In a recent article, I wrote about how a company should not handle their own product recalls due to the conflict between the need to enter into a full scale publicity campaign in respect of a defective product, vs maintaining damage control and protection of a company’s image and brand.

The recent Oscars debacle involving accounting giant, PwC has brought this issue to light. That is, how to admit that you’ve made a huge mistake without causing long lasting harm to your image and reputation. Law Graduate Aaron Goulding and I discuss this further below.

My previous article highlighted how many companies simply try to sweep the defective products that need to be recalled under the carpet, by placing adverts towards the back pages of newspapers, therefore complying with the Australian Standard for product recalls. This is in direct contrast to when they’re promoting their products for sale, whereby all forms of media advertising are used including; social media, streaming, online websites, television, radio and newspaper. The disparity between the two methods used is stark.

The ACCC - under the Australian Consumer Law - has a wide range of powers to protect consumers, including imposing minimum safety standards, issuing infringements notices, banning unsafe products, and imposing hefty fines for companies. However, these same strong powers don’t seem as apparent in respect of advertising recalls. The regulations and guidelines published by the ACCC, require as a minimum a newspaper ad for a product recall, and very little else. It is up to companies to decide to go further and use social media. Herein is the conflict, why draw attention to your faulty good?

However, there have been several examples in the past where companies have not only managed to carefully handle their product recalls, but have leveraged off the quick and effective way they have handled those recalls, which not only protected their corporate image, but enhanced it. The following (US) examples show just which companies have succeeded:

  • In November 2015 Tesla voluntarily recalled nearly 90,000 Model S electric sedans after a single driver reported a faulty front seat belt. There had been no injuries reported and of the 3000 cars inspected prior to the recall, Tesla had found no further faults. Despite the low probability of the fault occurring again, Tesla went ahead with the voluntary recall and demonstrated that they took customer satisfaction and safety very seriously. Tesla informed their customers through both online media and physical letters, with customers posting their letters online, often with positive statements about the company and their response. As a result of the recall Tesla’s share price dropped less than 1%.
  • In August of 2006, Dell was the largest computer manufacturer in the world. Upon learning that batteries - manufactured for their laptops by Sony - had a risk of overheating and causing fires, Dell organised for the largest voluntary recall of I.T components in history. The fault itself only had the potential to affect around 15% of laptops and the recall itself was estimated to cost around $400 million. Dell acted quickly and proactively, advising customers to stop using the batteries and immediately shipping replacement batteries to customers that had been affected between 2004 and 2006. Despite an initial drop in share prices, the company had recovered within the month to pre-product recall levels.
  • In March 2010 the makers of the Harmony High Chair (Graco) received complaints that the chair was prone to tipping. Amongst those complaints were reports that 24 children had been injured. The company immediately initiated a voluntary product recall of over 1 million of the high chairs. Despite the large recall, the company’s share price was only affected to a minor extent, recovering within 2 weeks and continuing to improve in the following months.

If a product recall is not handled properly, you not only stand to damage your corporate brand, but you can also lose valuable market share to fast moving competitors. French water entity Perrier dominated the water market in the 1990s, but due to its poor handling of a Benzene scandal, rival Evian managed to grab a huge portion of Perrier’s US market share and the two have been equal competitors ever since.

When it comes to product recalls there are certain tested steps that have proven reliable in recalling a product quickly and effectively, including:

  • direct access to various press release channels, not just print media and radio and TV, but also online media including social media;
  • an effective logistics and information system that allows direct communications from management to the people on the ground, including suppliers and distribution networks that are handling the recalls;
  • well maintained and up to date databases of customers and points of contact that can be immediately and discreetly contacted; and
  • the most important of all, a management plan that can be quickly put into place to deal with such disasters.

The action of PwC following the Oscars provides a good example. PwC immediately admitted fault, went straight to social media to do so (rather than simply trying to cover the matter up and issue an apology days later in the back of a newspaper), stood down the two people in charge of the envelopes at the Oscars, and immediately commenced an investigation.

The publicity from a product recall may last days or weeks. A product recall handled badly could lead to legal proceedings, or even worse full scale class action - backed by hundreds of angry consumers. The above examples show that by admitting a mistake has been made, and having a well thought out and effective management plan to deal with that mistake, companies can not only protect their corporate brand and image, but also leverage off and benefit from a quick, decisive and fully communicated actions.

Any such management plan - at a minimum - would need to consider:

  • your obligations to comply with the ACCC’s product recall guidelines;
  • your contracts with suppliers and dealers and whether you are now in breach of those contracts; plus
  • if you are publicly listed, your ongoing disclosure obligations to the ASX, and duty to your shareholders.