LEGAL ISSUES

How to Survive a Product Recall

A product recall doesn’t have to be the complete disaster it sounds like. Here’s how to limit the damage to your company and reputation.
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Despite a business owner's staunch commitment to safe practices, product recalls can and do happen. Given how many parties are typically involved in getting a consumer product to market, there are a myriad of places for something to go wrong. (Just ask Toyota.)

In fact, more than 2,500 product recalls occur in the United States each year, according to Dirk Gibson, an associate professor of mass communication at the University of New Mexico who has conducted extensive research on product recall practices. 'Recalls are perennial. They are always out there, so it's something we ought to plan for.'

A full-blown product recall is a complicated and highly regulated process, with the potential for more than just bad press—legal complications also arise when a company realizes one of its products has the potential to cause harm or injury to consumers. To get an unsafe product off the market as quickly as possible and with minimal fallout to your customers -- and your reputation -- follow our guide to surviving a product recall.

How to Handle a Product Recall: Plan Ahead

The best way to handle a product recall is to plan for one ahead of time.

'Trying to figure out everyone's roles and what steps to take during a massive recall with gathering media attention is very difficult to do on the fly,' says Dave Wix, founder and managing partner of the Wix Law Group, a law firm based in Deerfield, Illinois, that specializes in product recall and product safety consulting.

To start, make sure you know the ins-and-outs of the legal and regulatory requirements in your industry for safety. 'It sounds very basic,' says Katherine Cahill, a risk consultant for Marsh, a risk consulting firm owned by New York City-based Marsh & McLennan, 'but it is often frightening to me when I go to a company and ask what are the regulatory requirements for safety of their product, and they look at me like they have no idea what I'm talking about.'

Outside of understanding the legal and regulatory standards governing your product, the cornerstone of your preparation is the product recall manual, which should be a detailed guide to walk you through every step of the process. Include the following information:

  • A chain of command for recall situations that clearly defines responsibilities and tasks. Nominate a product recall or quality control manager, and a product recall task force, laying out what each member needs to do as a part of the investigation.
  • Contact information for each member of that task force, including cell phone and home numbers. 'It's amazing to me the number of product recalls that happen at 3 o'clock on Christmas Day,' Cahill says.
  • The process and procedures for identifying a safety issue. Have a system for analyzing customer complaints, warranty returns, and product testing to uncover a potential safety issue.

But don't stop at just writing the manual. In order for it to be effective, you also need to test it by conducting a mock recall at least once a year. (Doing so will put you ahead of the curve: less than 10 percent of companies actually practice their recall or general crisis plans, according to Gibson.)

It's also essential that you know where your product comes from and have protections in place with your manufacturers. (Case in point: Toyota wasn't the manufacturer of the faulty accelerator pedal at the heart of its massive car recall.) You should even dig all the way down to your materials suppliers. 'You need to truly understand where your raw materials are coming from,' Cahill says. She advises companies to include process change protocols in their contracts with raw materials manufacturers. The protocols require those manufacturers to inform a company in writing if anything in the raw materials provided is different from the specifications previously agreed upon.

Cahill also says that a large number of recalls result from issues with the widgets used to manufacture products. Partner with manufacturers you can trust to properly maintain and clean tooling, so parts of the tooling don't end up in food products, for example. And purchasing product recall insurance is a no-brainer.

Dig Deeper: Lessons from the Firestone tire recall.

How to Handle a Product Recall: Investigate the Safety Issue and Report It

Oh no! You've discovered a potential safety hazard with one of your products. The good news is that you don't have much time to dwell on the bad news.

You need to immediately begin a thorough investigation to determine what went wrong, and how many products are affected so you can set the scope of the recall. 'These need to be very specific measurements,' Gibson says. 'You don't want to over recall, because it can be scary, and expensive. But you can't under recall because then it's ineffective.'

First, find the root of the issue. Was it a problem with the product design, or is it a manufacturing defect? From there, you need to quantify the damaged goods. 'Ask yourself, is this limited to a specific batch or a certain day or week of production?' Wix says. 'Is this an anomaly not likely to occur again?'

A thorough investigation can help you avoid what Wix calls a 'rolling recall' situation, in which you have to expand the initial recall after several weeks once you've realized you didn't capture everything the first time around.

Depending on what your investigation reveals, you may have a legal duty to report it to the government agency that regulates your industry. (Just because you do a report doesn't mean you will have to launch a full-blown recall, Cahill says.) But make sure you do it quickly. 'It's a matter of days, not weeks,' Wix says.

'There's a lot of criticism for the amount of time it takes corporations to call the feds after they realize they have a problem,' Gibson says. 'That's not in anybody's best interest.'

Most product recalls are actually 'voluntary recalls,' in which a company realizes it has a safety issue and works to investigate and solve the problem in tandem with a federal agency. In a small number of cases, federal agencies will tell a company that a product needs to be taken off the market, in what is known as an 'involuntary recall.'

Clearly a voluntary recall is in a company's best interest. The Consumer Product Safety Commission (CPSC) even has a Fast Track Program for companies willing and able to move quickly with a voluntary recall of their product.

If you perform a voluntary recall, you'll need to work with the appropriate regulatory body for your industry. You can find detailed safety and recall guidelines for the three agencies covering the majority of products here:

'Tell them what you know, tell them as soon as you know it, and tell them the facts,' Cahill says. 'Anytime a company tries to posture or position themselves to get around the facts, they get into trouble very quickly.'

Dig Deeper: Quality control and sourcing in China.

How to Handle a Product Recall: Get the Message Out

Unfortunately, the work doesn't get any easier from here. The whole purpose of a product recall is to get as many of the defective, unsafe products back, so that means getting the message out to the public. The trick is to do it in a way that doesn't damage the reputation of your company.

'Oftentimes manufacturers, retailers, and trade associations are reticent for fear of product liability issues,' Gibson says. 'But research tells us the public likes the impression that they are being dealt with honestly."

Gibson says one of the first dilemmas with communicating a product recall is deciding who the messenger should be. 'People like to get the feeling they are being leveled with completely from the start by the CEO,' he says.

While that may be the case, it's also a good strategy to hire a public relations firm to coordinate media relations. There are many that specialize in product recalls.

Another decision is on how potent the message should be. 'I think you should make it as vivid as possible,' Gibson says. 'That's what it takes to get through to a public that is saturated with messages.' It may be especially difficult to get the public to return smaller items, such as a lighter or a toy, compared to automobiles, for instance.

Although Gibson says there is an incentive for corporations to undersell how bad the problem is, he insists that, even in a tense recall situation, honesty is usually the best policy.

'When consumers believe that a company is being honest, forthright, and genuinely concerned about the customer's well-being,' Wix says, 'they recognize that problems sometimes can and do occur, and they can forgive and forget.'

Wix also advises to make the message as consistent as possible, both to the public and to the regulatory agency involved in the recall. The agency will also be closely monitoring your public relations strategy during the recall, with the CPSC helping draft press releases and point-of-sale posters, for example.

Don't forget to communicate what's going on with your employees, either. 'There is a lot of fear,' Cahill says. 'Am I going to lose my job? Did I do something that caused someone injury?'

Dig Deeper: How to manage your own PR.

How to Handle a Product Recall: Trace the Product

When products start arriving, you need the proper infrastructure to support the recall. Configure a section of your website to explain what the product is, what serial numbers are affected, and a link to register for the product recall. You should coordinate registration with your fulfillment center and customer service.

Beware of the sudden spike in traffic. 'A company may be used to getting 300 hits a month, and then the recall launches and they get 300 hits in the first hour,' Cahill says. Have a contract in place with a phone center as a back up in case your site crashes.  

Of course, you'll need to quarantine the product within your facilities and stop shipment, but you'll also have to contact distributors and retailers to take the product off the shelves.

Your ability to trace the product to each individual consumer may also be limited. For example, if you're recalling a food product sold at a grocery store, you may be able to trace the product to the store itself, but not to who bought it. With credit and debit cards becoming more popular for purchases, however, tracking products down isn't as difficult as it once was.

Still, even for the most successful recalls, a 75 percent rate of return is 'unheard of,' Gibson says. 'Fifty percent is really good.'

After gathering all those unsafe products, you still have to figure out what to do with them—and your customers. 'We've initiated the recall, but now what's going to be done with the products,' Wix asks. 'Are they sent back to the company to be reworked, or is a different product provided to the consumer? Do they get a refund? Certainly there needs to be a clear remedy for consumers.'

Dig Deeper: Recalls bring opportunity for small businesses.

How to Handle a Product Recall: Protect Yourself from Lawsuits

One more word to the wise: beware of litigation. 'My experience has been that whenever there is a recall, there is likely to be litigation involved,' Wix says. Make sure you aren't creating documents through internal communications among employees, for instance, that won't be protected under an attorney-client privilege.

'Just initiating a recall isn't sufficient to insulate a company from liability,' Wix says. 'There are situations where companies are held liable because of an improperly conducted recall.'

It goes without saying that this is a serious job. But if you conduct yourself in an open, orderly fashion with the best interest of your customers and company in mind at all times, you greatly increase your chances of survival.

Last updated: Jun 24, 2010




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