After major Firestone recall, Michelin’s legal function handles intense scrutiny

In the aftermath of the Ford-Firestone recall, lawmakers passed legislation to change safety, reporting, and liability standards. Sixteen years later, car companies are issuing more recalls than ever before. In this new world of unprecedented scrutiny, automakers and their partners turn to inside counsel to help map the road ahead.

Dan Sanders joined Michelin in 1996 to manage product liability for the iconic tire manufacturer. He describes the first few years of his tenure as “sleepy” ones for the industry. It was business as usual. But on August 3, 2000, everything changed.

That’s when the National Highway Traffic Safety Administration (NHTSA) announced its investigation into Firestone’s tires. One hundred and ninety-three consumers reported tread separations. Twenty-one of those incidents involved deaths. Three months earlier, NHTSA had contacted Firestone and Ford (the latter equipped many of its vehicles with Firestone products) about unusually high tire failure rates. Bridgestone, Firestone’s parent company, ultimately recalled a record 6.5 million tires. Ford promised to increase quality standards, and less than two weeks after announcing its investigation, NHTSA reported 62 fatalities linked to vehicles equipped with the recalled tires.

The House Commerce Committee started its own investigation, and Congress held hearings, during which Ford admitted to knowledge of similar tire quality problems two years earlier. Clarence Ditlow, executive director for the Center for Auto Safety, testified before a Senate Committee that Ford and Firestone knew of the tread flaw but failed to report their findings to NHTSA. The recall perpetuated numerous lawsuits against Ford and Firestone as injuries and deaths linked to the auto and tire combination started to climb.

We went from a quiet, relatively unknown operation to one with major scrutiny from company executives, the government, our customers, and insurance partners.”

While Sanders and Michelin leaders remained confident in the quality of their products and strength of the company’s values, they knew major changes were in store. Plaintiffs were filing thousands of lawsuits against Ford and Firestone. Their executives, who testified before Congress, faced civil and criminal penalties. “The temperature rose significantly,” Sanders says. “Their actions would alter the course of our business forever.” As the companies released their tightly held trade secrets and design specifications to attorneys, experts, and Congress, lawmakers and ordinary citizens received an overnight education on the inner workings of the industry. The Transportation Recall Enhancement, Accountability, and Documentation (TREAD) Act, passed as a direct response to the recall in 2000, created an early warning and governmental reporting system to detect and address quality problems in tires. The bill included significant civil and criminal penalties for noncompliance.

Suddenly, auto and tire companies found themselves in a race for top talent. As the recalls drew the attention of some of the most sophisticated plaintiff lawyers in the country, many companies scrambled to hire lawyers just to deal with the mounting litigation workload. Others, like Michelin, wanted lawyers to focus more on the quality and efficiency of systems to prepare for the future. Lawyers like Sanders, who once worried about defending his company in relatively routine automobile cases, had to pivot instead to manage litigation and the company’s valuable image—risks potentially worth billions of dollars.

The ordeal changed the role of legal at Michelin. “We went from a quiet, relatively unknown operation to one with major scrutiny from company executives, the government, our customers, and insurance partners,” Sanders says. The number and complexity of lawsuits climbed. Jurors became more skeptical of auto and tire companies. More plaintiff lawyers flocked to the industry.

Just before the recall, Michelin’s top lawyers had reorganized their outside and inside litigation structure. “It’s better to be lucky than good,” Sanders says. “The move helped us deal with the postrecall world in ways we never could have planned.” In 1999, the company was using more than 100 firms to defend its litigation. The firms—hired based on geography—struggled to be efficient and coordinate their efforts. Michelin implemented a regional counsel system to consolidate the work among five key law firms and remade internal processes to operate more effectively. When the Ford-Firestone recall hit six months later, Sanders and his peers simply deployed their new system. Then, they met with senior leaders and stakeholders to share their plan for the future. It was Sanders’s charge to demonstrate legal’s role as a strategic partner in a postrecall world.

Though Sanders is quick to point out that Michelin never wishes harm on competitors, the new era that Ford-Firestone created gave Michelin some advantages. A better-informed public focused more on quality and safety and the important role they play in maintaining the air pressure and condition of their own tires. “Those things played in our favor, and the decades of research and development we’d done as a company put us in a position to differentiate and succeed,” he says.

Sanders and his colleagues initiated important conversations with their most significant partners. And while the conversation didn’t change, key players did. “We found ourselves talking to much more senior leaders both inside and outside. We started interacting with the very top executives for our key customers,” he explains. “Those customers wanted to know how Michelin was responding and what set us apart from our competition.”

Today Sanders is Michelin’s vice president, general counsel, and secretary, and the issues created by the Ford-Firestone recall remain significant: NHTSA levied record civil penalties of $126 million in 2014. In July 2015, the organization dinged Fiat Chrysler with a $105 million penalty for failing to provide an effective recall remedy and failing to comply with reporting requirements. Transportation Secretary Anthony Foxx said the penalty “puts manufacturers on notice that the department will act when they do not take their obligations to repair safety defects seriously.”

Since 2009, NHTSA has fined auto companies hundreds of millions of dollars, and the Department of Justice agreed to forgo prosecuting Toyota over allegations that the company concealed safety defects linked to at least 12 deaths. To avoid further investigation, Toyota accepted a $1.2 billion penalty. The number of vehicles recalled in 2014 beat the prior three years combined. And while tire recalls are a very small percentage of auto industry recalls since 2000, what links the most problematic recalls is a failure to respond in a timely manner. “When that happens, it is difficult for other corporations because the public loses trust, and that never helps corporations in litigation,” Sanders says, adding that he’s proud of how quickly Michelin responds whenever issues arise. When it must take a market action, it does so as quickly as possible. “We think our actions show our system is working and demonstrate that we’re committed to quality. We think our customers and the public see it,” says Sanders. Michelin strives to take market action based on facts, even when accidents or injuries have not occurred. In doing so, it addresses smaller problems and avoids larger, more costly ones.

In 2015, NHTSA completed its investigation into blowouts allegedly caused by a Michelin tire. After an auto hauling company filed the complaint, NHTSA responded but found that excessive speed, and not any fault with Michelin tires, caused the accidents in question. As events like these escalate, Sanders says the general counsel must bring solutions and present strategy. “My boss is our president and chairman, and he evaluates me not on my technical legal skills, but on my leadership, influence, and risk-taking appetite,” he explains. “I use my legal skills in our department and with our outside firms, but upstream I need to show what impact a decision or initiative will have on the overall business.” At Michelin, Sanders is able to do that because he supervises a responsive and proactive department that knows the business well. He’s moved each lawyer into the business unit that he or she represents instead of keeping attorneys huddled together.

Michelin has ambitious growth plans for the next five years, and as the company progresses, the legal department must provide critical support. Sanders believes in hiring good lawyers with the right values, and then stepping back to let them work. If 15 years of major recalls have taught him anything, it’s that nothing stays the same—product liability evolves, Congress enacts new laws, and regulations change. “We don’t have a crystal ball, and don’t know what will happen next,” says Sanders. “All we can do is learn and grow, and ensure the right people and systems are in place to take us where we want to go.”