Can business adapt to rising scrutiny of safety?

Executive Summary

Recalls of potentially dangerous or defective products are on the rise, in the United States and around the world. The drivers of this trend include increasingly aggressive government regulators with enhanced authority to pursue recalls, technology that makes it easier for consumers to complain about unsatisfactory products and an ever more complex and far-flung global supply chain that is harder for manufacturers to control. As recalls rise, the stakes for businesses involved also grow, in both monetary exposure and damage to reputation; companies can rise or fall depending on how they navigate this tricky terrain. In response, manufacturers are stepping up their in-house testing programs and complying more diligently with government rules for self-reporting when they find health and safety threats. Among the questions being debated: Are companies doing enough to prevent defective goods from reaching the public? Are manufacturers doing enough to notify the public about recalls? Can a brand survive a recall?

Resources

Bibliography

Books

Bapuji, Hari, “Not Just China: The Rise of Recalls in the Age of Global Business,” Palgrave Macmillan, 2011. A business professor from the University of Manitoba in Canada explodes the myth that product recalls are a “China problem.”

Flynn, Barbara B., and Xiande Zhao, “Global Supply Chain Quality Management: Product Recalls and Their Impact,” Taylor & Francis Group, 2014. An American and a Chinese business professor use six case studies to explore how product hazards in the supply chain affect supply chain quality.

Hunter, Richard J., and John H. Shannon, “Products Liability: A Managerial Perspective,” Hunter|Shannon|Amoroso, 2012. Two Seton Hall University law professors delve into modern product liability law and theory in an advanced textbook for business students.

Articles

Candelaria, Christopher, and Galina Hale, “Did Large Recalls of Chinese Consumer Goods Lower U.S. Imports from China?” FRBSF Economic Letter, June 13, 2008, http://tinyurl.com/jbvfpvv. A Federal Reserve Bank of San Francisco economist (Candelaria) and a research adviser (Hale) conclude that the massive U.S. 2007–08 recalls of defective products from China had minimal impact on the volume of imports from China to the U.S.

Marton, Andrew, “Sid Bass: Why the Fort Worth Billionaire saved Blue Bell,” Star-Telegram, Oct. 31, 2015, http://tinyurl.com/qjvpmdy. A Fort Worth, Texas, newspaper investigates why a reclusive billionaire bailed out the state’s most beloved ice cream maker after a devastating recall.

Vanden Bos, Peter, “How to Survive a Product Recall,” Inc., June 2010, http://tinyurl.com/24nxjr9. The associate publisher of Travelzoo’s Inc. magazine details five best practices for businesses facing product recalls.

Reports and Studies

“FDA’s Food Advisory and Recall Process Needs Strengthening,” Government Accountability Office, July 2012, http://tinyurl.com/cb7esqf. The Government Accountability Office suggests ways that the Food and Drug Administration can improve recall response rates by addressing communication challenges.

“Recall: The Food Industry’s Biggest Threat to Profitability,” Tyco Integrated Security, 2012, http://tinyurl.com/hsg57m4. A business security firm argues that an effective “food defense strategy” requires more than compliance with federal mandates. It focuses equally on operational deficiencies that cause the problems leading to recalls.

“Recall Handbook,” U.S. Consumer Product Safety Commission, 2012, http://tinyurl.com/jfqmq9e. The government agency overseeing the safety and recall of consumer products offers manufacturers, importers, distributors and retailers a guide to complying with federal regulations.

Burke, David, Ian Bailey and Andrew Kyle, “Product Recall: The Developing Story,” Caitlin Group, 2012, http://tinyurl.com/z2lmcwo. The underwriting staff of a British insurance company traces the history, cost and potential solution for manufacturers involved in recalls worldwide.

Durrett, Jordan, “After the Recall: Dangerous Products Remain in Homes,” KID (Kids in Danger), 2014, http://tinyurl.com/nmm77sv. A children’s advocacy group analyzes Consumer Product Safety Commission data to learn about recall effectiveness rates.

