of the defect, it allegedly decided to sell the cars anyway. Another issue is the reason why Ford made its decision: allegedly, because it was cheaper to sell the defective vehicles than to fix them. That is, it was cheaper even when the cost of human life was assessed and included in the companys costbenefit analysis. Putting profits before human lives is the root of the ethical scandal in the Ford Pinto case.

On the topic of safety, we should try to put ourselves into the position of Ford executives in the 1970s. Nowadays, car consumers are used to having a variety of wellfunctioning and (relatively) safe cars to choose from, at various price ranges. Cars in the 1970s were much less reliable, however. Have you ever seen a car at the edge of the highway with its hood open and smoke pouring out? We hardly ever see this now but overheating and other problems used to be common experiences for drivers. In the 1970s, the government did not regulate the car industry as closely as it does today and safety requirements were much laxer. In fact, it was during the same time that the Pinto scandal was playing out that safety regulations were being standardized for the first time. So things that seem obvious to us about car safety might not have appeared so clear to Ford executives

We should not make too much of this point, however. Yes, there are significant differences in the automobile industry between the 1970s and the 2010s. Yes, customers have variable preferences: some prefer safer cars, others prefer cars with better performance, others prefer cars with a cute or sexy appearance. Even taking these two points into account, though, most people would presumably reject a car that was seriously unsafe.

And that was precisely the problem with the Ford Pinto. It was seriously unsafe. The fuel systems precarious location next to the bumper meant that the gas tank could rupture when the car was rearended, even at speeds as low as 20 miles per hour. If the tank ruptured and there was a fuel leak, the car could ignite: killing or injuring the inhabitants. Everyone could die as a result of a routine, minor accident, the kind that happens every day.

And, indeed, such routine, minor accidentsproducing horrifying deathsoccurred throughout the 1970s. One of the most infamous incidents occurred in 1978, when a 1973 Pinto carrying three teenage girls was struck from behind and ignited. The young driver and her passengers were all incinerated. One of the experts who testified at the trial, Byron Bloch, called the fuel tank design a catastrophic blunder. Drawing on his expertise in automobile engineering and industrial design, Bloch testified that, Ford made an extremely irresponsible decision when they placed such a weak tank in such a ridiculous location in such a soft rear end. Its almost designed to blow uppremeditated. Bloch testified that it would have been safer to place the fuel tank in front of the rear axle, where it would be less likely to rupture if the car were rearended.

In a 1977 article, Pinto Madness, published in Mother Jones magazine, an unnamed Ford engineer addressed the issue of the gas tank design and placement. That engineer admitted that the gas tank was flawed from a safety perspective but emphasized that it had other merits. In particular, he emphasized that the Pinto tank created more trunk space in the car, which was an area in which the Pinto sought to be competitive.

In the face of mounting deaths, though, concerns about trunk space appear frivolous. Hundreds of people had died or been injured in fiery crashes by the late 1970s. At this time, Ford had access to several strategies for making the cars safer. First, it could have reinforced the rear axle, improved the bumper, and provided additional support for the tank. Making these changes would have cost $15 per vehicle. They would have made the fuel tank able to withstand a 3438 mileperhour rearimpact crash.

In addition to the axle reinforcement, bumper improvement, and tank support, Ford could have added a bladder at a cost of about $5 per vehicle. Making these changesat a cost of $20 total per vehiclewould have allowed the fuel tank to withstand a 4045 milesperhour rear impact. If the tank had been located over the rear axle and surrounded with a protective barrier, at a cost of approximately $10 per vehicle, it would have been safe in a rear impact at 50 miles per hour or more.

Why did Ford decide not to make any of these changes? As with any decision, it is difficult to figure out, from the outside, why other people decided to act as they did. We can ask them, and take their word for it. Alternatively, we can construct a theory about why we believe that they acted as they did and try to argue for that theory. In the case of the Pinto disaster, both strategies have been attempted. When Lee Iacocca was asked about the design choices, he explained that he did not know that the design would have the deadly consequences that it ended up having.

When looking more broadly at how the Ford Motor Company tended to make decisions during this time, however, another possibility emerges. This possibility is offered in the Mother Jones article. In the 1950s and 1960s, a person who had an important influence on the Ford Motor Company was Robert McNamara. McNamara was the first person who was not a member of the Ford family to serve as the president of that company. He subsequently served as Secretary of Defense in the Kennedy administration. Trained as an accountant, McNamara was a strong proponent of costbenefit analysis (CBA), the decisionmaking strategy discussed in Chapter 2. Based on McNamaras influence on the Ford Company, many people have inferred that the company decided to keep selling the Pinto, rather than performing one of the other actions, listed above, because continuing to sell the defective car was favored by CBA.

As noted above, CBA has obvious value in business decisionmaking. In particular, it is highly effective at maximizing the bottom line. Problems with the decisionmaking strategy arise, though, when it is applied to decisions concerning human life. The most serious of these problems is that analysts must place a dollar value on human life. For Ford, that value was $200,000. A nonfatal burn was valued at $67,000. (Adjusted for inflation, that is over $1 million per life and around $400,000 for a nonfatal burn in contemporary dollars.)

A memo that Ford created using CBA to assess whether the car industry as a whole should use a safer gas tank has been made public. In that memo, Ford estimates the human cost of the riskier tank, industrywide, per year, at 180 lives and 180 burns. Industrywide, 12.5 million vehicles that caused these kinds of injuries (cars and light trucks) were sold. That means that, industrywide, the costs of burn deaths and injuries is projected to be $49.5 million but the cost of selling safer cars (assuming that the safer car costs $11 more to manufacture) is $137 million.

These industrywide costs and benefits, though, do not settle the question of what Ford ought to do from a CBA standpoint. To figure that out, we will have to make some assumptions. First, we can plausibly estimate that the Pinto had a sales volume of 300,000 vehicles per year. (This figure is based on a 2003 article by Robert Sherefkin in Automotive News, in which the author notes that Pinto sales in 1971 were 328,275 in the United States.). According to Ford Vice President Herbert L. Misch, there were 12 fatalities in all Pinto accidents in 1975 that involved fires. We know from the memo that Ford assumes that burn deaths and injuries are the same number. So, assume that Ford is deciding whether to install the safety devices discussed above (costing $10, $15, or $20) for the next operating year (say, 1976). It anticipates 12 deaths and 12 burns per year. Estimated CBA:

($200,000 per death12 projected deaths)+($67,000 per burn120 projected burns)=approximately $3 million per year.

$15.00300,000 Pintos per year (estimated)=$4.5 million to make the car safe at 3438 mileperhour rearimpact collisions.

$20.00300,000 Pintos per year (estimated)=$6 million to make the car safe at 4045 mileperhour rearimpact collisions.

$10.00300,000 Pintos per year (estimated)=$3 million to make the car safe at 50 mileperhour rearimpact collisions.

Because the bottom line is the same to fix the car as to pay for injuries, these figures do not make a compelling case for either alternative (in terms of CBA). Combined with Fords $200 million investment in Pinto production with the defective cars, though, we can grasp how the bottom line might have influenced Ford to keep the defective cars in place. We do not have the information about costs of retooling Pinto assembly lines and improving the cars design. It does seem plausible, though, that these costs would have been greater than compensating survivors and the families of the deceased. Fords decision to keep selling the unmodified Pintos suggests that, in this case, the bottom line trumped concerns about loss of human life.

QUESTION :

What would the DM recommend that Ford do in this case? What would ShareT recommend? How about StakeT?

Raise an objection against each decisionmaking strategys recommendation. Then, consider how someone who supported the decisionmaking theory would respond to your objection.