Imagine you work for the Worldwide Tire and Rubber Company as a marketing executive. You have just been informed that a new tire made by your company has a very slight chance of resulting in a blowout which could cause a serious accident. The Engineering Division assures you that the total number of people that could be hurt by this product defect is at most 5. The problem has been corrected, but there are still 5 million of your tires out there with this slight defect.
The Legal Department asserts that it would be cheaper to do nothing and see what happens. If 5 people are injured, the maximum cost to the company would be approximately $20 million in settlements. The product recall of 5 million tires:
Scenario A: would cost at least $500 million, would generate a huge amount of bad publicity that would hurt future sales, and the effect on the price of the stock would be devastating to shareholders. Certainly, there would be no money for executive bonuses.
What are the alternatives? What are your recommendations? Why do you recommend this course of action?