It's not every day that chief executives ask for more regulation of their industries. Or that they apologize three times in the same speech. But the steady drumbeat of product recalls, coming on the eve of the crucial holiday selling season, has toy industry execs taking drastic measures.
On Sept. 12, Mattel (MAT) CEO Robert Eckert testified at a Senate subcommittee hearing on toy safety. Mattel has recalled more than 21 million toys in the past six weeks due to unauthorized use of lead paint by Chinese suppliers and safety concerns surrounding small magnets that can be harmful if swallowed. "I am deeply disturbed and disappointed by recent events," Eckert told the senators. "On behalf of Mattel and its nearly 30,000 employees, I apologize sincerely."
Toy Industry's Willingness
The hearing also featured testimony from Nancy Nord, acting chairman of the Consumer Product Safety Commission (CPSC); the chief exec of Toys "R" Us; the president of the Toy Industry Association trade group; and Sally Greenberg, an executive at the Consumers Union advocacy group. It comes as the Senate is considering two bills that would strengthen the commission and mandate that all products marketed to children get independently tested.
Senators Richard Durbin (D-Ill.) and Bill Nelson (D-Fla.) are sponsoring legislation that would increase the safety commission's budget from $62 million a year to $100 million, reduce the period of time it has to notify manufacturers of recalls from 30 days to 10, and increase the maximum penalties it can impose from $1.2 million to $20 million. Nelson is also sponsoring the Children's Products Safety Act of 2007, which would require companies to submit their products to independent testing companies such as Underwriters Laboratories. These third-party testing companies would certify that products marketed to children under 5 years old met safety standards set by government regulators.
The toy industry is surprisingly willing to go along with many of the changes. "Mattel supports proposals that would ensure laboratories used for testing toys are fully qualified and accredited by independent organizations," Eckert said at the hearing. Toys "R" Us CEO Jerry Storch told the Senate panel: "We strongly support strengthening third-party testing requirements." Storch added that he was in favor of stamping products with codes that would help in tracing them in the event of recalls. The Toy Industry Association, which represents more than 500 companies accounting for 85% of all toys sold in the U.S., also supports federal testing requirements.
CPSC: "A Paper Tiger"
The hearing came as the toy industry stepped up its independent testing. On Sept. 10, Walt Disney (DIS) announced that it would do spot-checks of toys manufactured for it by other companies such as Mattel. Storch said Toys "R" Us had also increased its random testing of toys on its shelves.
The question is whether the industry is going far enough. Greenberg, senior product safety counsel at Consumers Union, publishers of Consumer Reports magazine, proved to be a vocal dissenter. She told the senators the CPSC hasn't been nearly tough enough on companies ensnarled in the toy safety issue. She argued that the agency is underfunded, understaffed, and unable to level meaningful financial penalties on repeat violators. The CPSC "has to stop being a paper tiger," she said.
The largest fine in the history of the safety commission came in 2001, when Mattel paid $1.1 million for failing to notify the agency in a timely manner of a fire hazard with its Power Wheels cars.
Greenberg said that companies have decided it makes more financial sense to violate safety laws and pay the fines, rather than comply with the standards. "Companies simply do not regard the CPSC's regulatory power as a deterrent to flouting the law," she said. She called for higher financial penalties, updated safety standards for lead in toys, and unannounced safety inspections by third parties at manufacturing sites.
Consumers Are Wary
A number of senators voiced support for more radical steps. Senator Sam Brownback (R-Kan.) called for tougher action against China, given the sharp increase in imported products from that country with safety issues. "I think we should do everything we can—whether it's banning whole categories of products from coming in—until we are sure there is no lead in these products," he said. "Hit ‘em where it hurts."
Charles Margulis, communications director of the Center for Environmental Health, a consumer group based in Oakland, Calif., said he didn't believe even government-mandated standards would be enough to keep dangerous products from hitting the market. Margulis said his organization sued over 90 companies that sold lead-based jewelry in California, suits which forced statewide standards on lead content. But he's had less luck in getting the federal safety commission to develop similar standards. "The CPSC has been saying for two years they're working on a legal standard," Margulis says. "They could just copy California's."
The big question for the toy industry now is not whether Santa will come but if he'll have any toys in his sleigh. Already some consumer safety advocates are urging shoppers to give clothes to kids instead of toys this holiday season. Marilyn Furer, a Chicago-area grandmother who used home-testing gear to find lead in her grandkids' lunch box and bib says she's hearing more and more from parents who are rejecting products made in China, where most of the defective items have come. "There is a definite reluctance to buy anything Chinese at this point," she says.
Linda Bolton Weiser, an Oppenheimer & Co. consumer-products analyst, issued a report on Sept. 12 suggesting the worst may be over for the toy industry, however. Although a second Congressional hearing on lead paint will occur on Sept. 19, Weiser said "additional recalls are now more unlikely." She added that government-mandated testing could even be a positive for Mattel, "if small players were driven out of the toy industry by increased regulation."