Tag Archives: enviroment

The Thorny Issues in a Product Recall

In 1982, people in Chicago began dropping dead from cyanide poisoning, which was linked to Johnson & Johnson’s Tylenol in select drug stores. Johnson & Johnson immediately pulled all Tylenol from the shelves of all stores, not just those in Chicago. It was ultimately determined that the product had been tampered with by someone outside of Johnson & Johnson. But the company’s aggressive actions produced a legend: The Tylenol scare was chalked up as the case to review for an effective brand-preserving (even brand-enhancing) product recall strategy.

In 2011, though, the FDA took the extraordinary step of taking over three Johnson & Johnson plants that produced Tylenol because of significant problems with contamination. This time, Johnson & Johnson could not blame a crazed killer, only itself. A company that should have learned from its own celebrated case study had not retained that knowledge 30 years later.

The problems associated with recalls often aren’t the recall itself. In a recall, stores pull the products, and the media helps get the message to those who have already purchased the product to return them for refunds, replacement, repair or destruction.

One problem crops up when companies are too slow to move. It was revealed in the press in June 2014, that GM allegedly knew of its ignition switch problems seven years before it recalled the product. The recall that began in February 2014 itself became tortuous as new models were added almost daily to the list of cars that were in danger of electrical shutdown while in motion. The press, the regulators and, of course, the lawyers pounced on GM for its alleged withholding of information for so long and for the seemingly endless additional recall of cars affected by the problem. In 2015, regulators have called meetings with GM and other auto manufacturers mired in what has become an epidemic of recalls to discuss why repairs are dragging on so long.

Denial, lack of information, hunkering down (bunker mentality), secrecy, silo mentality and fears for the impact on the bottom line all contribute to disastrous recalls. With all recalls, there is the cost of the recall, the cost of complete or partial loss or loss of use of certain products, repair costs in some cases (GM), regulatory scrutiny and fines, class action and other lawsuits and the loss of potential income during any shutdown. These can all be big-ticket items, and some companies will not survive these expenses and loss of revenue.

Probably the biggest cost of any recall is the cost to reputation, which can mean loss of existing and future customers. In recent years, lettuce growers and a peanut warehouse did not survive recalls over contaminated products. In the case of primary agricultural producers like growers and peanut warehouses, the processors simply change suppliers, leaving the primary producers without any customers. In the retail market, the competition for shelf space is high. Brands that are recalled that are new or that do not have high customer value are simply barred from shelf space, effectively destroying the ability to market their products.

However, there are others that have strong brand following and even cult-like status in local markets. Blue Bell Creameries (famous for its ice cream) is one such company that has secured an almost cult-like following in the Southern and Midwestern states. Blue Bell, founded in 1907, maintains its headquarters in the small town of Brenham, TX (pop. 16,000).

Problems began when hospitals in Arizona, Kansas, Oklahoma and Texas reported patients suffering from an outbreak of listeria-related diseases, some as early as 2010. Some reports included the deaths of patients. On May 7, the FDA (Food and Drug Administration) and CDC (Centers for Disease Control and Prevention) reported, “It wasn’t until April 2015 that the South Carolina Department of Health and Environmental Control during routine product sampling at a South Carolina distribution center, on Feb. 12, 2015, discovered that a new listeria outbreak had a common source, Blue Bell Chocolate Chip Country Cookie Sandwich and the Great Divide Bar manufactured in Brenham Texas.”

Listeria is a bacteria that can cause fever and bowel-related discomfort and even more significant symptoms, especially in the young and elderly. Listeria can kill. Listeria is found naturally in both soil and water. Listeria can grow in raw and processed foods, including dairy, meat, poultry, fish and some vegetables. It can remain on processing equipment and on restaurant kitchen equipment, and when food comes in contact with contaminated equipment the bacteria finds a ready-made food source in that food and multiples. The FDA has issued guidance reports to food processors, preparers and restaurants on how to prevent listeria contamination. This includes proper preparation techniques, cleaning techniques, hygiene, testing and manufacturing and processing methodologies.

