By Richard Matthews
Head of product liability, Eversheds law firm
The worldwide recall by US toymaker Mattel, which has sold more than 18 million potentially affected toys, has brought greater scrutiny of the risks of importing products from countries such as China.
Richard Matthews of Eversheds
It has also highlighted the major impact of a recall on a business. Aside from significant financial losses, a recall on this scale can result in major reputational damage.
So how can businesses prevent a product safety scare? And how can they contain the negative impact, if implementing a product recall is the only option?
What the Mattel recall highlights is the importance for businesses to ensure robust quality control when importing goods, particularly from emerging economies.
Businesses importing goods should not merely rely upon assurances from suppliers that appropriate tests have been carried out.
The failure by a business to address these areas can lead to significant liabilities, irrecoverable losses and reputational damage.
A proper risk management system should address all stages of a product's life, from design and development through to post-sale monitoring of customer complaints.
In recent years, the powers of national regulations in Europe have increased significantly, and this is something all businesses need to be aware of.
A new General Product Safety Directive has been implemented in all EU countries and came into force in the UK in 2005, giving authorities here the power for the first time to undertake a recall of consumer products without the co-operation of the manufacturer or retailer.
Although the power to require a product recall is only exercisable as a last resort, the regulations do affect the relationship businesses have with Trading Standards.
The regulations also cover traceability, batch marking and sample testing of products.
Since the implementation of the regulations, there has been a significant increase in the frequency of recalls.
It is not that goods have suddenly become less safe or quality control standards have slipped. The fact is that the regulations have brought a fresh emphasis on product safety.
In many cases, businesses instigate voluntary recalls, even where the safety risk is small. Companies recognise the need to demonstrate responsibility in the eyes of the consumer and the media.
However, businesses in the consumer products sectors are increasingly operating on a worldwide level. The above regulations only apply to businesses in the EU.
Where businesses import products directly from China or elsewhere outside the EU, the burden is on them to ensure the regulations are complied with.
Product recalls are expensive. Moreover, there are practical difficulties for businesses associated with pursuing and enforcing a claim against a foreign supplier, particularly in China or Taiwan.
The impact of quality or safety issues should be considered at the time of procurement and the focus should not be simply on the lowest cost of supply.
When a defect in a product is discovered, a business needs to consider, with its legal and communications advisers, what action is required.
What to do
Whatever the circumstances, a recall can have a negative effect on a business, and it is important to carefully manage the repercussions.
Some things to consider include:
- Establish a major incident team within the business.
Time is a luxury that the business may not have. There is a need to be proactive and be seen to control the crisis. It can be damaging where a company's initial response is seen as inadequate which can heighten consumer mistrust.
A strategy on how best to protect its reputation and brand is vital. Identify the best spokesperson who is fully briefed and work out responses to difficult questions in advance. It is interesting that Mattel has taken the PR initiative from its US headquarters.
Be open with the media, but stick to the agreed company response. Avoid incriminating statements, use plain language and focus on a few key messages.
Notify suppliers of proposed action and the potential liability that they are likely to face.
Check insurance policies and ensure that notification requirements are complied with.
Monitor the success of the recall or other response and maintain communications with regulators.
In short, in the wake of the Mattel recall, businesses should do the following:
Check terms of supplier agreements and ensure quality controls are in place
Understand your insurance arrangements
Check compliance with legislation and industry standards governing product safety, such as the GPS regulations, in all countries where the product is marketed. If there is any uncertainty in this area, take legal advice straight away
Check instructions and warnings on products
Keep abreast of technology developments, monitor complaints and ensure that all safety issues are followed up and documented
Establish a major incident plan which can be implemented in the event of a recall.