Reputational risk at an all-time high as recalls continue into the third quarter

COVID-19 may have stalled huge sectors of the global economy, but regulatory oversight in the U.S. remains vigilant and may even be picking up its pace as we move through the third quarter.

In fact, medical device recalls in the second quarter reached levels we haven’t seen in two years, surpassing 300 recall events for the first time since the second quarter of 2018. And July data suggests that recalls may continue at this pace, further imposing challenges on an industry already stretched thin.

When it comes to the pharmaceutical industry, recall activity, which had slowed in the second quarter, started returning to average monthly levels in July. There was a total of 35 recalls, which is more than half the number of recalls that occurred in the entire second quarter. While the issue of hand sanitizers contaminated with the deadly toxin methanol surfaced in the second quarter, official recalls did not start until the third quarter. Two recalls were announced in July alone, and we’re expecting this number to skyrocket. Additionally, as oversight of foreign drug manufacturers hit industry headlines again during the second quarter, we predicted a renewed focus on foreign drug manufacturing. As expected, there were eight recalls related to NDMA contamination in July.

In the consumer product industry, the Consumer Product Safety Commission (CPSC) remains vigilant. The agency announced 28 recalls in July alone, nearly half the number of recalls we saw in the entire second quarter. If recalls continue at this pace, we’ll see a nearly 45% increase in the third quarter.

Meanwhile, regulatory oversight of food, which seemed to lapse in the early part of the year, may be starting to return to normal levels. At the same time, consumer fears rose with continued meat and produce recalls. Those fears were capped off with the first-ever nationwide FDA recalls of onions and peaches linked to a 21-state outbreak of salmonella poisoning. USDA recalls for contamination and mislabeling issues inched upward in July and are expected to rise further through the end of the year as federal inspectors face scrutiny from members of Congress and their constituents. Furthermore, companies are reporting that FDA coordinators are moving more quickly and decisively to announce and broaden precautionary food recalls even before definitive sources of contaminants are determined.

While the automotive industry continued to responsibly address lingering safety issues and move forward with recalls as usual in the first half of the year, the second quarter revealed a new challenge for car manufacturers: recall effectiveness. We expect this to remain a prevalent issue in the third quarter and throughout the rest of the year.

The financial and reputational cost of conducting a recall late or poorly continues to grow. Mid-cap and privately held companies that fail to prepare and execute appropriately are especially at risk of financial devastation Our advice for all businesses is to read our report and familiarize yourself with the issues and trends in your industry, then double down on your proactive risk assessment and crisis planning.

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