Once Blue Bell understood that its cookie sandwiches and ice cream bars were implicated, the company immediately recalled the products. But soon it became evident to Blue Bell and others that this outbreak might not be limited to the ice cream bars or cookie sandwiches, and Blue Bell recalled all of its product and, to its credit, shut down all manufacturing operations.

The FDA conducted inspections of Blue Bell plants, and in late April and early May produced reports on three plants, noting issues of cleanliness and process that were conducive to listeria growth. The FDA has also reported that Blue Bell allegedly had found listeria in its plants as far back as 2010 but never reported this to the FDA.

As of this writing, Blue Bell plants are still shut down. The FDA investigation has come to a close, but many questions remain. The company has cut 1,450 jobs, or more than a third of its work force, and has said it will reenter the market only gradually, after it has proved it can product the ice cream safely.

The question is whether these things Blue Bell has done: the quick recall, first of the problem products and then all products, and the closure of plants to mitigate contamination issues are enough to save Blue Bell from further damage in the eyes of consumers and the stores that sell the product. There are many tough questions to be answered going forward.

In the intervening months, will competitors replace Blue Bell with their own products that consumers feel will compare favorably? If so, when Blue Bell products are returned to stores will consumers return, or has the stigma of listeria and the acceptance of the taste of comparable products weakened the brand? Will stores give Blue Bell adequate shelf space? And, does Blue Bell have enough of a cult following and viral fan base that once product is back in stores customers will return as if nothing had happened? These are the scary questions that affect all food and drug companies when recalls are from contamination in their own plants or those in their supply chain.

The American consumer seems to have become numb to the endless succession of automobile recalls from just about all manufacturers. We dutifully return our vehicles to the dealer to fix a broken or faulty this or that. Even though many recalls involve parts or processes that could cause car accidents, injuries and deaths, it is as if we have come to accept faulty auto products as the norm.

This is not the case with food-borne illnesses. The fact that a faulty car can kill as easily as a contaminated food product seems not to be an issue as people return again and again to buy new cars from the same car manufacturer that issued five recalls on their last purchased model. However, consumers will shun the food brand that made some people ill. This bifurcated approach to risk makes no sense even in the context of protecting children from harm. The faulty car that mom drives the kids around in every day may have the same probability of injuring or killing her child as the recalled food brand. She doesn’t abandon her car, but she bans the recalled food brand from her table.

In 1990, Perrier discovered benzene in its sparkling water product. It quickly recalled all its product but then hunkered down into a bunker mentality. The lack of communication by Perrier about the problem and what it was doing exacerbated the fears of consumers, and the press speculation and outcry ran high. Perrier had always touted the purity of its water, so toxic benzene shattered this claim. Hunkering down reduced consumer confidence, and many left Perrier for suitable alternative products. Perrier has never regained the market share it had previously.

Blue Bell has taken the time to do things right, to find the causes of the problem and take steps necessary to prevent contamination in the future. But time also means that existing or even new competitors with comparative products will try to fill the shelf space vacated by Blue Bell’s absence. You can be sure that other-region favorites with cult followings that could never before gain a foothold in Blue Bell’s territory have been pressuring retailers to try them out as a replacement for Blue Bell.

Is the Perrier loss of market share inevitable for Blue Bell even if Blue Bell communicates adequately and with transparency? Time will tell. For now, Blue Bell not only has to fix the problems of plant cleanliness, it also needs to address emerging questions about its past operations, such as allegedly not reporting to the appropriate

While we note the good press that surrounded the 1982 Tylenol (external-tampering) recall and have seen so far a good effort by Blue Bell to resolve its own plant contamination issue, ultimately it is contamination that is the problem. Companies can become complacent, let cleanliness slide, use outmoded procedures, not replace older equipment or even ignore warning signs and isolated contamination events. Regional and limited product line companies need to be especially cognizant that even though they have carved out a powerful niche in the marketplace, maintaining this niche is tenuous at best in the highly competitive world of food products. Cleanliness and contamination-free are assumed by consumers. Food processors and manufacturers must do everything possible to keep that assumption from becoming contradicted.

