What should a company do when faced with a product safety
crisis? How can it handle the practical, legal and PR implications
of a damaging product recall?
A company's first act must come long before a product is even
made, never mind found to be faulty. A crisis such as Mattel's does
not creep up on a firm, it bursts in an explosion of publicity and
logistical headaches. A company that has not previously put a plan
in place has little chance of managing the situation
effectively.
There must be an incident management team set up to handle
product safety incidents. Product safety touches many areas of a
business, so there should be team members from senior management
and from the technical, legal, marketing and sales departments.
An incident management plan should also be prepared, which sets
out the procedures that will be followed in the event of a product
recall.
Preparation should also involve looking into whether the company
should have product recall insurance to cover the expensive recall
process. Common in the food and pharmaceutical industries, this
insurance is not yet common elsewhere, but could be a vital element
in ensuring that a problem's costs are contained.
In order to lay down these plans, a company should know the law
relating to product safety. The General Product Safety Regulations
came into force on 1st October 2005. The purpose of the Regulations
is to ensure that all products used by consumers are safe. Similar
provisions for food products are contained in the General Food
Regulations of 2004.
A safe product is a product which, under normal or reasonably
foreseeable conditions of use, presents no risk or only the minimum
risk which is considered to be acceptable, compatible with the
product's use, and consistent with a high level of protection for
consumers.
It is a criminal offence under the Regulations to put on the UK
market products that do not meet this safety requirement.
The Regulations require producers and distributors to "take
appropriate action" to avoid risk to consumers, including
"withdrawal, adequately and effectively warning consumers as to the
risks or, as a last resort, recall".
When deciding whether or not to recall, a company must consider
the risk to safety, the likelihood of injury and whether the
issuing of a warning to distributors or directly to customers will
reduce the risk of injury to an acceptable level.
It is an offence under the Regulations not to notify the
enforcement authorities about any product which poses a risk to
safety. The Regulations give the UK enforcement authorities powers
to order a product recall where the action being undertaken by the
producer is insufficient to prevent risk to safety.
Most recalls, though, are carried out voluntarily, and in
circumstances where the safety risk is low, by businesses that are
keen to act responsibly in order to preserve their reputation and
relationships with customers.
Distributors also have duties under the Regulations not to sell
or supply products that they know, or ought to presume, are unsafe,
and to co-operate in product recalls and in passing on information
to consumers.
In addition, certain products have specific rules for recall,
for example, medical devices. Voluntary industry guidelines exist
in other sectors, such as those for motor vehicles.
Once it is clear there has been a safety problem and the
previously laid-down plan is being acted on, it is often the
company's response to public and consumer relations issues that
will be remembered long after the initial problem has been
solved.
A company should decide quickly what to do, whether to issue a
warning, withdraw the product or institute a recall. They must then
tell the relevant authority that there has been a problem and
inform them what action is being taken.
It should appoint a spokesperson for the incident who is fully
briefed on all known facts, because it is vital that the company
never appears uncertain or divided in its approach to the problem.
Everyone else in the organisation should be told that they are not
authorised to make statements regarding the product and a telephone
advice line put in place to answer media enquiries.
When facing the media difficult questions cannot go unanswered,
so the company should work out its responses to those questions. If
a question cannot be answered, it should explain why that is the
case and what the company is doing to obtain the
information.
Incriminating statements and admissions of liability that could
be used against the company in any future civil or criminal action
should be avoided, as should public speculations about the cause of
a potential defect. This is particularly important if such
speculation blames a third-party. Such allegations could ultimately
lead to embarrassing public disagreements, a breakdown in business
relationships, and potentially a claim for damages.
The company should finally check its insurance policy and ensure
that notification requirements are complied with.
A product safety issue can be a huge problem, but it need not be
a calamity. It can also prove extremely expensive, and poor crisis
management can increase that cost considerable.
Cadbury was fined £1 million and ordered to pay the
prosecution's costs of £152,000. The fine is unprecedented in
product safety cases, but is representative of a hardening line by
the courts for "regulatory" breaches. The court made it clear that
they considered Cadbury to have been seriously negligent. Cadbury
were also criticised for the failure to immediately notify the
authorities that they had reason to believe the chocolate was
injurious to health.
Planning, preparation and full knowledge of the law is a
company's best chance of preventing a safety crisis becoming a
disaster.
By Tom Stocker, a lawyer specialising in product safety at
Pinsent Masons.
Pinsent Masons has extensive experience in advising clients
over the life of a product, from IP protection at the product
development stage, through regulatory compliance to advertising and
sales as well as product liability. If you require further
information, please contact Tom.Stocker@pinsentmasons.com.
