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All Disclosed in One Scoop - President - March 5, 2001

All Disclosed in One Scoop
By: Eiichiro Tokumoto
March 5, 2001


When in doubt, investigate thoroughly and respond promptly, and related information should be disclosed ----. What kind of risks are waiting for a company if it goes on the global market but is not prepared to take these basic actions? The internal documents we obtained expose the na vet of Bridgestone, one of the leading global companiesin Japan, concerning crisis management and the poor sensitivity to the consumers voice.

Point of Issue is when Defect was Discovered

The broad recall by Bridgestone/Firestone, a US subsidiary of Bridgestone-Japan, of their tires mounted on Ford Motor cars had caused a tremendous shock wave both in Japan and the US last year. Currently, lawsuits by the victims seeking damages for the injuries they have suffered are on the rise in the US and they have reached almost 200. These lawsuits will be consolidated in the District Court in Indianapolis and the trial will be initiated by presiding Judge Sarah Evans Barker. We covered this matter extensively in our February 12 issue.

Since the problem was uncovered, Ford and Firestone have submitted a huge amount of internal documents to the authorities. Based on this information, the authorities are seeking a full account of the problem. The most important point of focus is the time when Ford and Firestone became aware of the defect and how they have been responding. In other words, is there any concealment of information by both companies?If there was, they will find themselves in an extremely difficult situation, and the compensation amount could increase significantly.

We have obtained several internal documents of Ford and Firestone that would affect the direction of the lawsuits.

Internal Memorandum of Ford

One memorandum titled Explorers tiresrecorded the response of Ford to the tread separation (peeling-off of the tire surface) that happened in Venezuela.

According to this memorandum, in July 1997, a meeting was held between Ford and ownersrepresentatives in Venezuelas capital Caracas.

The purpose of the meeting was to request Ford's view on the rollover accidents which happened due to sudden tire explosions while the cars were still moving.

At this point, the number of Ford Explorer accidents was over 60 and the fatality rate was also high. As concern of local Ford owners increased, it was no surprise that they [sic] rushed out to have a meeting. At the time the meeting was held, Firestone seemed to be aware that there might be some defect in their product.

This is explained by the following statement: Although the fundamental cause (of the defect) has not been identified yet, the image of the Explorer has become negative due to the coverage of the accidents. We will begin a co-investigation by engineers in Venezuela and the US.

Tread separation is likely to happen when driving on a hot road at a high speed. The countries experiencing frequent accidents were Saudi Arabia, Venezuela and the southern part of the United States all areas with relatively high temperatures.

In this sense, it is symbolic that the accidents were first reported in Venezuela, a country under the equator. It can be assumed that the information the engineers obtained there was promptly forwarded to Firestone Headquarters. Two years after the meeting, another meeting was held between Ford and Firestone executives.

Attending were Chuck Serinachatt of Marketing from Ford and John Bear of Sales from Firestone. On the agenda was the response to the Ford Motor car accidents that had been happening frequently in the Middle East.

Memorandum by John Bear of Sales, Firestone

John Bear of Firestone prepared a memorandum of this meeting. It is dated March 11, 1999, titled Regarding the Explorer in the Middle East.

In the first sentence he refers to the frequent tread separation accidents in Saudi Arabia.

Today we showed the pictures of our tires at the meeting with Mr. Serinachatt and told him that the incidence of defects in our products from 1995 to 1998 is less than 0.1 % of the total [products]. They must have been wondering why Saudi Arabia experienced a far higher failure rate than average. At this meeting, a response to the frequent accidents was also discussed.

The meeting itself is a standard process, but the problem is in the third paragraph of the memorandum. During the meeting we discussed Fords proposal for a program that notifies customers [of the defects] and I expressed Firestones concern regarding the possible reactions from Saudi Arabia and North America that this notification might cause. Fortunately, Ford seemed to have the same opinion. What does this mean?

Back then, news of accidents due to defective tires were gradually starting to spread in Saudi Arabia. Road temperatures in the Middle East can increase easily and the risk of tread separation increases accordingly. It was exactly the same cause as in the case of Venezuela.

They should have disclosed the entire situation and speed up the process of recalling their products if they considered the safety of the owners. Instead, what was on their minds was to express that they were concerned about the reactions from Saudi Arabia and North America. The next internal document of Ford answers this question.

Secret Memorandum that Recorded the Meeting between Ford and Firestone

On March 12, the day after the meeting with John Bear, Mr. Serinachatt of Ford also reported the content of the Firestone meeting to headquarters. The reporting document was marked confidential(to be dealt with only in-house).

The following description is in the fourth paragraph: Firestone is very concerned about notifying its customers (of the possibility of the defect). As the same products are sold in the US as well, [Firestone] says that we should notify the Department of Transportation first. Firestone is also concerned that the Saudi government might interpret the consumer notification program as a recall of its products and decide to prohibit the import of other products. In conclusion, they would like to solve this tire problem on a case-by-case basis.