‘War for Talent’ Is Not Necessary

Everyone is talking about the war for talent. Must there be a war? Or can your organization accomplish what it wants to (needs to) by fighting the battle for retention quietly, within its own borders?

There’s only so much a company can manufacture with its brand to catch the attention of top talent. Smart candidates understand that the truth about you is displayed by your existing employment base. Your employment brand is much less the result of intentional messages created for an external audience than it is the result of the vibe your existing employee base creates in the marketplace. Social media has increased the volume of this voice exponentially.

To retain the talent you have and to make that social voice work for you, you should:

  1. Make sure existing talent knows it’s being treated fairly in terms of pay and recognition.
  2. Make sure each employee leaves work for the day, week, month with a sense of achievement.
  3. Make sure your processes continue to improve. Smart people don’t like working with dumb processes.
  4. Make sure each employee has at least a small sense of camaraderie.
  5. Relate all work to the customer experience. Most employees would rather work for customers than bosses!

Brilliant people or brilliant processes?

In some cases, employers believe they need brilliant employees because they are the only ones who have been proven to find their way through the maze of terrible processes. Often, employers don’t even realize this is the reason they’re looking for talent. A well-known Japanese company’s leader once said, “In America, you have brilliant people working with average processes; in Japan, we have average people working with brilliant processes.” Something to think about.

Lets face it. There are only so many brilliant people to go around. Most of us are closer to average. Given this, is it really smart to fight a war for talent? Or would it be smarter to work on processes — remove waste (things customers wouldn’t pay for), minimize the things customers do have to pay for but would rather not (things normally required by law) and spend time working on processes that create value? It’s about the customer.

The focus of everyone’s work must be on creating value for customers. The message should be, “Shoot for referrals, settle for retention.” The entire workforce should be motivated by this. Common purpose builds workplaces worth working for.

Unfortunately, it has been my experience that it is easier to convince a janitor of this than it is most executives. Executives make a lot of money. There’s a lot of temptation to protect their domains, their technical areas of work, their lines of business, their territories, etc. What these executives need to understand is that customers flow horizontally through the spectrum of work performed by each executive’s area of influence. The thicker the borders between those areas of influence, the harder it is for employees who want to satisfy customers to get their jobs de. These employees, especially the smart ones, eventually leave the organization. They definitely don’t recommend their own workplace to people they care about.

What if you actually won the war?

So before you begin to fight a war for talent, my recommendation is to think internally. If you did win the war for talented people, what kind of environment would they be working in? What kinds of processes would they be forced to work with? Are your best employees already recommending others to work at your company? If not, why not?

Don’t just sit there, ask them!

What Risks Will Emerge in 2015?

Our list of emerging risks for 2015 covers the kind of perils that keep risk managers up at night: cyber risk, oil price volatility, the changing demands of today’s workforce, the over-confidence corporations have in the ability of their entity to withstand a negative event and more. It’s a long, eye-opening – but certainly not all-encompassing – list. [To read the full article from which this post is taken, visit WillisWire.]

While it is a bit axiomatic to say, it doesn’t make it less true: The world is becoming increasingly complex and uncertain. As the Internet of Things continues to grow, we have access to more and more data on anything and everything. This is good news – more information tends to lead to greater understanding. However, in this age of information overload, it is important to make sure you are using the right data to answer the right questions. We believe the rise in analytic tools will make a significant difference in the way risks are understood, measured, mitigated and transferred.

Political: Oil Volatility

Sumit Mehra

The price of a barrel of oil has slipped by almost 40% in the last few months. Although this price reduction should contribute toward the growth of the world economy in the long run, it has a potential adverse and significant impact on oil-producing countries. These countries are now faced with the risk of either having their economies de-stabilized or run the risk of defaulting on their debts. As a consequence, some of the de-stabilized economies may begin witnessing a mix of risks.

Cyber: The Risk of the Cloud

Peter Armstrong

Cloud computing is rapidly becoming a key component of many organizations’ technology-enablement strategies as they continue to seek differentiation in competitive markets. Cloud, however, is a significant issue from a risk perspective, both in the context of governance and compliance. An example: geographic location of data – are you sure where personnel data is resident, and is that consistent with the jurisdiction of geographies where client organizations operate? Also, distributing data across many cloud service providers means that accidental aggregation that can compromise the re-aggregated credentials is a real issue. Cloud, therefore, constitutes an arena where we are only now coming alive to some of the dimensions of complexity with which we are going to have to wrestle in the coming 12 months.

Aviation: Drones

Steve DoyleSteve Doyle

With oil prices tumbling and margins expanding, the fuel-intense transportation industry is perhaps a little more relaxed about the risks it is facing. There is, however, a fast-growing aviation risk that could affect businesses across all sectors: drone usage. Unmanned aerial vehicles (UAVs), or drones, are now being used by utility, construction, leisure and media companies, to name but a few. Our lives would really change if our online orders were delivered to our drone landing pad! Regulation of the operation of these aircraft varies widely across the world, and, sadly, as a result of this and some ignorance, “near miss” stories are frequent. Drone technology is very familiar from military activity, but commercially it does have the power to change, save and protect lives. With these rewards come risks, and these need to be understood and managed if you have an eye in the sky!


Terrorism: Growth of Islamic Extremism

Terrorism blogger Tim HoltTim Holt

The risk I’m keeping an eye on this year is a development of one that is already extant: the further growth of Islamic extremist ideology and militant action globally. With the so-called Islamic State seeking to consolidate fundamentalist governance in Syria and Iraq and al Q’aeda and its affiliates seeking to expand further into South Asia, the risks to organizations and individuals from new recruits to and returnees from jihad will grow and mutate. This will include the cyber-sphere as a vehicle for the spread of the ideology that drives militant fundamentalism and as a means of attack. Fragile states will find difficulty in containing Islamic extremism while intelligence agencies will be challenged to detect small armed cells or individuals acting on their own initiative.

Financial Institutions: Technology Partners

 Financial Services blogger Richard Magrann-Wells

Richard Magrann-Wells

Banks jumping into bed with Apple and person-to-person lenders? Isn’t that fraternizing with the enemy? Maybe, maybe not. Financial institutions are smart to be pragmatic about how fast the world is changing and trying to find the right technology partners, but mistakes will be made. I have no doubt that there will be regrets by some institutions as they find their partners are not who they thought they were. Partners may become direct competitors or their partner’s technology may create weaknesses in the company’s online security. Or partners will be accused of bad behavior (think red-lining or insider trading), and suddenly your firm has serious regrets, and your reputation is damaged, as well.

ERM: Outsourcing

Dave IngramDave Ingram

Outsourcing might just be the most common business management earnings booster of the past 10 years – which means that it is also a top candidate for becoming a major emerging risk in the near future. There are two basic ways of controlling the risks of outsourcing – by specifying standards at the outset of the arrangement and by inspection of the process and output on a continuing basis. But with the explosion of outsourcing over the past 10 years, even firms that had set down extensive and clear standards at the time of the original agreement and that have allocated the needed resources for inspection of the processes and outputs are at risk from the complacency that comes from the passage of time without serious incident, the changing individuals on both sides of the agreement and the changing pressures on both organizations. An outsourced process is out of sight. If it also becomes out of mind, then it will likely move out of the emerging risk category into the current problem category.

Analytics: Balance Sheet Overconfidence

WillisWire analytics blogger Phil EllisPhil Ellis

An emerging risk I’d like to mention is the overconfidence corporations have in the ability of their balance sheets to withstand a severe reversal of fortune. Many if not most of the world’s largest companies are looking for ways to retain more risk and in the process to reduce their insurance expenditures. One of the reasons mentioned is that many insurers have lower credit ratings than the corporation itself; so why would a company entrust its financial health to weaker institutions? This argument makes sense in an average year, or indeed in most years. However, when a crisis strikes a company, its strong credit rating is a mirage, and insurance coverage becomes very welcome. Approaching the issue of optimizing insurance as a hedge to protect corporate financial objectives is therefore a critical need for most large corporations. When looked at this way, insurance takes on its rightful role as a way to reduce volatility of financial results.

