15 senior GM employees lost their jobs over delaying the recall of faulty cars

GM delayed in its recall of faulty products

Failing to act urgently to recall faulty products last week led to General Motors sacking 15 employees, mostly in senior and executive legal and engineering roles and disciplining 5 others.

They failed to act an ongoing problem with the ignition switches in a number of GM’s cars. When I say “ongoing problem” GM knew about the problem for over 10 years before it  began to recall the faulty vehicles.  At least 47 crashes and 13 deaths have been attributed to the fault.

Bureaucratic delays, incompetence and neglect resulted in GM failing to urgently recall cars with the faulty switch

GM commissioned a former US Federal prosecutor to conduct an investigation and report on the delays in acting on these deadly faults and recalling faulty cars. The investigator concluded that there while there was no deliberate cover up, bureaucratic delays, incompetence and neglect resulted in GM failing to recall the faulty cars quickly enough.  He said that that although everyone had responsibility to fix the problem, nobody took responsibility.  The report was also critical of a lack of information sharing among employees in different sections within the company  and their failure to act with any urgency when faced with problems. In part this could be attributable to the corporate culture of keeping costs down and a reluctance to record safety concerns and problems to avoid leaving a paper trail.

$35 million in civil fines for failing to promptly report the issue

So far, GM has paid $35 million in civil fines for failing to promptly report the issue to the US Federal car safety regulators. It has set up a victims compensation fund which has been estimated to total about $1.5 billion. Trials are still ongoing and the regulator is still considering criminal charges.

It’s not unexpected that faults will arise in complex engineered goods, such as motor vehicles. It is concerning, however, that a company such as GM handled the complaints, concerns and safety issues so poorly; none of the fines and sackings were as a result of the faults.  What I find surprising is that a large company with a large and specialised executive and management structure were unable to act quickly, particularly with a serious fault that was causing life threatening accidents and actual deaths.

Unsafe consumer goods in Australia

In Australia, consumer safety, recall of faulty products and of unsafe or non compliant products fall to the ACCC to regulate and are covered by the Australian Consumer Law. The ACL has several sections that suppliers of consumer goods should be aware of to minimise risking injury and death and avoid paying fines for supplying dangerous goods. “Consumer goods” are goods that are used by consumers, or are the sort of goods that consumers use for personal, domestic or household use.

Notification of dangerous goods

Companies  that supply consumer goods must notify the Commonwealth Minister within 2 days of becoming aware that death, illness or serious injury was caused or may have been caused by the goods. The ACL sets out the information that must be included in the notice.  Companies should not worry that giving the notice is an admission of any liability for the death, serious injury or illness caused by the goods.

Failing to notify the Minister can result in fines of $3330 for and individual and $16650 for a company.

Recalls

Consumer goods that will or may cause injuries, fail to comply with a safety standard, or are subject to a permanent or interim ban may be recalled following action by the relevant Minister (Compulsory Recall) or voluntarily by the supplier (Voluntary Recall).

A Compulsory recall notice will state what, if anything,  one or more suppliers of the recalled goods  must do. This can be in relation to recalling the faulty goods, disclosing the dangerous fault or feature, disposal or retention of the recalled goods and any obligations  in relation to their repair or replacement.  Fines can be imposed on suppliers who fail to comply with recall notices or who supply goods that are covered by a recall notice.

A supplier or manufacturer can issue a recall themselves, without waiting for the Minister to take action. If they do so they must notify the Commonwealth Minister within 2 days of taking action. The recalls website  has templates for recall advertisements and information about conducting a recall and notifying the Minister.

Bans

The Minister may ban goods permanently, or on an interim basis if he/she believes that the goods will, or its foreseeable that they will, cause injuries.

Penalties

Supplying goods that are banned, recalled or that fail to comply with mandatory safety standards can result in penalties up to $220,000 for individuals or $1.1 million for companies. Consumers can also sue for injuries caused by defective or dangerous goods.

4 lessons learned from GM’s failure

1.      Appoint a senior person to be responsible for managing the company’s compliance

They should not be a scapegoat, but must have the support of the company, its executive and senior management. They need to be given the resources needed to do this job.

2.      Understand and respond to the problems your customers are experiencing

Companies should implement a complaints handling process that:

• Records customers’ complaints and problems
• Classifies complaints and faults and enables the early identification of emerging or systemic issues with goods or services
• Sets out a process for responding to customer complaints and faulty product
• Provides access to data and a reporting procedure to keep senior management and other relevant people informed of issues

3.      Know the recall procedure before you need it

This means knowing who you need to notify, the form of the notice, when it needs to be done.  To effectively recall products you need to know where they are. The fault may only be with one manufacturing run, is it possible and realistic to identify where these products were distributed and sold?

4.      Communicate

Establish effective reporting and communication channels within the company and ensure that employees are appropriately trained in their obligations under the law and under the company’s compliance program.

Compliance programs are good for business

Designing and implementing processes to protect your customers from faulty and dangerous goods is not only the law, but is good business.  Developing and implementing an effective system should not be difficult, particularly if the company values its customer and the company culture reflects this. A compliance program should identify issues and allow the company to take appropriate action quickly to minimise the damage caused and costs to the business. An effective compliance program should make it easy for the company to comply, communicate and operate efficiently and productively.

The usual disclaimer applies here.  This is meant to be general information and is not intended to be taken as legal advice. For further information contact Kim Edwards.