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Products Liability Research:
Mattel Inc. is a company that was founded in 1944 by Elliot and Ruth Handler that designs, manufactures, and markets a huge range of toy products. The firm is headquartered in California with its core product lines including Hot Wheels die-cast vehicles, Barbie fashion dolls, Disney toys, Fisher-Price preschool toys, and games like Scrabble. While Mattel also manufactures its toy products based on license agreements with movie makers, most of its toys are produced outside its huge market in the United States i.e. Southeast Asia. Actually, the firm's principal manufacturing facilities are located in several countries in Southeast Asia like Malaysia, China, Thailand, Indonesia, and even Mexico. Since its inception, the company has continued to experience significant growth that enables it to generate huge revenues. By 2007, its revenues had grown to $5.97 billion with its three largest customers accounting for 41% of sales across the globe. However, the company was forced to recall some of its major products because they contained excess lead, an initiative that contributed to a lead case lawsuit against the company.
Mattel's Product Recall:
Throughout the years, the ability to manufacture new products and meet the demands of customers quickly has continued to be a non-negotiable requirement for the success of Mattel Inc. In the toy industry. Similar to other companies in the industry, Mattel has continued to operate on the concept that inventory during periods of hot sales can result in reaping large rewards though it's sometimes become worthless overnight. As part of operating in this concept and meeting customer demands in order to maintain its success in the toy industry, Mattel Inc. manufactured and introduced hundreds of new toy products in the market. Most of the new toys reflected the growing demand among its core product lines like the market's interest in Barbie and Hot Wheels products. Historically, toy sales have continued to follow strong seasonal trends as almost 50% of sales take place in November and December (Lacorte, n.d).
While it's largest manufacturer of toys across the globe, Mattel Inc. was forced to recall over 18 million toys worldwide on two separate occasions in 2007. The product recalls occurred in August 2007 and involved more than 18 types of magnetic toys with nine million toys being recalled in the United States. In addition to these 18 kinds of toys, another 436,000 was manufactured with lead paint including 32,800 Sarge die-cast cars that consisted of lead paint. The recall of these die-cast cars took place two weeks after the firm had recalled approximately 1 million Chinese-made toys sold in the United States. The Mattel product recall was a reflection of the recent trend of Chinese companies to manufacture poisonous and dangerous products like pet food and dangerous car tires that are primarily sold in the United States.
Mattel's recall of these products in 2007 was not only the largest product recall in its history but it was also the 17 product recall by the firm in the last 10 years. The initial recall took place on August 1, 2007 and involved 1.5 million Chinese-made children's products that contained excessive levels of lead. Some of these products included Big Bird, Diego, Dora the Explorer, Elmo, Sesame Street, and other children's products. The massive action also included 81 other types of Fisher-Price branded toys were sold in stores in the United States since May 2007.
The main reason that contributed to Mattel's product recall was the fact that a Chinese subcontractor had breached the company's standards and used paint from an unauthorized third-party supplier at its facility in southern China. This action also resulted in the temporary ban on the Chinese manufacturer of toys, Lee Der Industrial Co., from exporting its toy products, especially in the United States. Actually, the effect of the poor manufacturing standards contributed to the death of the co-owner of the Chinese subcontractor who committed suicide at a warehouse. The company requires the factories it contracts with to use materials like paint that are provided by certified or authorized suppliers. As reported by its executives, the company didn't know that the contract manufacturer had replaced paint from a non-certified supplier of if the certified supplier was the reason for the problem.
Mattel's Product Lawsuit:
The major safety issue that contributed to Mattel's product lawsuit was that the firm's safety checks such as its independent audit of facilities and ownership of its Chinese factories failed to prevent the series of events that ultimately resulted in the products recall. A class-action lawsuit was filed requesting that the company pay for testing of any child at risk of lead poisoning from Mattel's toys. Moreover, the lawsuit sought to make the company accountable for setting up a fund that would cover the costs for the children to be tested for lead poisoning.
