Let’s take another look at the Ford Pinto case now that we have the concepts from the Stockholder and Stakeholder views in mind. With those theories in mind, we should analyze what we know of the Pinto case and try to determine what choices each of those theories would have recommended.
The Pinto was a car with a mission. It was supposed to be the car that kept Ford abreast of the times. People wanted small, cheap cars, and the Pinto was a small, cheap car. If Ford is interested, primarily, in creating greater profits for their stockholders, then producing the Pinto is one way to do this. It gives the people what they want. We know what they want because the consumers are expressing their preferences through the market. That is, they are buying cheap cars instead of expensive cars.
Since the cost of the car is the primary draw for consumers, and Ford’s responsibility is to produce profits for their stockholders, Ford needs to keep the costs of design and production at very low levels. Even when the Pinto failed to meet the safety guidelines that Ford knew would be in place in a few years, it was judged that it would be too costly to change the design of the car. Design changes take time, those designs must be tested, and the factories must be retooled for the new production. The delays that they would face would keep the Pinto off of the market, they say, for a year. That sort of delay and expenditure would be deleterious for the stockholder’s profits, and perhaps even for Ford’s entry into the compact car market. It might make the Pinto into an entirely unprofitable venture. So, the decision to produce the Pinto as-is becomes an easy one to make despite the dangerous tendency to burst into flames.
Friedman’s rules require that businesses pursue profit while staying within “the rules of the game.” Those rules require that the business follow the law and that it not engage in deception or fraud. The question we must ask is whether Ford violated those rules when they made the Pinto.
The short answer is that they did not violate the laws of the time. They knew that they were violating laws which would come into effect soon, but they weren’t in effect yet.
The law is only one of the “rules of the game,” however. There are other rules that we might need to account for. Was the Pinto a case of deception or fraud? It certainly seems like something is wrong about building a car which has a known tendency to burst into flames when it is hit in the rear, but is that wrong a matter of deception or fraud? We might say that there is an expectation of safety when one buys a car from a company like Ford. This might lead us to think that there has been some deception if the car we buy isn’t as safe as we assumed. A problem here is that deception and fraud require that someone intends for another person to be deceived or that they actively deceived that other person. When we make the assumption that a car is safe, we are making that assumption in the context of a highly regulated market which requires many safety devices and systems that did not exist in the early 70s. The Pinto’s selling points included things like good fuel economy, small size, and not being an import. Safety was not nearly the selling point in the 1970s that it is now. If Ford did not promise that their car would never burst into flames, have they deceived anyone? They could say that their car met all current safety regulations. Is such a claim fair to make if you know that it does not meet reasonable safety regulations that will come into effect very soon?
The tests that Ford did with the Pinto showed them that the car posed a danger to the occupants in certain situations, but Ford also knew that all cars could pose a danger to their occupants in some situations. We have seen in recent years that this is still true. SUVs have a higher risk of rolling over than sedans. Sports cars pose a greater risk to pedestrians when they hit them. Trucks sometimes lose traction in slippery conditions because their rear end is light when they are empty. Small, cheap, cars are (or were) less resistant to impacts. We have designed complicated systems for the frames of cars to increase safety, computer control over drive systems and brakes to increase traction, and several other features that make our cars safer to drive, but these systems were not available in the 70s.
We might also ask what responsibility the consumer has in the Pinto case. People should not purchase large, expensive machinery with out doing some research. Perhaps Ford has a responsibility to make their research available, but perhaps the consumer has a responsibility to find out the risks they are taking when they make a purchase. It might very well be the case that consumers would have bought the car even if they knew that it had failed some safety tests or that it wasn’t the safest car on the market. After all, many of us voluntarily take risks that others would shy away from.
It appears, then, that the best choice for Ford to make for the stockholders is to make the car as it was originally designed. By doing so, they were creating a situation in which their car was able to hit the market in time to compete with foreign competition and compete with those low-priced cars while still meeting the safety requirements that were currently in place. They might be able to argue that they were acting in the best interests of their stockholders by doing this and, if Friedman is correct, this is all that they are morally obligated to do.
When a business is acting on Stakeholder Theory, their obligation is to “create value for customers, suppliers, employees, communities,” and shareholders. These parties all have a “stake” in the business, and so the business must consider these interests as well as their own. In fact, their interests are all interconnected like silk threads in a web or the links in a chain.
The most obvious ways that these interests can be considered is in terms of money or safety. Let’s see how those interests might be respected and connected.
The case of the Pinto is concerning because it appears that Ford sacrificed the safety and well-being of their customers for the well-being of their stockholders. The stakeholders in this particular case include:
- Ford stockholders
- Ford employees
- Ford engineers
- customers and their families
- factory workers and their families
- the communities around their production facilities
- and perhaps the American automobile industry.
Which of these stakeholders would be harmed by delaying the production of the Pinto? Which would be benefited by that delay?
The stockholders might face reduced profits in the short-term if Ford were to delay the Pinto. The Ford employees (including the engineers) might not face any negative consequences from the delay. In fact, it might create more work for them to do which might make their jobs more secure. Additionally, they might benefit from the delay because they would not face the moral responsibility for making a car which occasionally causes fiery deaths. The automobile industry would have benefited because they would not have had to absorb the shame and moral disapprobation associated with creating a car with the reputation that the Pinto has (and continues to have).
The customers are an interesting case. Would they have benefited from the safer Pinto design that was not produced? There might have been fewer deaths and injuries from the Pinto, but it’s also probably true that there would have been fewer Pintos sold. Those people who would have bought the danger-Pinto, but couldn’t afford the safer-Pinto, would have been left with no car or would have kept driving their older (and perhaps less-safe-than-a-Pinto) cars. Are the customers better served by having something in the market that they can buy, or by producing a car that is out of their fiscal reach?
What about the communities that existed around the Ford production facilities? They depended on the factory to bring jobs, training, and wealth into the community. If they were shut down for a year, then that is another year without the funds (jobs, taxes, etc.) that the Ford plants would have brought into the community. Their interests are best served by allowing them to produce cars as soon as possible, even if that car is not the best that could be made.
If we are to be concerned with the value that is created and destroyed for those who have a stake in the business’s actions, then we must look to each of them and attempt to discern whose interests should be primary. It isn’t always clear whose interest we should care most about, but it does seem that we should consider people who aren’t stockholders if they will be affected by our actions.
Stakeholder Theory v. Stockholder Theory
Our objective in this module is not to give you an answer as to which of these theories is the better one. Our objective, rather, is to demonstrate that the dominant Stockholder theory has competition in the moral sphere. It is not the only option for businesses, and it is probably not the best of the available options. Stakeholder theory is not the only alternative, either, but it does give Stockholder theory a run for its money.
Ford might still have an obligation to restrict the costs of production for the Pinto, but those reductions are restricted by the interests of many other groups. In the end, a very small proportion of total Pinto-drivers were harmed by the potentially explosive car. Most people did not die in fiery auto crashes. Most people got what they expected to get from the Pinto: a cheap car that served to get them from place to place. It seems wrong, to many people, that we should sacrifice the lives and well-being of the customer for some extra profit for stockholders. It might also seem wrong that we let some potential danger to a small group of customers to outweigh the interests of those people who are This doesn’t mean that the Pinto shouldn’t have been produced as it was, but we have the intuition that someone did something in this case that was wrong.
Now that you have finished the reading for this module, you should address the Case Response assignment on Black Board and take the Quiz for Module 1.