If Firestone should disclose the problem of its tires and recall, the Saudi government becomes skeptical of Firestone's products and might stop importing them. That could jeopardize Firestone by losing the market it has built over the years. Rather, it would be better to respond on a case-by-case basis as a new defect is reported.

If this was Firestones logic, it will have no excuse if accused that it put the companys profits above the safety of its customers.

Thus, Firestone decided to wait and see the development of the situation. However, as accidents due to its tires continued to occur frequently, they gradually started to show anxiety. The aforementioned Mr. Bear's memorandum continues as follows:

The direction of this matter in the future is quite unclear. At this point, we agreed with Mr. Serinachatt that all the tires involved in the accidents be transported and examined at Akron (one of Firestone's major bases).

(A copy of this memorandum was also sent to Mr. S. Katsura, Mr. Y. Tomiyasu and Mr. J. Ujiyama, all of who seem to be Japanese,)

Thus, the recall of tires was then deferred. Firestone and Ford agreed to investigate the tires that caused the accidents, but decided not to warn their consumers.

A Letter from a Ford Motor Car Dealer in Saudi Arabia

However, the matter developed far more rapidly than both companies had imagined. A letter sent about half a year before Mr. Bear's memorandum to Ford headquarters from Saudi Arabia explains this.

This was the letter Mr. Paul Wright, a car dealer in Saudi Arabia, sent to Ford executive John Thompson. The date of the letter is October 24, 1998.

The letter was strongly criticizing Firestone's attitude toward potentially defective tires.

As you know this concern goes back to mid-1997 when we first notified you of this concern. I have to state that I believe this situation to be a safety concern which could endanger the user of the vehicle. It has been more than one year. I have repeatedly asked for an explanation from Firestone regarding the tires, but the answer is always wait for a little while. This is a problem directly related to the safety of customers. Do we have to have a fatality before any action is taken on this subject? Firestone should immediately begin investigating as to what is happening to these tires.

Mr. Wright was a car dealer and was in a position to deal with customers claims face to face. It was quite reasonable for him to be terrified when he saw Ford cars he had sold suddenly cause rollover accidents. This information had also been sent to Firestone headquarters because a representative from Ford Dubai office visited Mr. Wright's company just before this memorandum was written. This means that there is no question that the information on defective tires in Saudi Arabia was sent to [Firestone's] headquarters in Nashville. Mr. Wright's letter indicates that Firestone did not take any action despite [this communication].

It was more than two years later when accidents due to Firestones defective tires were covered nationwide on the news and exposed to harsh criticism.

This Saudi Arabia matter was also the subject of a public hearing at the US House of Representatives on September 6. In this public hearing, a Ford representative expressed that Firestone was not willing to conduct a voluntary recall of tires. In response, Bridgestone announced its view that denied this matter five days later.

According to this [Bridgestone's view], Ford and Firestone dispatched a collaborative investigation team to Saudi Arabia in June 1999 to investigate the cause of Explorer accidents that had happened since 1998. The results of this investigation concluded that accidents happened not because of defective tires, but of driving on heated roads at high speed, allowing Bridgestone to argue that there was no concealment of facts.

However, according to Mr. Wright's letter, it was mid-1997 when he first reported the defective tires. Moreover, that information was supposedly conveyed to Firestone. Bridgestone also insists that there was no concealment of accidents, however, from reading Firestone's internal memorandum it is obvious that they avoided informing their consumers of tire problems.

The tires at issue were displayed at the press conference held by the consumer protection agency in Caracas, Venezuela (Left) [photo] Director Sue Bailey testifies on the injuries reported to the National Highway Traffic Safety Administration at the US House public hearing held last September (Above)

[photo] Former chairman Masatoshi Ono of Bridgestone / Firestone testifies at the public hearing (Bottom) KRT/EPS/Digital House. AFP = Jiji Press

Starbucks and Nike Also Have to Bear the Brunt

It was June 1999 when the investigation team was dispatched. Considering the fact that a car dealer in Saudi Arabia was complaining about the tire problem more than one year before, it would not be appropriate to say Firestone's response was prompt. This time, Bridgestone headquarters declined any comment on individual documents because of the reason that lawsuits were still pending. But if these internal documents are read, one will get the impression that there is a large discrepancy between Firestone/ Bridgestone's official views and the facts. The plaintiffs' attorneys will certainly argue this discrepancy.

In a Rush to Prepare for Lawsuits and Improving one's Image

Based on these documents, a drama involving the parent company Bridgestone will begin in US court. What are the directions in the future?

According to news in the US, Firestone requested to dismiss 80 lawsuits against them before the District Court in Indianapolis based on the reasoning that the plaintiffs in these lawsuits did not suffer any economic or physical injuries that entitled them to resort to legal procedures. In other words, this was a move to exclude freeloadersfrom the lawsuits.

Moreover, Firestone hired a state congressman as one of the defendant's attorneys in one lawsuit for damages in Texas. According to Texas law, a trial has to be delayed until the State Assembly is closed. Some people say that in this way Firestone gained at least half a year for preparation of the trial.

