Five Steps Small and Medium-Sized Businesses Should Take to Prepare for a Product Recall*

*Previously published by Corporate Counsel online

It is easy to think that product recalls are problems only large companies face. After all, the popular thinking is that small and medium-size businesses can pay closer attention to manufacturing and design elements than large companies, and so the odds that something might "slip through the cracks" are slim to none. Many also assume that a big federal agency will not pay much attention to a "mom-and-pop" shop when there are so many large companies out there with much greater exposure.

Unfortunately, no matter how careful one may be, the reality is that defects do occur, especially in situations where the product is manufactured abroad and distributed here at home. Furthermore, government agencies do not take a company's size into consideration when administering a recall, as their focus is on the safety of the end consumer. In fact, a small business caught up in a product recall may find itself overwhelmed precisely because these agencies are often applying standardized solutions that work for large companies but may be a poor match for smaller ones.

While a product recall can be a daunting experience, a little planning can go a long way to reducing the time, money and effort required. In addition to having good legal counsel on hand, here are five steps any business can take right now to prepare for a recall.

 Step 1: Call Your Insurance Broker

Recalls can be expensive. As a preliminary measure, business owners should look into safeguarding against that cost. Several insurance companies offer policies that cover the costs associated with product recalls. Each policy will have its own advantages and disadvantages, so be sure to contact your broker and ask for information on product recall policies. While you are at it, inquire about your product liability insurance as well. These are often separate policies, and they can provide you with a source of funds to cover legal fees and costs associated with defending against lawsuits brought by customers alleging injury caused by your products.

 Step 2: Know Your Contacts At Every Stage In The Product Chain

The advent of the internet in the global economy means that product components can come from anywhere in the world. Unfortunately, that means that a business must be in a position to keep track of where those components are made. Furthermore, if the product itself is manufactured and/or assembled abroad, you will need to make sure you have the name, address and contact information for that company and its facilities. This step seems obvious, but a surprising number of companies that use foreign factories for production may only communicate with one English-speaking individual at that factory. Having all of this information on hand from the start will ensure that you will not be reliant on information coming from overseas and will allow you to more efficiently provide federal regulators with the information they need.

 Step 3: Know the House Rules

The next step in preparing for a recall is to identify the federal agency or agencies that oversee your products and to clearly follow the regulations they promulgate. This step is critical. Not only will it ensure that you set manufacturing and design specifications that are in line with the proper regulations, it will also ensure that you are reporting to the correct agency and following that agency's recall protocols should you discover that a product needs to be recalled. Your recall preparations should include compiling the contact information, internet web addresses and any and all recall protocol guides produced by the various regulatory agencies that may oversee a recall of your specific products. These guides are available on each agency's website and should be updated yearly to capture any changes in the law.

 Step 4: Identify Your Recall Manager And Members Of The Recall Team

Once you know to which agency you will report, the next step is to identify the person within your organization who will do the reporting. Ideally, this individual should be someone who is (1) familiar with the manufacturing/design elements behind your products; (2) already in a position of leadership within your company, or someone who is comfortable speaking to those individuals within your company; and (3) able to effectively communicate over the phone, in writing and in person.

Of these three traits, the third is the most important. A recall manager can learn the product and get comfortable with reporting to superiors, but it is absolutely critical that this individual has the skills to communicate with regulators (and, if necessary, outside legal counsel) in a professional manner from the very beginning. Building credibility with regulators is a non-negotiable element of any successful recall, and nothing is more likely to lead a regulatory agency to conclude that more intervention is necessary than poorly drafted reports or lackluster oral communications.

Once you have identified a recall manager, he or she should also be provided with contacts within the organization responsible for locating and tracking information related to manufacturing, design and distribution. Every agency overseeing a recall will want to know how the defect occurred and how many customers it impacts, so tasking individuals with responsibility to track this information for recall purposes will make it much easier for your company to respond in a timely and accurate manner.

 Step 5: Track Your Data

Government regulators want to be sure that every customer with a recalled product knows about it and to do that, they can order a company to advertise the recall in print media, on the company's website and even through social media like Facebook and Twitter. It is possible to carry out a more targeted recall to avoid bad publicity and unnecessary confusion among your customers, but only when the company can convince the overseeing government agency that it has the data necessary to track each affected unit from production to distribution to the end consumer. As a practical matter, this step requires a company to implement strong tracking procedures. In addition to the end consumer's name and address, this procedure ideally should also include gathering the end consumers' telephone numbers and email addresses to ensure that consumers can be notified of a product recall even if they move to a new address.

While implementing such a procedure requires work at the front end, it ultimately will allow a company to propose to the government agency overseeing the recall that a targeted communication campaign will be sufficient. While there is no guarantee the agency will agree, having the data in hand is the best way to make the case that such a campaign is at least possible. Even if the agency disagrees, following this procedure is still worth the effort, since gathering this data at the outset will still allow a company to quickly and efficiently carry out the recall, thereby saving time and money.

Product recalls are never easy, and it is impossible to predict how government regulators will require a recall to be conducted. However, the challenges are not insurmountable, and having an action plan in place before the need for a recall arises is the best way to minimize its financial and emotional toll on a company.