As Cadbury's voluntarily recalls millions of chocolate bars in a salmonella scare, a leading lawyer warns executives risk their freedom unless they adopt a principled approach to product safety...
Company directors are being reminded that they could be jailed or face hefty fines for failing to turn 'whistleblower' on their own companies.
Too few directors understand the impact of new regulations that came into force nine months ago requiring them to report immediately any of their products which pose a danger to the public, says product liability specialist Paul Llewellyn, a partner in the Midlands office of international law firm Reed Smith.
The Department of Trade and Industry is currently consulting industry and consumer groups on proposed new laws which will grant extensive powers of search and seizure to enforcement agencies that suspect companies of suppressing damaging evidence.
Mr Llewellyn, who heads Reed Smith's nationwide p roduct liability team, believes many directors are unaware of the risks they take when they fail to disclose concerns they may have about safety issues involving their products.
The General Public Safety Regulations were introduced last October with the aim of giving increased protection to members of the public when faulty goods and products make their way onto the market.
When Perrier conducted a complete recall of its carbon-ated water some years ago, it did so voluntarily. Now enforcement authorities can require a recall. But not all product concerns are clear cut, says Mr Llewellyn.
"There is a grey area in which directors may find themselves in difficulties," he said. "Companies need to be clear about the facts when they issue product recalls, because they are very expensive, and can be extremely damaging to the reputation of a brand that might have cost m illions of pounds to establish."
In Perrier's case some of the firm's rivals had managed to gain valuable market share in the aftermath of the health scare.
Mr Llewellyn added: "Unfortunately, when there is a suspicion that something might have gone wrong, directors often don't have much time to make a proper assessment.
"They have to make a decision, notify the appropriate authorities, and take all the necessary steps - all in the space of a few days at best."
As a result directors have either erred on the side of caution, and ordered recalls that were not strictly necessary - or have turned a blind eye to potential problems and hoped for the best.
Neither situation is ideal, says Mr Llewellyn, who adds that the GPSR empowers enforcement agencies to issue compulsory product recalls if companies fail to do so voluntarily.
He believes many recalls could be avoided - along with unwelcome visits from civil servants armed with search warrants - if companies were to implement adequate quality control and compliance measures.
"Companies should be asking themselves whether they have the appropriate systems in place to monitor the effective safety of their products," he said. "They should also have systems for recording complaints and investigating adverse incidents."
He admits the area is complicated by a 'whole panoply' of specific safety regulations covering a range of product sectors, from toys to electrical goods.
"UK firms on the whole have been very responsible in dealing with safety issues, but directors should be aware that the new laws give extra teeth to the enforcement agencies, permitting them to enter company premises and search for evidence relating to product safety," Mr Llewellyn added.
Where it can be shown that directors were aware of unsafe products, but failed to notify the authorities, the potential penalties can be severe - with prison sentences of up to a year and fines as high as £20,000 imposed on individuals.
"It is a real dilemma for directors," said Mr Llewellyn. "A recall can be costly and damaging to the brand, but failure to recall faulty goods can be even more catastrophic. If a firm is exposed as having failed to recall a potentially harmful product, not only are the goods perceived as dangerous but the business will be viewed as lacking integrity.
"On the other hand, the public can be reassured by a company's decision to issue a recall."
Regulations require companies to keep records which enable faulty goods to be traced back through the supply chain. A pan-European system of notification is also in place to ensure potentially dangerous products can be i dentified quickly, and removed from circulation. ..SUPL: