Product recalls are damage control mechanisms.  They serve a useful function in keeping our supply chain safe but they are expensive.

Last week’s recall by Mattel of 1.5 million toys due to lead paint is estimated to cost the company $35 million.  No dollar amount has yet to be placed on Mattel’s recall of another 19 million toys; but suffice it to say it won’t be cheap.  I’ll be cheaper than the liability associated with keeping the products on the shelves, but not cheap.  And all this right when warehouses should be stocking up in anticipation for the year end holiday shopping season – yet, another cost.

Tuesday’s announcement by Mattel is particularly interesting.  Their review of product liability exposure went beyond lead paint.  It included toys containing small, powerful magnets that can cause severe health problems, including death, if swallowed.  The company has apparently taken note of what happened to Montreal-based Mega Brands and redesigned its magnetic toys, including Mattel Polly Pocket dolls to make them safer.

Mega Brands recent legal problems center on Magnetics, a toy recalled in March 2006 because its magnets had a tendency to come loose.  In 2005, for example, such magnets took the life of a 20 month old toddler who ingested several left behind by an older sibling.  The magnets clumped together in his digestive tract, ripping holes in his bowel that led to a massive infection.  In October 2006 the company paid $13.5 million to settle four lawsuits and 10 claims related to Magnetix injuries.

The number of “Made in China” recalls this Summer illustrate:

1. how it difficult it can be for businesses to benefit from low-priced goods without facing product liability and regulatory risks,

2. how the cheapest methods of production are not always the least expensive in the long run;
3. how design defects can be just as costly as manufacturing defects,
4. how critical it is to consider the legal implications of every business a company makes; and
5. how legal liability is a “cost of doing business” that can be managed and controlled like any other cost.