Product recall: anticipating crisis management and protecting your brand

February 8, 2023

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By Julie Ross – international business development director, brand protection, Sedgwick International and guest author: Juliette VOGEL – Lawyer, Paris Bar and partner, HMN & Partners

The transformation of economic activities throughout the last 25 years has been driven by multiple factors: changes in legislation, technological advances, changes in consumer habits and the increasing complexities of a globalized approach to supply chains.

Over the past two years, there have been numerous cases of product recalls in all areas of activity. Some incidents that occurred in 2020 have been ongoing. These complexities make it difficult for internal teams to manage the factors mentioned above without external support. They also require preparation to better address an incident when — and preferably before — an event occurs.

Geopolitical concerns in a changing climate

In general, the COVID crisis is still leaving traces while wars are having a massive impact on the supply chain, especially in terms of food products and semiconductors. The requirements related to environmental, social and governance (ESG) are becoming increasingly important and require companies to confront and adapt. In Europe, the effects of Brexit are also palpable.

More specifically in terms of product recalls and withdrawals, advances in the search for pathogens, technological advances, stricter regulations, and amplification by social networks have become significant factors to consider.

Legal and regulatory framework

Within the European Union, the General Product Safety Directive (GPSD) has applied since 2001. Its objective is to guarantee product safety for consumers. Products used under reasonably foreseeable conditions must not involve risks to health and safety.

The European Product Safety Business Alert Gateway has been created to help producers and distributors (under Article 5(3) of the GPSD) notify national authorities in Member States that a product they have placed on the market is dangerous. This allows coordination of national supervisory authorities, such as the DGCCRF in France. Any actor, producer, distributor or importer must immediately inform the competent authorities as soon as a product is considered dangerous. The case shall be referred to the supervisory authority of the country of the operator concerned.

It should be noted that there are special cases with specific competent surveillance authorities for certain products, such as the Directorate-General for Food for products of animal origin, or the National Agency for the Safety of Medicines and Health (ANSM) for health products. Some sectoral directives may also apply to the safety of specific products such as toys, construction, cosmetics, pharmaceutical, certain low-voltage electrical products, etc.

It can be difficult for economic operators to identify whether or not they have an obligation to notify the authorities of the identified risk. Problems related to the functional quality of the product and not to its safety do not have to be notified. The identification of a low risk that can be controlled by immediate corrective action on specific batches withdrawn from the market also need not be notified to the authorities. Conversely, a dangerous product on the market whose risks are such that preventive and corrective measures should be implemented must be notified immediately.

Finally, the identification of a serious risk to the health and safety of persons will be the subject of a specific immediate notification, called Rapid Exchange of Information System (RAPEX). This last qualification is impactful because it will lead to very strict corrective measures. Traditionally, the latter involves the voluntary or forced recall of products or their withdrawal, and the prohibition of their sale. They may also take the form of an obligation to repair or modify products, to affix specific labelling to them or to destroy them.

In any case, prudence requires the assistance of a local lawyer to ensure the legal and regulatory obligations that apply in each Member State concerned by the notifications and corrective measures taken. Each State is likely to impose additional obligations on economic operators in terms of product safety.

Preparing for a product recall or withdrawal situation

This complex subject requires careful coordination as it involves many stakeholders. Product recalls and withdrawals are governed by regulations that leave no room for improvisation. It is first necessary to understand what the obligations are according to the case encountered, in order to be able to face them. However, media time can take precedence, exposing the company to a major reputational risk.

While internal product safety policies and prevention plans won’t solve the entire incident, they will facilitate its proper management and mitigate the impact. Having a crisis unit makes it possible to react quickly, retain quality, ensure compliance and prepare communications Regulatory affairs is another key function to consider. Setting up and maintaining a contact base with the details of supervisory authorities, key customers or key distributors and a specialist lawyer is a useful precaution.

Effective recall methodology

Cooperating with market surveillance authorities and relying on specialised external advice is key to effective recall management. Choosing the right corrective measures to implement is based on risk analysis. The European Commission provides professionals with an assessment tool called the Risk Assessment Guidelines in three phases and eight steps to determine both the likelihood of an occurrence and the severity of an adverse health or safety effect.

The risks are classified into four levels: low, medium, high and severe. Each level of risk identified requires the implementation of appropriate corrective measures to limit the consequences on the health and safety of consumers. For this reason, it’s imperative to recall products from both consumers hands and companies who may have been involved in the initial transaction. (RAPEX case mentioned above).

From an operational point of view, quickly identifying volumes and ways to withdraw products, as well as stopping the delivery of new products is essential to inform decision-making. Identifying potential harm to distributors, consumers and other customers requires contact lists to be established and maintained, and for targeted messages to be created and sent. The number of countries impacted and languages spoken, as well as the period concerned (Christmas, Easter, etc.) can also add layers of complexity.

It is then necessary to assess whether on-site repair is possible or whether recall logistics must be activated and provision must be made for the storage of recalled products, as well as consideration for refunds, replacement, possible recycling or destruction. The incident will have to be monitored over time in terms of the percentage of progress of operations, with financial reporting of the associated costs. Do not forget to notify the close-out of the incident to the supervisory authorities. For these operations, which are not part of the daily goals of internal teams, it is possible to use a specialized consulting team, especially if the nature of the incident suggests that its handling will be long and/or complex.

Legal issues related to procedures for the withdrawal or recall of high-risk products

Failure to comply with particular rules in full knowledge of the facts may have criminal consequences for businesses. Failure to inform the competent authorities and not using the platform to report the incident exposes you to fines (possibly as many times as the product is sold), but also to administrative sanctions that can go as far as the closure of an establishment or the prohibition to market.

Situations of withdrawal or recall of high-risk products are also a source of litigation between the manufacturer and the distributor or within the entire marketing chain. Exposing consumers to health and safety risks can also give rise to mass litigation or class actions, which involve a risk of lasting damage to brand reputation.

The role of insurance on the issues of recall/withdrawal of faulty products

Insurance capacity is limited, with high deductibles, and recent examples of disastrous crisis management are not improving the situation. New exclusions and limitations of warranties are observed this year as regulatory obligations on businesses increase. The risk weighs directly on companies’ own funds, which makes them fear the worst in the event of a repeated event. Preparing will help to provide a faster response – preserving the confidence of consumers and trading partners. Preserving brand image is an important asset for the sustainability of any company.

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