Staying Silent Can Cost You

In fall 2002, head of the U.S. Consumer Products Safety Commission (CPSC) Ann Brown proclaimed that San Francisco-based Williams-Sonoma was “leading the way on recall effectiveness” as she honored the company with her prestigious Chairman’s Commendation. “Williams-Sonoma has demonstrated their commitment to consumer safety by ensuring that customers were properly notified of a dangerous recalled product,” she said.

Unfortunately for this upscale retailer, Brown is no longer at the commission and it is not 2002.  This past May, in a stunning reversal of fortune, CPSC smacked Williams-Sonoma with a whopping $987,500 civil penalty for failure to timely report a product defect. Draconian as it seems, this stunning and eye-popping penalty may soon seem modest. Well-informed sources predict it is only a precursor to much larger penalties in the works. The message of the 2013 commission is clear: Follow the letter of the law or be prepared to pay an astronomical penalty and then be compelled to follow the law with a costly CPSC-imposed mandatory compliance program.

So what can distributors and suppliers in the promotional industry learn from this case that they can use to protect their businesses?

Williams-Sonoma ran afoul of the critical Section 15 reporting requirements of the Consumer Product Safety Act. Among other obligations, Section 15 requires manufacturers, importers, distributors and retailers of consumer products to notify the Commission immediately whenever the company has information that one of its products contains a defect that could create a substantial hazard or an unreasonable risk of serious injury or death. Strategy No. 1: Assign a senior person in your company to learn the Section 15 reporting requirements.

Change a few details and the story of what happened to Williams-Sonoma could have happened to any company in our industry—promotional products suppliers that import products and distributors that sell them. In this case, William-Sonoma did both. In 2003 it began importing wooden hammock stands to sell through its Pottery Barn division. From 2003–2008, Pottery Barn sold 30,000 units. When the hammock stand is used outdoors its metal brackets can trap moisture, causing the wooden beams to rot over time behind the bracket and giving no outward sign until someone sits in the hammock and the beam breaks, according to CPSC. During this five-year span, the company received 45 complaints of which 12 incidents required some medical attention. The commission claims that Williams-Sonoma knew by late 2006, after it had received eight complaints, that the product had a defect that created a substantial product hazard; however, Williams-Sonoma did not file a Section 15 report with the CPSC until September 2008.

If this case was typical, Williams-Sonoma most likely learned about the defective hammocks through a variety of customer interactions that may not have been passed on to one central repository. Some customers might have placed warranty claims and only mentioned the bumps and bruises in passing. Others might have visited a store for a refund, written a letter, called an “800” number, complained via a web contact form or even posted on CPSC’s new “Safer Products” site.

Whether a company is large or small, information—even bad news—can permanently reside in silos when the people receiving the information don’t appreciate its implication or aren’t aware of related incidents. Without specific training and a robust initiative, employees in the field may receive a customer complaint—perhaps over the phone or in passing during an unrelated conversation—and dismiss it as insignificant, not their responsibility or not serious enough to report.

Teach your team that every product complaint is potentially significant. Every complaint, claim or incident report should be relayed to a central repository, logged and followed-up on thoroughly. Be sure to have a trained individual call the consumer to discuss what happened and to make sure your incident report is accurate and that no details have been sugarcoated. Request the product be returned so you can see for yourself what went wrong and determine whether the issue constitutes a substantial product hazard.  Strategy No. 2: Educate employees to communicate every product-related complaint to one person or department knowledgeable about Section 15 requirements, with authority to report to CPSC or to quickly raise the reporting issue to someone who does. Investigate every incident thoroughly and get first-hand information about what happened whenever you can. Ask for the product back to carefully evaluate what went wrong and whether further action is required.

A common myth, and why some companies may not report, is the fear that Section 15 reports will automatically result in a costly “corrective action,” a term the CPSC uses to refer to any remedial action taken by a firm, including recalls. The CPSC denies this myth in an FAQ on its website: “Reporting a product to the commission under section 15 of the CPSA does not mean that the commission automatically will conclude that the product creates a substantial product hazard or that corrective action is necessary.”

