You can’t fight the regulator…or can you? Noodles, cars and Alan Sugar
When you look at your stakeholder map it's important to understand the role and relative importance of Government or self-governing Regulators. These organizations have the power to curtail your activities or even shut down your operations, whether or not the issue they perceive is credible or fair.
Regulators act as pseudo judicial bodies in most jurisdictions; they have authority on their side and tend to go public very quickly. Legal action or appeal against the actions of a regulator rarely succeed, even in financial services. The process of appeal can be long - during which the regulator rarely stays quiet - and even if the brand wins it is unlikely that costs will be awarded to you under the doctrine that no order for costs should be made against a public body performing its functions in the public interest unless it has acted unreasonably. In these stories we learn how a failure to act swiftly allowed the regulators in and the problems that ensued.
Nestle takes on the FDA of Uttar Pradesh
In 2015, when food giant Nestlé were instructed to recall their Maggi noodles range by the Food and Drug Safety Administration (FDA) of Uttar Pradesh in Northern India, their first reaction was to challenge the findings. The FDA claimed their sampling revealed 7x the permissible levels of lead and very high levels of Monosodium Glutamate. Nestlé had their own results and claimed that MSG isn’t an ingredient in their noodles but that didn’t prevent the recall which the FDA demanded was retrospective back to March of the previous year. Some 400 million product packs weighing in at 30 tons were recovered and destroyed and the company was fined Rs45 lakh (approx US $55K - but with the loss of sales on top of that).
The ban spread quickly to other states and within two weeks the Nestle was facing a nationwide embargo with many large retailers removing its entire product range. They released statements claiming their noodles “are completely safe and have been trusted in India for over 30 years.” The company cited “unfounded concerns” and “confusion for the consumer” in pulling the product from market but had done so through an abundance of caution. Despite submitting 600 samples to external labs that all returned safe results and not a single claim of ill-health amongst consumers, Nestlé took five months to get new product back into supply - just in time for Diwali that year. Overall, revenues took two years to recover their market share and Bollywood endorsers were threatened with lawsuits by consumers to hold them accountable for their brand support.
Maggie Noodles by Nestlé
Toyota: Sometimes it seems like you can’t win.
2009 through to 2011 were bad years for Toyota and a phenomenon known as ‘sudden unintended acceleration’ (SUA). Affecting several models in the range, reports of sudden acceleration causing accidents began to pile up and a range of issues were variously addressed under the close supervision of the US National Highway Traffic Safety Administration (NHTSA). Interaction between all-weather floor mats and the shape of the accelerator resulted in recalls for 7.5M vehicles in the US, 1.8M in Europe and 75,000 in China. The fix seemed easy but once the door to claims had been opened it wasn’t going to be easily closed.
The NHTSA continued to get reports of SUA even after retrofitting some 9million cars, and by January 2010 some 37 fatalities were being associated with SUA. Clearly there was something going on, either with the platform design or with driver error being blamed on Toyota. The problem for investigators was testing the veracity of the claims. In February 2011 NASA completed a report looking at whether Toyota’s software brake-by-wire system had inherent faults and concluded it did not, citing driver error to be most at fault and the balance to the floor mat issue. Yet in a trial in 2013 Toyota lost a case when consultant Michael Barr dismissed the NASA report and claimed - without proof - that the SUA could result from cosmic ray interference or software design errors overwhelming the electronic control system. Toyota agreed to enter into settlement talks with plaintiffs.
Apple and Amstrad: Educate or accommodate.
A sense of injustice can lead to reputation damaging actions such as when Apple tried to argue for some time that its iPhone 4 wasn’t being held properly, to explain poor call performance. Pragmatism and good communications can more easily lead to rapid reputation recovery and Apple eventually gave away a phone case to every owner to avoid a class action. But that wasn’t the end of iPhone 4’s woes and a power management feature did result in a class action suit that took some six years to resolve, with each owner receiving the princely sum of $15 in compensation.
In 1986 the UK company Amstrad introduced an innovative personal computer called the PC1512 that used the monitor to act as its power supply and so allowed the CPU to run without any cooling fans. It was introduced at a market leading price point and was very quiet, but critics accused the company of saving money on a fan and warned - without evidence - it would overheat. After several weeks of trying to argue the technical case the CEO, (and perennial host of UK’s The Apprentice), Alan Sugar announced a change of design direction:
“I’m a realistic person and we are a marketing organization, so if it’s the difference between people buying the machine or not, I’ll stick a bloody fan in it. And if they want bright pink spots on it, I’ll do that too. What is the use of me banging my head against a brick wall and saying, ‘You don’t need the damn fan, sunshine?’”
Sometimes you just have to put a fan in it.