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"Companies must make testing robust"
Product recall is the new reality for Indian manufacturing, especially the automobile industry. As of now, the Society of Indian Automobile Manufacturers' (SIAM) Voluntary Recall Policy and Consumer Protection Act are the only two significant reference points in the context of product recalls. Before thinking about the right regulations and penalties, it is important to understand that 'safety' of consumers is non-negotiable and so manufacturers have to move swiftly whenever a product recall situation comes. For companies the first thing to do is to channelise its resources in withdrawing the product from the market. This means that both consumers and the entire supply chain network have to be informed at the same time. Companies must know that addressing product failure is a responsible exercise even though the idea is fairly new for the Indian consumers. There have been cases where companies have received negative publicity for not addressing minor safety concerns.
The last two years have seen many automobile manufacturers conduct product recall programmes. While we still don't have enforceable laws and guidelines for product recalls, it is high time to work towards this. One can learn and draw the right lessons from other mature markets like the US and Europe where criminal and monetary penalties are enforced by the regulatory bodies. In Australia, a safety warning notice is a formal warning issued by a Commonwealth, state or territory minister responsible for administering the Australian Consumer Law. It informs consumers and suppliers about consumer goods or product-related services that may cause injury, and/or are under investigation. After investigation, bans can be placed on consumer goods or product-related services in certain circumstances.
The Consumer Product Safety Improvement Act in the US is targeted mostly at children's products, which are defined as any consumer product designed or intended primarily for children 12 years old or younger. This has rules governing all terrain vehicles (ATV). The Act imposes or increases both fines and jail time penalties, and mandates coordination with the CPSC (Consumer Product Safety Commission) when affecting a manufacturer's product recall. There are civil penalties in case of failure to report possible product hazards to the CPSC in a timely manner. It has been noticed that many times companies breaking laws are dragged to the court for settling liabilities with the regulators.
If the government plans to crack the whip on manufacturers, the regulations should have both monetary and criminal penalties. While government bodies in India are involved in testing and certification, it is important to understand that government's intervention alone is not the answer to concerns related to product safety. At this juncture, none of the automobile manufacturers will welcome regulations that prohibit the business environment while handing product safety concerns. Companies must make testing robust at their level. In fact, an overarching framework to take a product through various testing stages is key. The other way is to strengthen consumer protection rights. This makes sense since we are living in the age of social media where consumers are broadcasting their views across social media platforms. Companies must be present on these platforms to address any safety concerns their consumers may have.
Mritunjay Kapur
partner & head, risk consulting & strategy, KPMG India
The recent case of GM executives choosing not to replace the ignition key with a safer design to save a dollar on the cost of every car, is not only startling but also a wake-up call for all. In an increasingly competitive business environment with ever-increasing pressure on costs and margins, and from stock markets and investors, business executives are routinely forced to make choices that can have unintentional but such disastrous outcomes.
I strongly believe that companies should be held criminally liable for such faults. The premium that consumers pay for a brand is for the promise that the company would have taken care of the quality and safety. Otherwise, there is no reason for a consumer to pay so much more than the actual cost of manufacturing a product or delivery of service. The consumers choose a branded product over an unbranded one for the same reason, ignoring the huge price difference that they can clearly see. In their belief that brand owners are responsible companies and will not shortchange them, they pay the premium smiling. We need to view this question on this background, and appreciate that such faults are clearly a breach of confidence between consumers and brands. Such gross violation of trust has the potential of eroding the consumer faith in branded products as well as in the large corporations who own them.
With so much at stake, this matter needs to be taken very seriously and more than anyone else, the companies and their boards should welcome the proposal of criminal liabilities. The motivation of an executive or team of executives to deliver better profits and returns need to be counterbalanced by such laws. Unless it is done, the lopsided incentives will certainly create situations like this more often and in many more industries. The incentives, bonuses or higher stock prices are one side of the story and we can all understand the greed factor involved. However, the other human factor is fear. The fear of losing job or losing market share in such fiercely competitive markets is a much stronger force that can push people into a corner where they would rather save a dollar per car instead of taking the right call.
The law needs to replace this "fear" factor with another "fear" factor - landing behind bars and thus losing everything. This fear will not only stop executives from taking decisions bordering on the unethical side but will also give them courage to say no to command from seniors to make such decisions. I believe that the fear of going to jail should discourage most of the professionals from crossing the line.
Having said that companies should be criminally liable, I must emphasise that the lawmakers need to be careful while drafting such laws to ensure that the implementation is swift and smooth. It should not leave room for loopholes for large companies to exploit in their favour. The purpose of discouragement will be completely defeated if the senior executives know that smart lawyers could save them through arduous legal process and long winding arguments.
On the positive side, such a law will enhance the loyalty and dependence that consumers have on powerful brands. The responsibility that brands will take upon themselves by accepting to be ruled by such laws will make then even more powerful and dependable. The consumers will be willing to pay far more premium for such legally binding assurance of quality and safety. And I reckon that premium should be far more than what it may cost to ensure such levels of quality.
Harminder Sahni
Founder & MD, Wazir Advisors
