Lessons From the Mattel Crisis

Corporations should be candid and communicate to multiple audiences Teddy Bear

By Richard Levick

Regardless of what business you’re in, the toy industry’s recent ordeals concern you directly. The patterns and public challenges are broadly relevant, and the lessons to be derived are universally applicable to diverse professional and industrial pursuits.

First, a little background.

When Mattel recalled 18.2 million toys with potentially harmful tiny magnets, it was likely just the tip of the iceberg for the toy industry, and that should not be too surprising, if we remember that 80 percent of the world’s toys are manufactured in China. The world’s best-known toy makers outsource to some 10,500 toy contractors in China. Mattel alone uses 3,000 to 5,000 Chinese contractors, and 65 percent of Mattel’s toys are pieced together there.

Mattel issued 31 recalls from 1998 to 2007, according to the Consumer Product Safety Commission (CPSC). Yet “if we don’t see an [even further] increase of recalls in this industry, then it’s a case of denial,” a leading analyst said.

Dangerous toys are sold by companies noted for the toughest safety standards. Contractors have been known to put safety-tested batches in front of inspectors and, under pressure to contain costs, ship batches made with cheaper or illegal parts. Meanwhile, there are simply not enough inspectors to go around. The CPSC is under-funded, and Chinese inspectors are overwhelmed by the flood of exports.

No wonder the toy story has legs. While Mattel recalled more than one million Fisher-Price-brand toys because lead levels violated international law, Illinois-based RC2 recalled 1.5 million Chinese-produced toy railroad sets, also due to impermissible lead paint levels.

The stakes couldn’t be higher for the $22 billion toy industry. With the latest news reports from China, companies are under intense pressure to prevent a sea change in consumer perception of toy safety. Reputations can suffer, share prices fall, and potential investors get cold feet.

Chinese courts won’t likely compel Chinese companies to compensate American victims. The only recourse is to sue the U.S. companies that placed the toy order. Those companies are liable for upstream problems regardless of how far downstream they may be.

The toy industry is not, however, navigating totally uncharted waters, as there is solid crisis management precedent – both good and bad. When, for example, Mega Brands’ Magnetix toy killed a Seattle toddler in 2005 and injured 27 others, the company reacted quickly to guarantee safety by redesigning the product.

Mega Brands, however, failed to change the packaging and, as a result, the company did not drive home the message that it had indeed resolved its safety issues. Customers could not readily distinguish the new and improved version of the toy from the older one still on retail shelves.

The lessons to be learned from such past experience, and from the current crisis, are all about, first, ensuring safety and, second, credibly communicating that you have done so. And you must do so for multiple audiences, including retailers and regulators, as well as consumers and parents.

The lessons pertain equally to accounting firms and insurance companies, to auto manufacturers and pharmaceutical firms – to anyone who relies on public trust to stay in business. Consider:

  • Companies must build trust by exceeding acceptable oversight levels. Just as toy manufacturers are increasing the frequency of inspections and devising new safety assurance measures, so too can other corporations go “beyond compliance.” One healthcare company accused of fudging the numbers on its success reports retained—not one—but three independent auditors to confirm that its systemic data problems had been resolved. Another company was required by law to report a data breach in California; it reported the breach in all 50 states instead.
  • Establish direct personal links to the end users. If the CEO of a toy company has small children, he or she should say so. If food executives are overseeing a recall—perhaps for spinach or pet food—they can remind the world that they too eat spinach or that they have beloved pets of their own. Don’t be the “other.” Be “one of us” in every way you can.
  • Initiate corrective actions voluntarily. If it’s a recall, don’t wait for regulators to pull your products; act early to remove them from homes and stores. Emphasize that top-line consequences are irrelevant. Your credo should be: safety first and profits second. If shareholders holler, launch a separate investor relations initiative to address their concerns, but don’t back down on the safety promise.
  • Keep customers informed. In any crisis, and especially one involving public safety, fully disclose—and, importantly, if there is information you are still seeking, tell the world that you are still seeking it and that you will disclose it as soon as you have it. The vegetable growers’ trade associations did a particularly good job with this sort of outreach during the spinach crisis.
  • Keep the online wires humming. Set up a special website page to post updates. Always have “dark sites” in reserve with templates already set up, so you can fill in the blanks with specific content and quickly deploy once a crisis occurs. Some industries—like pharmaceuticals or, for that matter, any manufacturer dependent on foreign suppliers—are in permanent crisis mode. Take advantage of the breathing room between crises to fully prepare an Internet strategy for the next predictable bad event.
  • Don’t pass the buck. In the case of the toy recalls, it is true that corruption runs rampant in China. (Some 1,800 Chinese officials confessed to corruption in June 2007 alone.) But spreading liability, not to mention culpability, will only exacerbate consumer tensions and disserve your own interests in the long term.
  • Be careful about calling problems “minor.” Americans expect perfection and, if one Tylenol bottle is poisoned, or one rogue employee has stolen private customer data, the dam is still leaking and wet is wet. In 2007, China itself made the mistake of saying that 99 percent of its exports were safe. But that 1 percent is a killer. With 2006 exports valued at $974 billion, China had therefore exported $10 billion in potentially dangerous goods.
  • Never assume safety questions will disappear after a product has been redesigned or remanufactured. Never assume that investor confidence can be 100 percent after an accounting restatement or insider trading scandal. Your brand is your promise. Break it once and even your most faithful followers keep wary eyes open for future problems. Years after the aforementioned Mega Brands redesign, a newspaper featured pieces of the toy configured like a skull-and-crossbones, breathing new life into old safety doubts. JetBlue did an expert job recapturing its brand equity after the February 2007 breakdown, but it must be prepared to prevent renewed disillusionment if a similar event happens in the future.
  • Enlist supportive third parties to praise your performance. Sometimes those allies come from unexpected quarters. In 1997, for example, Mattel gave S. Prakesh Sethi, a fierce industry critic, free reign to make unannounced onsite inspections. His subsequent endorsement was all the more credible with the media.

Every day, these fundamental best practices get tested in a global marketplace where no one can promise absolute control. In the simplest marketplace, crisis communications are always more art than science, requiring experienced judgment as well as shrewd action. In a global environment, the complexities naturally proliferate.

In such a marketplace, corporate communicators need strategies and messages broad enough to resonate with just about everyone. But they also need to zero in on the specific concerns of specific audiences including consumers and journalists, shareholders and analysts. Respond respectfully and carefully to each new set of expectations.

Richard S. Levick, President and CEO of Levick Strategic Communications, which protects brands and reputations during high-stakes global crises and litigation. You can reach him at www.levick.com .

Posted October 10, 2007 in Communications