Question

Eldrich Inc. is the third largest crib manufacturer if infant cribs worldwide and the leading manufacturer of cribs in the United States. Eldrich ONLY makes cribs. In recent weeks, Eldrich had had dozen of consumer complaints regarding their cribs. The complaints relate to an apparent manufacturing defect which can cause, under a very narrow range of conditions, the side if the crib to collapse. Media has begun airing reports regarding the incidents and the Consumer Product Safety Commission has issued a mandatory recall of the product. Eldrich has halted production of the cribs and conducted preliminary tests to discover that a faulty latch on the cribs produced in the last 11 months is the cause of the crib failures and injuries. The supplies who fabricates the latch is denying any responsibility for the accidents. They have served Eldrich with legal notice to sue if Eldrich claims the injuries are due to the latch. As a result of the negative publicity and the injuries sustained in the crib accidents, Eldrich's workers are suffering from very low morale and are questioning if they will job in the future.
1. How do they deal with the prospect of litigation from the accident victims, the CPSC, the latch supplier and others in term of financial, ethical, and reputational consequences?

Answer 1

1. The company, as a responsible citizen of the society, will be required to take responsibility of the accidents and injuries caused by the company’s product i.e. the faulty cribs. The company needs to deal with the prospects of litigation quite diligently so that the company’s reputation does not get impacted and its relationship with the customers does not get adverse. The moment, the company realize about the faulty product, it should stop manufacturing process of the product. Moreover the company must recall all of its products sold in recent times. The company must also issue a public apology and must take ownership of the mistake. In a week’s time, the company can issue another letter, in interest of the customers, to share the strategy that the company is resorting to, to fix the problem in its products. This will help the company to manage the reputational and ethical consequences associated with the controversy. Every company has a dedicated emergency fund in its financial accounts, which resorts to financial emergencies. The cost of recall and root cause analysis of the controversy can be attributed to this financial account of the company.