Lead is a very toxic substance to children below 7 years since it can contribute to permanent damage to the child's brain and physical development. Some of the major damages include learning disabilities, brain damages, and neuropsychological deficits. Notably, children exposed to this substance may not show signs of poisoning until several years later after the exposure. Therefore, instant testing was considered as an appropriate measure for detecting cases of poisoning from lead ("Mattel Toy Recalls," 2011). Due to these potential damages on children and the need for instant testing, the lawsuit against Mattel, Inc. was filed.
Generally, the class-action lawsuit was geared towards seeking funds to be used to pay for testing for lead in the blood of the plaintiff's children. The lawsuit was filed in Los Angeles Superior Court by Jeffrey Killino of Woloshin & Killino in Philadelphia. In his lawsuit, the plaintiff used certain legal theories to compel the leading toy manufacturer to provide funds for testing of lead poisoning in children. One of the legal bases for products liability claims like Mattel's toy recalls is the legal theory of negligence. Through this theory, the plaintiff sought to prove that the manufacturer neglected the duty to use reasonable standard of care in the production process, which could result in harm to consumers.
Under this claim, the plaintiff wanted the company to be held responsible for any injuries to children exposed to its toys through testing that could show that the dangerous product was the cause of any damages. Consequently, the children could not be affected by these toys if the manufacturer didn't neglect the required standards when manufacturing the toys. The other legal theory used by the plaintiff is failure to warn customers of the potential dangers associated with the use of the product (Savage, 2011). In this case, Mattel's toys were sold without proper labels that warn customers about the dangers or risks of using the products to avoid particular injuries or hazards.
In the settlement of the lawsuit, Mattel, Inc. agreed to provide refunds and other reimbursements to customers who purchased these toys. Buyers who were part of the class-action lawsuit were entitled to either 50% of the total amount of vouchers sent out by the firm following the toy recalls. Moreover, members of the settlement could recover all their expenses incurred for lead testing for approximately $600,000 for the class (Andersen, 2009). This settlement was the most appropriate decision in the case because the firm failed to check for the safety of these products before availing them in the market.
Changes at Mattel, Inc. since the Toy Recalls:
Following the toy recalls and the settlement of a class lawsuit, Mattel Inc. made some changes regarding the safety of its products as part of promoting and ensuring customer safety. The major change adopted by the firm was the decision to instantly implement new federal Consumer Product Safety Improvement Act guidelines. As a result, the firm banned lead in toys, a move that resulted in the reduction of permissible lead levels to 90 parts per million from the existing 600 ppm (Waichman, 2008). While the act was yet to be effective, the company agreed to embrace the new standards in order to channel more funds to the supervision and evaluation of its compliance. Through adopting these standards, Mattel has enacted consumer safety policies and product evaluation procedures that ensure that the level of lead in the products don't exceed the established standards.
Regulatory Agency in the Industry:
The major regulatory agency in the toy industry that is responsible for ensuring the safety of these products is the Consumer Product Safety Commission. This agency is not only responsible for ensuring the pool and spa safety but it's also mandated with the task of protecting consumers and families from using and exposure to products that pose chemical hazards. The work of this commission to promote the safety of customer products like toys and household chemicals has led to the significant of injuries and deaths associated with consumer products ("CPSC Overview," n.d.).
The regulatory agency ensures quality assurance and compliance and addresses the safety of consumer products through enforcing enacted laws on product safety. In addition to providing information…[continue]
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Capital Structure Analysis: Mattel, Clorox and MGM Resorts According to a report in the Journal of Applied Economics, companies with earnings/price ratios that are higher than their estimated after-tax borrowing costs, like Mattel, demonstrate that managers of publicly traded companies are in fact reluctant to make capital structure changes. Clorox, and MGM Resorts International also fit into this category, per my hypothesis. I suggest a radical move for these risk-averse managers