It’s no secret that the U.S. toy industry has been wrestling with product liability issues associated lead based paint used by their foreign suppliers.  Indeed, the health and safety of our children is so important that it has caused a shake-up at the Consumer Product Safety Commission and spawned pending legislation in Congress. 

Unfortunately, this “toy story” is an example of how cheap off-shore labor in unregulated environments can have unintended consequences when the exports subsequently land in markets with higher safety standards.  These disappointed expectations create legal liability, triggering product recalls and lawsuits.  It’s a cautionary tale of how the cheapest solution is not always the least expensive.  But in this case, one company is turning lemons into lemonade. 

Instead of trying to fight the lead paint battle by challenging test results, trivializing their significance, or blaming suppliers, Toys “R” Us took initiative last week and in a judo style flip turned the issue into a marketing coup.  

It voluntarily imposed strict guidelines on its vendors to insure compliance with higher safety standards aimed at reducing lead content in toy coatings.  It also executed a pre-emptive strike on another hot button issue: cadmium.  It instructed its vendors to take immediate steps to eliminate the use of nickle-cadmium batteries from all products manufactured exclusively for Toys “R” Us.  

Being proactive in addressing this product liability issue turns a growing concern and legal liability into a competitive advantage.  It helps build consumer confidence and helps burnish the company’s image as trustworthy.  It also distinguishes Toys “R” Us favorable by carving out a market segment and establishing itself as a leading source for safer toys.  As a new grandmother, I can tell you that such peace of mind is priceless.

Best of all, the company gets mileage out of regulating itself before Congress does it for them and making the announcement on the eve of the Annual American International Toy Fair to maximize buzz probably didn’t hurt either. 

Turning a legal liability into a competitive edge is what Legal Leverage(R) is all about; but you can’t achieve legal leverage without sufficient legal literacy to know where you’re at risk. 

A big Legal Literacy tip of the hat goes to Toys “R” Us this week.  Bravo!

The social pressures are huge, and some of the good risk procedures are thrown by the wayside.

Richard Dunn, a former risk control chief at Merrill Lynch quoted in The Wall Street Journal on Jan. 25, 2008 about the $7.2 billion loss generated by the rogue trader at Societe Generale SA. 

Social pressures?  What is this?  High School?

As the sorry mess surrounding rogue trader Jerome Kerviel continues to unfold I can’t help but wonder why his “activities prompted questions from risk managers several times last year, but that the bank never began an investigation because his explanations defused any suspicions.”  Isn’t that like asking the fox to give you the hen house inventory report?