From children’s toys to cars to pet food to cell phones, 2007 was the year of the recall. Having a plan in place to deal with a recall — before it happens — and executing it properly can mitigate the reputational and brand damage inflicted on a company.
The Chinese calendar said 2007 was the year of the pig but you could excuse in-house lawyers across the country if they mistakenly thought it was the year of the recall.
There were also two significant recalls this past summer. Mattel Inc. recalled nearly 20 million toys around the globe due to excessive amounts of lead in certain paints as well as dangers associated with children swallowing small magnets. Within a couple of days, Nokia Corp. recalled more than 46 million cell phone batteries because they were short circuiting and overheating.
And in 2006, computer giant Dell Inc. recalled more than four million laptop power packs after a small handful of incidents in which the batteries — which were manufactured by Sony Corp. — began smoking or caught on fire.
It’s enough to cause in-house counsel to pull their hair out in anticipation of the class action lawsuits about to land with a thud on their desks.
But while it all sounds like a nightmare, having a plan to deal with a recall and executing it properly can mitigate the reputational and brand damage inflicted on a company — and it’s even possible to turn the event into a positive development, if it’s handled properly.
Peter Pliszka, a Toronto-based civil litigation lawyer at Fasken Martineau DuMoulin LLP who specializes in product liability, says having a plan of action is similar to taking out an insurance policy on your house — you hope you never have to use it but you're glad you’ve got it if the unthinkable happens. If you don’t have a plan currently in place, you’d best get on it, he says.
“Any company that starts the process of determining how to do a recall once a defect has been found is starting far too late. This type of planning is the kind of risk-management function in-house counsel can provide,” he says.
The creation of that plan can’t be done in isolation, he cautions. Instead, in-house counsel should act as the quarterback in co-ordinating managers from different areas of the company to determine who will do what and when, should a safety-related defect be found with its products in the marketplace.
Once a defect comes to light, the plan needs to spring into action with the immediate mobilization of resources. One of the key tasks for in-house counsel during this crucial period, Pliszka says, is ensuring the corporate communications department is developing the appropriate message. He says they should also work with its spokespeople to disseminate the message to the media and public.
At the same time, people in operations will be trying to determine the defect and what corrective steps need to be taken, including informing consumers and regulators, he says.
“For all that to happen in a coordinated way requires the attention of an in-house counsel in conjunction with the senior management of the company,” Pliszka says.
Bob Kaufman, senior communications manager for Dell, credits the computer giant’s in-house legal team for implementing the plan that steered its successful battery recall.
“Dell is a very process-driven company. We were able to put in place a variety of different processes where we could identify customers whose batteries might be affected,” he says.
Its external communications included the creation of several recall-specific web pages and the opening of a toll-free phone line.
“Safety was our primary reason for doing the recall. We had to make sure the customers who had affected batteries knew the proper steps they had to take so they could be out of danger and how to return the battery to us and have another one shipped to them,” he says.
“The legal team was very much front and centre in helping us carry that part of the program out.”
Kaufman says Dell’s in-house lawyers ensured suppliers were contacted to recover the defective batteries and replace them. They also helped determine the root of the problem so the cost of the recall could be shared with Sony and other partners.
He says it’s simply not worth it from a long-term reputation point of view to try to sweep a problem under the rug.
“We did the right thing on behalf of our customers because of the potential danger. We learned new things working through something like this, about understanding customer needs, about being a good corporate citizen, and about being a leader in a time when it wasn’t always good news,” he says.
Bruce Bowman, vice president of legal and general counsel at Canada Safeway Limited, agrees. He says the Calgary-based grocery takes recalls very seriously, particularly when there are potentially life-threatening issues, such as peanut allergies, at hand.
“If you’re not diligent and you risk the health and safety of your customers, it’s going to damage your reputation and lead to potential liability,” he says.
While it is best known as a retailer of a wide variety of food and food products, Canada Safeway is also a manufacturer. It operates a meat plant that cuts and processes meat for not only its own locations but other stores, too. It also has milk, ice cream, vegetable processing, and cheese cutting plants.
Bowman says recalls are much easier to handle when you’re the middle man between the manufacturer and customer.
“You just yank it off the shelf. When you are a supplier and wholesaler, as we are, it’s more complicated. You have independent retailers and mom & pop shops who might also have the product on their shelves,” he says.