Environment: Extreme Weather Related Risk

Anthony WagarAnthony Wagar

Weather-related environmental risk and natural hazards and disasters continue to make the Top 10 list for many risk managers and insurance professionals across the globe. Why? Because we learned some very unfortunate lessons over the years, thanks to the likes of super storm “Katrina,” “Sandy” and other natural catastrophes in terms of the unexpected frequency and severity of pollution losses because of excessive rain, storm surges and overall damage caused by water (e.g., pollution release from floating drums of chemicals, cross-contamination of neighboring properties from historic/pre-existing contamination, sewer authority system back-ups, landfill containment breaches, mold growth, etc.). Many businesses were hurt financially via legal liability, penalties, government regulations, financial disclosure requirements or simply public relations problems surrounding responsible corporate citizenship. If there are any golden rays of sunshine forecast to break through the dark clouds up ahead, then it would be the increased level of awareness by the risk management community and the acknowledgment of the need for adaptation and proper planning. Some can be in the form of reducing overall carbon footprint and greenhouse gas emissions and others via amendments to site improvement or development plans that incorporate better surface water management systems. We’ve blogged about this risk in the past (here and here), and it’s important to address this business risk now as the underwriting community will continue to modify the risk appetite and terms and conditions for certain classes of risk.

D&O: Certification Requirements

Directors and Officers blogger Francis KeanFrancis Kean

Directors have rightly been concerned for some time about the uptick of claims activity and the focus on individual personal liability. Less attention has been paid to the tactic now deployed increasingly by regulators to tilt the evidential burden in their favor when a claim is brought. The single most-favored method of achieving this is “certification”: i.e. the process whereby regulators insist as part of a senior manager’s duties that she certify that everything in her particular part of the garden is rosy. Then, when a storm comes along – perhaps several years later – the certificate is taken out of the filing tray, dusted down and relied on as evidence of neglect in having “allowed” the problem to have arisen. Whether these “early trigger” exposures are adequately addressed in conventional claims made policies is open to question.


Executive Risk: Derivatives
WillisWire financial instsitutions blogger Andy Doherty

Andy Doherty

Warren Buffett famously said in his 2002 annual report to shareholders, “In my view, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.” In the world of D&O insurance, “derivative” refers to a specific type of lawsuit that is brought by a shareholder on behalf of a company against a third party – usually the D&Os of that company. In a nutshell, the allegations are that the D&Os mismanagement harmed the company. While not a new exposure, it sure seems to have increased. The unofficial top three derivative litigation settlements (not including judgments) that have the largest cash component have now occurred in the last 24 months, with each well over $100 million. And those cash component settlements would most likely have to be funded by the personal assets of the individual D&Os…or, and, more likely, the oft-discussed Side A portion of a D&O insurance program. But what could a board of directors allegedly mismanage?

  • M&A transactions
  • Cyber-security issues
  • Compliance issues (think costly FCPA or other regulatory (civil or criminal) investigations)
  • Environmental issues
  • Whistleblower issues
  • Questionable executive compensation programs

The list goes on!

Asset Management: Demand for Transparency

Mary O'ConnorMary O’Connor

A key emerging risk in the asset manager space is fees, transparency and conflicts of interest.  As the number of retirees increases, there will be increasing pressure on asset and wealth managers and annuity and pension providers to demonstrate value for money and to maximize the size of retirees’ pension pots. Regulators, in particular, will be under political pressure to look closely at this sector. Asset managers should act now to ensure that they understand their obligations to all stakeholders and to ensure that they have achieved a sufficient level of disclosure and transparency.


Real Estate: Cyber Risk of Tenant Data

WillisWire real estate blogger Brian RuaneBrian Ruane

Real estate is a brick and mortar (OK, glass and steel) industry that would seem to be immune from cyber crime. But owners, particularly residential owners, are increasingly interacting with tenants online, which may include payment of rent. If owners are taking online payment (or if they’re just keeping online records), they are going to be collecting potentially sensitive information. While the tenant portals that the owners maintain are likely to use up-to-date security measures, we’re learning that there may be no place in the cyber realm that is completely safe. A large residential REIT just sustained a data breach of tenant information when someone hacked into its tenant portal. This is probably the leading emerging risk for the real estate sector.