Pozo, Veronica F., and Ted C. Schroeder, “Costs of Meat and Poultry Recalls to Food Firms,” Finance and Economics, February 2015, http://tinyurl.com/hhkkfvb. Researchers from Utah State University (Pozo) and Kansas State University (Schroeder) explore whether size, frequency and publicity affect the stock prices of firms issuing meat and poultry recalls.

Shin, Heechang, Robert Richardson and Oredola Soluade, “Assessing Sales Loss from Automobile Recalls Through Event Study: A Toyota Case Study,” Communications of the IIMA, 2012, http://tinyurl.com/jrwvyc9. Iona College researchers determine that sales losses from a major recall often are temporary, lasting as little as five months.

Steinkamp, Neil, and Jake Reed, “2015 Automotive Warranty & Recall Report: A Road Map for a New Era:,” Stout Risius Ross, 2015, http://tinyurl.com/j7jksfn. Two investment bankers analyze what they call “a watershed year” for automotive industry recalls.

Steves, Bernie, “2014 Emerging Trends and Key Issues Report: Product Recall and Contamination Risk Management,” Aon Risk Solutions, 2014, http://tinyurl.com/jzc2g3t. A product recall expert and insurance specialist argues that companies that prepare for a recall can manage their financial and reputation losses.

The Next Step

Brand Reputation

Fleisher, Chris, “Series of recalls could hurt Giant Eagle’s reputation,” Pittsburgh Tribune-Review, March 25, 2016, http://tinyurl.com/jeqmeux. Giant Eagle’s reputation likely suffered in 2015 after the grocery chain recalled various items containing unlabeled ingredients that could cause severe allergic reactions, said a marketing professor at Duquesne University in Pittsburgh.

Ramsey, Mike, “Quality Woes a Challenge for Tesla’s High-Volume Car,” The Wall Street Journal, April 20, 2016, http://tinyurl.com/hwom3ed. Some Web users and car reviewers are skeptical of Tesla’s Model X sport-utility vehicle after the electric car maker recently recalled 2,700 of the vehicles due to a malfunction in a seat latch that could come undone during collisions.

Young, Angelo, “Volkswagen Recall: Repairing The Carmaker’s Reputation Will Take Years And Won’t Be Fixed By Firing The CEO,” International Business Times, Sept. 21, 2015, http://tinyurl.com/jocyv24. German automaker Volkswagen, which recalled four models after admitting to installing software in some vehicles to deceive emissions testers, must fix structural issues in its company to repair its reputation, crisis management experts say.

Product Testing

Bonar, Samantha, “Organic Pastures raw milk is recalled – again,” Los Angeles Times, Oct. 19, 2015, http://tinyurl.com/jplnavs. The California Department of Agriculture recalled organic whole milk produced by a Fresno County dairy farm and placed it under quarantine after testers detected bacteria in the milk that could cause an infection with painful diarrhea and other problems.

Passary, Anu, “UL Reveals How It Tests Safety Of Hoverboards While Swagway Does U-Turn,” Tech Times, Feb. 24, 2016, http://tinyurl.com/hgv62yc. Illinois-based product testing company UL developed an industry testing standard for hoverboards, toys that federal regulators nearly recalled in February after reports of fires caused by faulty parts, assembly and circuitry.

Smith, Casey, “Blue Bell distributes update on production facilities procedures,” Tulsa World, Jan. 8, 2016, http://tinyurl.com/gt9mrfd. Ice cream maker Blue Bell said it has updated environmental and product testing procedures and will begin offering its products again eight months after a federal recall and investigation linked them to a listeria outbreak.

Public Notification

Bomey, Nathan, “BMW hit with $40M fine for recall violations,” USA Today, Dec. 21, 2015, http://tinyurl.com/h6uy2qh. The National Highway Traffic Safety Administration (NHTSA) fined automaker BMW North America up to $40 million for violating federal regulations requiring companies to promptly notify vehicle owners of recalls and for failing to fix a defect in one of its models that failed a side-impact crash test.

Laing, Keith, “NHTSA chief grilled by Congress on latest air-bag death,” The Detroit News, April 14, 2016, http://tinyurl.com/jmcggsz. NHTSA’s top administrator said while testifying before the U.S. House Energy and Commerce Committee that government efforts to notify the public about car recalls are “not enough.”

Shepardson, David, “Automakers urge insurance companies to remind U.S. drivers of recalls,” Reuters, April 12, 2016, http://tinyurl.com/zgqur86. Two major auto industry trade groups sent letters to U.S. insurance companies asking them to notify customers about recalls on their vehicles when they renew their insurance policies.

Regulators

Jensen, Christopher, “A Record Year of Recalls: Nearly 64 Million Vehicles,” The New York Times, Feb. 12, 2016, http://tinyurl.com/l6s7svt. NHTSA recalled nearly 64 million vehicles in 2015—a record—most commonly due to faulty ignition switches in General Motors cars and dangerous flaws in Takata airbags in various makes and models.

Limbach, James, “Feds complete work on rule on tracking foodborne illnesses,” Consumer Affairs, Dec. 15, 2015, http://tinyurl.com/zfbfybs. The U.S. Food Safety and Inspection Service will require beef manufacturers to improve recordkeeping so that the agency and suppliers can more easily track sources of contaminated beef after issuing recalls.

Migoya, David, and Ricardo Baca, “State issues massive recall of pesticide-tainted marijuana,” The Denver Post, March 17, 2016, http://tinyurl.com/jjwhwnl. Colorado’s marijuana regulator recalled a large quantity of the drug grown over a 22-month period after a state agriculture department investigation confirmed the presence of a widely used but prohibited insecticide in several dozen strains.

Organizations

Center for Science in the Public Interest
1220 L St., N.W., Suite 300, Washington, D.C. 20005
202-332-9110
www.cspinet.org
Advocates for nutrition, food safety and health and other issues; aims to counter the influence of industry on public opinion and public policies.

Food Policy Institute
New Jersey Agricultural Experiment Station, Rutgers, The State University of New Jersey, 55 Dudley Road, New Brunswick, NJ 08901-8520
848-932-9145
www.foodpolicy.rutgers.edu
Academic research unit of Rutgers that focuses on challenges facing the U.S. food system, especially in the mid-Atlantic region.

Food Safety and Inspection Service
U.S. Department of Agriculture, 1400 Independence Ave., S.W., Washington, DC 20250-3700
202-720-9113
www.fsis.usda.gov
Public health agency in the Department of Agriculture responsible for ensuring that the nation’s commercial supply of meat, poultry and egg products is safe, wholesome and correctly labeled and packaged.

Kids In Danger
116 W. Illinois St., Suite 4E, Chicago, IL 60654
312-595-0649
www.KidsInDanger.org
Nonprofit group advocating for the safety of juvenile products in the U.S.

National Highway Traffic Safety Administration
U.S. Department of Transportation, 1200 New Jersey Ave., S.E., Washington, DC 20590
888-327-4236
www.nhtsa.gov
Federal regulator of motor vehicle and highway safety.

U.S. Consumer Product Safety Commission
4330 East West Highway, Bethesda, MD 20814
301-504-7923
www.cpsc.gov
Independent federal agency charged with protecting the public from unreasonable risks of injury or death associated with the use of consumer products.

U.S. Food and Drug Administration
10903 New Hampshire Ave., Silver Spring, MD 20993
888-463-6332
www.fda.gov
Federal agency responsible for protecting the public health by ensuring the safety, efficacy and security of human and veterinary drugs, biological products, medical devices, food supply, cosmetics and products that emit radiation.

DOI: 10.1177/237455680211.n1