7 hours ago
Saturday, August 14, 2010
Proof I Am Edjamikated
The previous post reminded me of the only time I ever took a Philosphy class.
It was actually titled "Business Ethics", but was taught by a Philosphy Ph.D.
And he was a full-boat, anti-business liberal.
To put it mildly, we argued some.
Like for 4 hours every Thursday, for 5 weeks. I won 95% of the time.
The kicker is after all of the arguing I passed. The guy who sat next to me, who was in the same study cohort and shared my first initial (and kept his mouth shut for 5 weeks) flunked.
So this guy was not only vindictive, he was too educated to realize how ignorant he really was.
This was a paper our group turned in that, if I remember correctly, we got a 'C' on.
Basically because I called our 'Instructor' an idiot, used his philosphers to prove it, and made the charge stick.
The Pinto Case Study
In 1969 the United States was gearing up for its first energy crisis. At that time the average American made automobile weighed around two tons, had a high compression V-8 engine capable of producing at least 300 hundred horsepower and seated 6 comfortably. Volkswagen had been a fixture since the 1950’s, but recently the Japanese had started importing smaller cars, and it seemed time for the big three to enter the small car market.
Lee Iacocca, a demigod at Ford since his creation of the Mustang and the ‘Pony-car’ Market in 1964, saw a possibility to again shake up the American car industry, capture the economy market, and polish his star even more for his planned leap into the chair Henry Ford II had held since 1942- President and CEO of the Ford Motor Company. His idea was for a car that weighed less than 2000 pounds and cost less than $2000. To remind the Board of Directors who was behind this miracle car it was codenamed “Pinto”.
Iacocca met his goal and got the car on the market in time for the 1971 model year; but not without problems. The Pinto was the first all new design Iacocca had headed. (The Mustang was a re-bodied Falcon, a 4 year old design that had been well tested.) One issue that had to be addressed was the gas tank design. Various redesigns had been tested and rejected due to weight and expense issues. The first Pinto hit the market weighing 2005 pounds and costing $1995. Iacocca had done it again.
Six years later Mother Jones magazine published an ‘exposé’ on the Pinto and its exploding fuel system. The piece of evidence they considered most damaging was the internal FoMoCo memo that had the audacity to place a value on a human life and use that value in a cost/benefit analysis to determine whether or not to redesign the Pinto. Eight months later Ford recalled 1.5 million Pintos for repairs.
Public sentiment was very much against the placing of a specific dollar value on a human life, yet this was not a new, or strictly a business, concept. When each of us decides how much life insurance to carry we are determining the value of our own lives, or that of a loved one. Some considered Ford’s valuation callous, yet it wasn’t.
An interesting bit of Ford history; in 1956 Ford produced what it billed as the “Safest Car on the Road”. With such items as seatbelts (not required by law until 1965) padded dashboard (also first required in 1965) and other safety equipment as standard Ford was hoping to excite the market. Instead, for the first time since the introduction of the Model A in 1929, Ford lost the production race to Chevrolet. The 1957 Ford was lower, faster and billed as race ready. Ford out produced Chevy by almost 150,000 units. Henry Ford II had learned his lesson- the American car buying public would not pay for safety.
Not that he Pinto was unsafe. It met or exceeded every safety standard in the industry when it was produced. Life is risky. We can either face that fact or hide from it. Ford’s analysis faced the fact that a certain percentage of their cars would be involved in fatal accidents, quantified that risk and compared it to the cost of upgraded safety items. $5.00 may not seem like a lot of money, but when 5 million cars are built that equals $25 million; money that the car buying public may not want to spend.
Facts can sometimes be elusive things. Depending on your point of view a source may or may not be reliable, and those sources’ facts may or may not be acceptable. Mother Jones magazine, named for Mary Harris Jones, a.k.a Mother Jones, “a union activist, active opponent of child labor, anarchist, and self-described “hellraiser.” ”(Wikepedia; http://en.wikipedia.org/wiki/Mother_ Jones_(magazine)), which can count among its former editors ersatz filmmaker Michael Moore (Wikepedia), is not what I would consider an unbiased source on corporate matters.
Neither is it a media force; according to the Mother Jones website, http://www.mojones.com/about/pr/circulation_pr.html, as of February of 2005: “Mother Jones magazine's A.B.C. audited circulation for the second half of 2004 was 250,563, the highest figure in the 29-year-old magazine's history.” Compared this figure to Sports Illustrated Women magazine (highest circulation 400,000) (http://en.wikipedia.org); Car and Driver (1,387,113) or Reader’s Digest (11,944,898) (World Almanac and Book of Facts, 2004 edition).
Our case study quotes the Mother Jones article at one point:
Unfortunately the Pinto is not an isolated case of corporate malpractice in the auto industry. Neither is Ford a lone sinner. There probably isn’t a car on the road without a safety hazard known to its manufacturer.
This statement is probably not as broad as it could be. There probably isn’t a product on the market without a fault of some kind or the other, including medications. Manufacturers of all kinds will do a cost/benefit analysis of any defect and go into production. To do other wise would bring an end to production of anything, while it is exhaustively tested to cure any possible fault. The manufacturers know of these problems, and are aware they can cause injury, but have decided that the benefits of their products to the consumer outweigh the possible hazards.
Undeniably, Ford has a duty to its stakeholders; chief among them its customers, to whom it owes safe, reliable, affordable transportation; its shareholders, to whom it owes a return on their investment; and its employees to whom it owes a chance for future employment. Ford had spent $200 million (over one billion dollars today (http://www.westegg.com/inflation/infl.cgi.76)) and the impact of retooling would have affected their most important stakeholders negatively, as would have the cost of new regulation.
The Pinto could never be called the safest car on the road, yet it was not the unmitigated death trap the press reported either. Millions of these cars were built, and were driven billions of passenger miles. It also fulfilled its duty to the Ford Company stakeholders- jobs to the employees, a profit to the shareholders and affordable transportation to the customers. Had the cost of defending against, or settling, lawsuits over the Pinto been excessive Ford would have pulled the plug on the project, using the same cost/benefit analysis that Mother Jones so disparaged.
Production of the Pinto is not an ethically hard decision. The failure to include a $1.00 piece of plastic is harder to justify, but we are taking this decision out of time and out of context. The production of any product, much less a complex one such as an automobile involves thousands of choices at each step of the production. Hundreds of these choices would involve potential safety issues. To single out one, in hindsight, for special attention because it was wrong is patently unfair.
John Rawls advocated the idea that a society should decide on the rules for society blindly, the deciders not knowing which side of the lines being drawn they would inhabit. Ford Motor Company, its engineers and managers made the decisions needed to meet the goals set down for the Pinto Project, then purchased these cars and put their families in them. They knew there were potential problems, yet felt their risk of occurring was low and that overall they had done a good job. As Rawls had advocated, they made decisions not knowing if they would become one of the few these problems would affect.
Milton Friedman, who felt the only social responsibility a corporation had was to increase profits to the shareholders, Ford admirably followed. By meeting every safety standard in force, and making sure the shareholders profits weren’t wasted, they were good stewards of the corporate funds. Their response to the various lawsuits also showed acceptable conservation of corporate funds by limiting losses through settlement of lawsuits instead of adjudication.
Moral objections can be made to most business decisions, depending on who your moral heroes are. Obviously there are parties who could, and have, disagreed with the production decisions made on the Pinto. Yet most of these parties have had issues with any decision made by business that didn’t involve closing their doors. Each decision must be evaluated in context, and not as an individual- that’s they way their made. Given the context, it’s hard to fault any decision that contributed to a project as successful as the Pinto was for Ford.