Bowman’s responsibilities include regulatory compliance, which involves dealing with mandatory recalls ordered by the Canadian Food Inspection Agency (CFIA). He says having the appropriate processes in place helps reduce headaches in the long run. That’s why Canada Safeway has compliance inspectors who visit the chain’s stores to ensure offending products are no longer on the shelves.
“It’s one thing to send a message (to our stores), ‘Please remove such-and-such a product.’ It’s another to ensure that it actually happens,” he says.
Bowman says much of in-house counsel’s recall work is a result of scientific advances that can identify health and safety issues that would have gone unnoticed 10 or 20 years ago. That’s good news for everybody, he says.
“With a recall of ground beef in the old days, the CFIA didn’t have the ability to trace the strain of the bacteria. By testing the strain of E. coli, it’s much easier for health organizations to trace the source and limit the damage,” he says.
He says E. coli has been the major recall issue for grocery retailers over the past few years and he makes sure to work closely with the CFIA, particularly in terms of relaying the news to the public, whenever a product needs to be pulled from the shelves.
“Timing is everything on a recall. It’s desirable from the retailer’s perspective to have the recall and news release done voluntarily and co-operatively from a PR and reputation point of view. It’s always better to take the high road and confront issues,” he says.
Bowman says its processes also call to err on the side of caution, especially if there’s any uncertainty about the breadth of a particular problem.
“We take the product off the shelf and wait until we know the situation better,” he says.
The increasing incidence of product defects has convinced one Canadian law firm to launch a practice area dedicated specifically to recalls. Penny Bonner, Toronto-based leader of Ogilvy Renault LLP’s recall and crisis management practice, says there’s no doubt that recall work is “very intense.”
“You’ve got to drop everything you’re doing, particularly for the first 72 hours. When a recall is issued, businesses need to act responsibly. They need to deal with it quickly and efficiently to protect the safety of the public and the future of their business,” she says.
The first 12 hours are focused on trying to find out the extent of the problem, how dangerous it is, how much of the product has been sold, how much of it is still within the company’s control and how to identify consumers who have purchased it.
“Sometimes by the time you do the recall, all of the product has been consumed by the public. With a food recall, that’s often the case,” she says.
Next, a decision has to be made on what to do with regulatory authorities and whether to notify the government, she says.
In addition to working with its communications people on getting the appropriate message out, she says in-house lawyers should ensure companies set up a call centre that consumers can contact to get information or confirm whether they have the precise model that is being recalled.
She says the gold standard of how to handle a product recall was set by Johnson & Johnson back in 1982 when seven people in Chicago died after taking Extra Strength Tylenol capsules which had been laced with potassium cyanide. She says the company was frank and forthright and not equivocating about the extent of the danger.
“You’ve got to put all of your cards on the table to the extent you know them. You can’t say, ‘no comment,’” she says, noting that Johnson & Johnson originally announced the recall by sending Boy Scouts door to door.
“Some analysts said Johnson & Johnson would never be able to market a product under that brand name again. I think that’s a really telling story,” she says.
Pliszka says in-house counsel are playing increasingly important and multi-faceted roles as the issue of product defects is popping up on the radar screens of both consumers and regulators with alarming regularity. Due to ever-increasing globalization, defects and recalls even in the most remote of markets are likely to “ricochet” around the world, he says.
As well, with offshore manufacturing on a steady incline as firms seek to reduce their labour costs, maintaining quality control processes will be increasingly difficult, he says, a development that could lead to an increase in defective products.
“When things are happening thousands of miles away in foreign jurisdictions, it’s much harder to maintain a close grasp on what’s going on in design and manufacturing facilities,” he says.
In-house counsel can also earn their keep by using their analytical skills and ability to see the big picture, including knowing how different parts of the company interact with others and keeping an eye on potential problem areas where defects are likely to occur, he says.
Pliszka notes in-house counsel are ideally suited for this role because Canadian society has become increasingly litigious over the last decade.
“The reality is, whenever there is a widespread product recall, the odds are a lawsuit will follow on the heels,” he says.
Kaufman says Dell’s direct sales model made its recall considerably easier than if its products were available in hundreds or thousands of retailers around the world. With 85 per cent of its sales coming via either its website or call centre, Dell was able to quickly identify which customers had bought the offending battery, determine when it was purchased, and send them an e-mail alerting them to the problem.
Kaufman says the $60-billion giant hasn’t suffered any long-term damage from the recall.
“The company is growing and profitable,” he says.