Benefits: The Changing Face of Human Capital
WillisWire employee benefits blogger Lester Morales

Lester Morales

The Millennial generation is at your door with fresh ideas about making work (and life) meaningful. It’s time to stop just strategizing on how to manage Millennials – and time to start truly retooling your human capital strategies to succeed and grow with a workforce that will be driven by their generation. From the C-suite, human resources and every management level on down, reviewing your organization’s value proposition and its ability to attract, retain, motivate and engage employees should be your highest priority heading into 2015. (Because you’d better believe, Millennials absolutely require engagement.) I’ll be going into this in more detail in my Thursday post, The Changing Face of Human Capital in 2015.


Brazil: Corruption
WillisWire Brazilian Corporate Risks DirectorAlvaro Igrejas

Alvaro Igrejas

Brazil is at a delicate time. The news of corruption cases is growing, and it creates consequences in some types of insurance. The search for protection by these executives is increasing the number of D&O claims. This situation also affect the works and construction sector, because many engineering companies are under investigation; construction and infrastructure suffer a delay in the works, which decreases the hiring of engineering insurance risk. Cash flow problems are also now faced by engineering firms because the irregularities found in their contracts are generating delays in payment of invoices. This makes the public and private works – even those that are not under investigation – have trouble in meeting their schedules, which certainly result in an increase in guarantee insurance claims/sinister. Faced with this whole picture, and if the economy does not grow in 2015, other sectors will also be vulnerable, such as:

  • Transport insurance: because of the decline of the industry and trade
  • Automobile insurance: impact generated by the decrease in production and vehicle sales
  • Benefits insurance: reducing the number of employees as result of the fall in trade


Personal Risk: Device Ubiquity

WillisWire personal insurance blogger, Kevin O'BrienKevin O’Brien

One of the fastest-growing risks we face on a daily basis is being victimized by the accessibility and convenience offered through the growth of online devices. One of last year’s most alarming revelations was a Russian website broadcasting thousands of unsecured webcams from across the world, including several infants in cribs. More than likely, this is the first in what will be a growing trend as the number of Internet-connected devices grows into the Internet of Things (IoT). The more our devices are connected to the Internet, the greater the opportunities available to hackers for exploiting potential security lapses. Exploiting security flaws is especially easy when one installs a new device but does not change any of the default settings. Fortunately, taking an active role in your home’s Internet security can mitigate most of the potential for risk. As the British Information Commissioner’s Office pointed out,

The danger of using weak passwords has been exposed… after a new website was launched that allows people to watch live footage from…insecure (Internet connected) cameras across the world. The website, which is based in Russia, accesses the information by using the default login credentials, which are freely available online, for thousands of cameras.

This type of revelation should immediately make everyone take a few moments to examine the settings on all their devices and the quality of all passwords used in home Internet security.


Global: A Risk Is a Risk Is a Risk

WillisWire global risks blogger, Geoff TaylorGeoff Taylor

As I have maintained for some time, “emerging risk” is a somewhat misused term.  It has been used in the insurance industry to mean new risks that were not or are not currently insurable in any meaningful way; i.e., the market is not sufficiently developed by way of capacity, geographical spread or the number of capital providers. In fact, I believe risks are the same as they ever were; it’s just which ones come to prominence. What drives this may not be the apparent real threat but more a perceived threat, which, fueled by media, can become the risk of the moment. Think H1N1, Ebola, terrorism, gun control, data privacy, etc. The real measure of a risk is still severity and likelihood, and these are not constant; they are continually moving.  It is therefore really important to stay focused on which risks are the real threats to achieving the enterprise objectives and manage these as a priority. Of course, some of the issues I mention may be more or less significant depending on your sector and location. My consistent message is that risk managers should maintain the position of the voice of reason in their organizations so that resources do not get diverted away from managing, reducing and controlling the risks that will have the most impact on the organization into the latest ’emerging’ risk.