You may have heard that Mattel (NYSE:MAT) is recalling 967,000 toys that contain unacceptable levels of lead paint. (I shudder to think what is an acceptable level.) The recall will knock $30 million off last quarter's operating income -- a significant amount, though it won't break the company. But still, I can't help thinking that the problem here runs deeper than just the recall.
According to a CNNMoney article, the Consumer Product Safety Commission is investigating whether it was alerted about the problem in a timely manner. Under U.S. laws, companies are required to notify the commission within 24 hours. On July 6, operations were halted at the factory, yet the public wasn't notified about the trouble until just last week.
Mattel also stalled naming the Chinese plant where the faulty toys were manufactured, according to a Reuters article. And I think the company finally did name it only as the pressure and fear of more bad publicity grew. I own toys that are being shipped back, and it makes me nervous that my kids have been playing with them for months.
The Consumer Product Safety Commission has been known to come down hard on companies that aren't timely with their disclosures. A Fisher-Price spokeswoman said her company was fined $975,000 in March for not notifying authorities quickly enough about a choking hazard in a toy, and it paid a $1.1 million fine back in 2001 for delaying notification regarding safety defects in another toy.
There are supposed to be checks on manufactured toys, even ones made in foreign countries. It's obvious that there was a breakdown in that process here, and we can never be 100% sure that something like this won't happen again. Mattel has an obligation to do the right thing, and parents need to feel safe when buying toys for their kids. Otherwise, the company might find its products passed over for those of competitors such as Hasbro (NYSE:HAS).
It's also smart business to react quickly to problems like this. Everyone remembers the Tylenol tampering back in the 1980s. Johnson & Johnson (NYSE:JNJ) immediately pulled the product from the shelves. And the company has thrived.
Although something like this should never happen, I think everyone understands that unfortunate events do occur. But a company should react promptly and alert governmental authorities, retail stores, and consumers as quickly as possible. I and others are starting to wonder whether Mattel did.
Let this be a lesson for Mattel: Toys may be fun, but don't play around with serious business.
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Hasbro is a Motley Fool Stock Advisor selection. Johnson & Johnson is a Motley Fool Income Investor recommendation. Mattel is a former Inside Value pick. Try out any Foolish investing service free for 30 days.
Fool contributor Larry Rothman is happy to receive feedback, and he promises to read it when he's not being wrestled by his three children. He doesn't have any positions in the companies mentioned. The Fool has a disclosure policy.