On February 2, a technical report by a third party expert, Dr. Sanjay Govindjee, Assistant Professor at UC Berkeley, was introduced as a new move in the investigation into the fundamental cause of tread separation, which is supposedly connected to the fatal accident. Dr. Govindjee had been commissioned to analyze the tires that were the target of recall by Bridgestone / Firestone last September.

The report argues that tread separation occurs not due to a single reason but to various elements such as climate, tire design, difference in manufacturing processes at the Decatur plant (a plant that manufactured defective tires) and how they were used.

These arguments are supporting the results of the internal investigation by Bridgestone / Firestone announced in December, and President Lampe of Firestone said, I believe that the recall has been adequate to ensure the public safetyand made it clear that he did not intend to expand the recall. Firestone is also planning a large-scale PR (public relations) campaign by investing a large amount of money in order to regain Firestones brand image. This year, they will implement a series of PR campaigns planned by one of the US PR companies via all kinds of media.

Sense of Distrust of Corporate Giants Is Increasing Among American Consumers

However, despite these efforts, Firestone's future is far from optimistic. Due to a series of events since last year, a formula that Firestone = evilis deeply imprinted into the minds of American consumers. Behind this [consumers' attitude] lies a sense of wariness that American people hold against corporate giants, which is totally different in nature from the Japan bashing in the 1980s. We can still vividly remember the large protest demonstrations when the general assemblies of the IMF and the World Bank were held in Seattle and Washington DC last year. TV screens showed demonstration participants holding placards while policemen were spraying tear gas and water onto them.

One of the issues then was the threat of globalization by corporate giants. The following month, after Firestone's defective tires problem was revealed, Business Week magazine published a special article on the sense of disgust that American people have toward big corporations. In the article, Business Week published the results of a survey that showed that 72% of American people were concerned about the influence that corporate giants could have on their lives. This is because corporate super giants unprecedentedly were born in the 1990s after continuous consolidations and acquisitions. Petroleum, pharmaceutical and media industries are good examples.

It is said that backlash to these Gulliver corporations are creating large tension in American society. The anti-corporation movement is not as prevalent as the anti-government movements of the 1960s, yet has a potentially far more dangerous influence. In the 1960s, the post-World War II baby boomers sought for nothing but anti-Vietnam Warism and gender liberation. However, this anti-corporation movement is expanding its appeal across all generations, regions and income levels.' (Business Week)

American corporations, who have to face consumers directly, are almost excessively nervous about this atmosphere. The large coffee retail company Starbucks is a good example. Last April, Starbucks announced they would buy from a supplier who puts a premium over the standard international prices when Starbucks is procuring coffee beans.

Coffee is cultivated by poor farmers in Brazil and Colombia. Their crops are bought by trading companies in London and New York and resold to Starbucks. This announcement was in response to the criticism by American human-rights activists who claimed Starbucks is exploiting poor farmers for their profits. The same is true of Nike, one of the largest sport products manufacturers in the world. Last year, an American university threatened Nike that it might boycott Nikes products because the employment situation in Nikes contract plant in Mexico became worse. Nike rushed to start an investigation of the situation.

Nike’s CEO, Phil Knight, expressed his mixed feelings as follows: 'When I founded Nike in Oregon, I never imagined that this company would signify globalization one day. But that is the reality. Countries in which we operate have different laws, societies, and economies. What kind of responsible actions we should take under such circumstances that is important.(Financial Times)

Looking back, did Bridgestone, who moved into the US market by acquiring Firestone, have the same level of awareness [as Nike]?

When analyzing these [factors] one might have noticed the changing currents in the US and country risk (and a different response to the defective tire problem might have been taken): the continuous birth of corporate giants and the backlash against them, anti-globalism demonstrations in Seattle and Washington DC and nervous comments and actions by American corporate executives.

After all, Firestone and Bridgestone management might have MBAs and be excellent in legal or management skills, but may not have had enough human resource talents to understand the sensitivity of human psychology and social circumstances.

For corporate management in the global economy, knowledge on comparative sociology and psychology is required as well as analytical skills for balance sheets. This was the largest lesson learned from the Firestone problem.

The president of Bridgestone Corp. Yoichiro Kaizaki, served as CEO of Firestone which Bridgestone acquired in 1988, and was promoted to the top position of Bridgestone for his excellent skills in restructuring Firestone. He served for four terms, eight years, and will be replaced this spring by his successor Mr. Shigeo Watanabe. He insisted and commented that his resignation is not due to the tire recall problem, but for rejuvenation of the top position and complete change of the mindset of management.(Jiji Press)

Eiichiro Tokumoto
Born in 1963. Became freelance journalist after working for Reuters. Working with projects primarily on international economic problems via various media. Published Squeeze (Kodansha Publishing), which describes the tremendous losses of the Sumitomo Trading Company due to copper market manipulations.

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