Instead, CPSC contends that, aside from helping the commission identify substantial product hazards, Congress established the Section 15 reporting requirements to encourage “widespread reporting … to help identify risks that the commission could address through voluntary or mandatory standards, or information and education.” I posed this myth question to a prominent product safety attorney who regularly practices before the commission. He confirmed that many Section 15 reports result in no action and advised that companies should err on the side of “over-reporting.” Indeed, the risks inherent in a Williams-Sonoma-sized civil penalty alone should inform any company’s consideration of whether or not to report.  Strategy No. 3: Err on the side of “over-reporting” when you learn of a product defect that could create a substantial hazard.  If the risk is insubstantial, CPSC will not likely take action. If the risk is substantial and you do not report it, the potential civil penalties can be massive. This commission has already shown in the Williams-Sonoma and Kolcraft (see sidebar) matters that it will not hesitate to invoke stiff penalties for late reporting.

The CPSC allows Section 15 reports to be filed through its SaferProducts.gov website, by mail or telephone, and submitted by the reporting company or its attorney. The most important thing is to file the report timely, but it is always advisable when dealing with regulatory agencies to do so with the advice of an experienced attorney who specializes in this area of law. Reporting companies should be prepared with the information that CPSC staff will need to evaluate the product hazard and determine if further action is required.

The more organized and complete a company’s records are, the easier time it will have responding to commission staff queries. The initial questions are what you would expect: What is the product? Who is the manufacturer or importer? Where is the product sold? What is the defect, injury or risk? How many units have been sold? How many complaints or incidents involving the product have been reported? Were any injuries reported? If the investigation continues beyond an initial stage, the information requested by the CPSC can become much more detailed.  Strategy No. 4: Keep complete and accurate records about the products you sell. This should include such product-related items as sales and purchasing records, test reports, history of complaints, warranty claims, returns and any other relevant information. The information should be stored in a database and easily searchable by the individual you empower to evaluate product defects and make Section 15 reports.

It is very easy—actually tempting—to read about someone else’s misfortune and assume for one reason or another that it can’t happen to you. But if you sell consumer products—and our entire industry does—it can happen to you more easily than you think. Product defects that have the potential to cause injury can happen to any company that makes or sells products. Consider this: Williams-Sonoma has a long history of managing recalls, so much so that the CPSC recognized its outstanding systems a decade ago. Yet even with a compliance staff, a sophisticated database tracking system and a history of managing recalls effectively, a serious product defect fell through the cracks and cost the company dearly.

Take time to examine your company’s system for evaluating products, logging and monitoring complaints, returns and claims, and determining whether any product-related issue has the potential to create a product hazard substantial enough to warrant a Section 15 report. Strategy No. 5: Just as you would monitor other Key Performance Indicators, establish KPIs for monitoring your systems of tracking product-related issues to ensure that no potential product hazard falls through the cracks to later become an albatross for your company.

Rick Brenner, MAS, is CEO of supplier Prime Resources Corp. (UPIC: PRIME), founding board member of Quality Certification Alliance (QCA), chair of QCA’s compliance committee, board member of PPAI and a member of PPAI’s Product Responsibility Action Group. The opinions stated here are strictly his own and do not necessarily reflect the views of any of these organizations. Contact Rick at rbrenner@primeline.com or follow his blog at www.rickbrenner.com.

 

 

>>Another Case In Point

In March 2013, two months before the Williams-Sonoma civil penalty, Kolcraft Enterprises Inc. of Chicago agreed to pay a $400,000 civil penalty for failure to timely report defects involving faulty latches on the sides of several play yard products it manufactured for Carter’s, Sesame Street and others. In both the Kolcraft and Williams- Sonoma Settlement Agreements, the CPSC imposed mandatory compliance programs.

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