Risks of Ineffective Recalls

The only thing worse for your company than a recall is a mismanaged recall, one that poses increased risk to consumers and further damages your brand. Although the recall process can be complicated and cumbersome, you should understand the major risks of failing to effectively manage a recall and prepare now for the potential challenges ahead. Risks that companies can face for an ineffective recall include:

• Civil liability and criminal liability for corporate executives and employees;
• A fine levied by a government agency;
• Investigations by Congress and regulatory agencies;
• Congressional hearings;
• Government-mandated shutdowns of product lines, manufacturing plants, or entire companies; and, in the very worst case
• Bankruptcy.

During a recall, it should be your priority to demonstrate that consumer safety is paramount by quickly recalling the product, cooperating with regulators, and communicating openly with the public. If any of these steps are mishandled during the recall process, the financial and reputational recall costs can be significant.

Time is critical when managing a recall, and your efficiency and recall effectiveness will determine the ultimate damage to both your brand and your bottom line. Moving too slowly or mismanaging the steps in the recall process will lead to an ineffective recall. Missteps in the recall management process or any related corporate management issues will increase recall risks, including recall costs associated with re-issuing a recall announcement, brand damage, and legal liability.

Although some expenses can sometimes be recovered after a recall, consumer loyalty could be lost forever. Developing a recall plan and investing in recall insurance before a recall are helpful steps in protecting yourself from recall risks.