Can companies recover from a product recall? - Up Front

Imagine a situation in which your product has been found to be tainted with deadly bacteria, triggering the largest recall in U.S. history. Add to that the horrendous news that the same product has been linked to more than 20 deaths on the East coast.

Pilgrim's Pride, a Philadelphia area poultry processor, and J.L. Foods Co. Inc. of Camden, N.J., don't have to imagine. Pilgrim's Pride, which processes and distributes poultry under the popular Wampler Foods brand, recalled more than 295,000 pounds of turkey and chicken products in just one weekend this fall. The recall quickly expanded to 27.4 million pounds of poultry products within the week.

J.L. Foods, which processed oven-roasted chicken and turkey, recalled 200,000 pounds of poultry early in November.

The meat from both companies is suspected to be contaminated with listeria, a bacteria that can cause high fever, severe headache, neck stiffness and nausea, according to the USDA. Listeria has been linked to 120 illnesses and 27 deaths in the Northeast since early summer.

The voluntary recalls and the association with the listeria outbreak will likely tarnish the brand names as well as the reputation of the companies involved. The initial shock has already cost the companies an undetermined amount of money. Loss estimates weren't available at press time, but Pilgrim's Pride stock dropped to half its value in late October, an indication of the recall's immediate impact.

Product liability is a very real, very scary possibility. From the Tylenol poisonings in the 1980s to the Firestone tire recalls in 2000 to the Pilgrim's Pride/J.L. Foods recalls in 2002, companies have been vulnerable to acts of madmen, flaws in manufacture, and possible contamination.

"It's very difficult to prevent something like this from happening," says Jim Golkow, vice-chair of the products liability department at Cozen O'Connor, a Philadelphia-based law firm. Golkow, who has worked with product recall cases, says that levels of liability vary by industry.

"Product liability covers a broad range of products. When it comes to food, that's much different from a widget that accidentally cuts off someone's finger. In Pennsylvania, any contaminant makes the manufacturer or seller automatically liable. The law does not tolerate foreign substances, or tainted food such as botulism, salmonella, and listeria. It's a bit different from the usual product liability rules compared with say a band saw. You'd have to prove a defect in the band saw (in order to make a recovery)."

Wampler failed to respond to requests for an interview, but a news release from David Van Hoose, CEO, COO and president of Wampler, announced the voluntary recall and the closing of the plant involved.

"In order to redouble our food safety and sanitation efforts we immediately suspended operations at the Franconia (Pa.) facility, upon deciding to initiate the recall. Our food safety and sanitation efforts will be validated by microbial testing before any shipments from the plant resume," he said.

The move is one that Golkow outlined in dealing with a product liability case. "The first thing is containment. It's identification of the suspected tainted batch. You must quickly identify that and start retracing your steps to see where it's been distributed. From there, you can go to a number of different means. Wampler, for instance, has gone public. That in turn not only safeguards the public but also insulates them to some extent from their own liability."

This is when risk management 101 kicks in, says Golkow.

"I'd look into how it occurred. Was it something we received that was laced with this contaminant? In other words, I would look to take steps so that we wouldn't duplicate what occurred. I would question my supplier. I would try to trace back to see if there was a problem with the manner in which I purchased the raw material. You're trying to prevent it from occurring in the future. You're also trying to limit your exposure once it's already left the plant. That's done through media exposure, a recall campaign, offering replacement goods, having a hotline."

Liability insurance will cover the risk, but Golkow doubts that it would be enough for as large a case as Pilgrim's Pride may be facing. "Chances are any insurance that's in place for selling processed foods would probably be insufficient."

Golkow says the impact of these product recalls can be great. "It can be devastating, quite frankly. There have been a number of companies that have had problems and some of them survive. Some of them can't get past it."

It's all in how well developed their risk management plan is.

COPYRIGHT 2002 Axon Group
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