In a nervous market where the Dow Jones Industrial Average can lose 500 points in just two days, news of a recall can send jittery investors heading for the exits. However, Sara Lee's (NYSE: SLE) recall on certain bread products should be examined calmly, rather than in the heat of the kitchen.
The company is recalling several different kinds -- 27 in all -- of whole wheat breads, because metal pieces might have gotten into the bread during production. The bread was sold in Alabama, Mississippi, Arkansas, and parts of Georgia, Tennessee, and Florida.
It's important that the company is recalling the products voluntarily, thereby addressing the problem directly, before government and consumer groups get agitated. While there might be short-term fallout due to legitimate concerns and negative publicity, it will be a mere blip in the long run. For instance, back in 2003, the company issued a voluntary recall of its Sara Lee Butter Streusel Coffee Cake because certain cartons may have contained a different variety of cake that was topped with pecans. This could've caused a reaction for those with an allergy to nuts. The stock dropped almost 6% that day. Still, if the company is remembered for that incident, it will be remembered for doing the right thing.
While the Enrons of the world may get a lot of attention (and deservedly so), it is also worth taking note of companies that behave responsibly. Typically, shareholders are rewarded in the long run. For instance, Johnson & Johnson (NYSE: JNJ) dealt with its Tylenol tampering in an up-front manner, pulling the product off its shelves. The short-term loss of sales has not affected its reputation, and the company is still prospering.
Sara Lee faces formidable competitors like Kraft Foods (NYSE: KFT). Doing the right thing has proven to also be good for business. Perhaps no one (or very few) do it like Sara Lee.
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Fool contributor Larry Rothman is happy to receive feedback, and promises to read it when not being wrestled by his three children. He doesn't have any positions in the companies mentioned.
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