Archive for the 'Uncategorized' Category

Seeking the Promise in Compromise

In an especially insightful column this past week, political analyst Michael Gerson noted that often policy-making is as much about methods as it isimages about outcomes. The manner in which things get resolved can often leave them unresolved or at least leave them festering.   He, of course, was talking about the dynamics between the President and the Congress and the brewing ideological storm looming on the horizon about to be seeded to the saturation point by aggressive use of executive orders. Yet, as I read his column, I could not help but wonder what would happen if, in one small corner of government, public servants actually worked hard and honestly to seek compromise rather than steamroll through an ideological result because they can.  Of course I was thinking about the CPSC.  Oh, how naïve of me.

After four years when little effort was made to accommodate differing views in order to reach consensus, new leadership and a roster of four out of five commissioners new to the agency offered the potential for real change. And an early effort by Chairman Kaye and Commissioner Mohorovic gave hope to the notion that perhaps that new territory—the elusive middle ground—could be profitably explored.  Kaye and Mohorovic were both asked by Senator Thune during their confirmation hearing for concrete plans to reduce testing costs and burdens currently being imposed by the agency, and the two put their heads together and came up with a joint response to the Senator.  Up to this point, the Commission has done nothing except talk about how hard it is to do anything—neatly forgetting that when it put the testing rules in place that are now driving those costs, its own economists told it that the costs of those rules would be unsustainable for many businesses.  Even when asked by Congress to address these costs, the Commission’s activities have consisted of foot-dragging tactics cloaked in enough bureaucratic jargon to make even the most cynical panjandrum shake his head in wonder.

Chairman Kaye and Commissioner Mohorovic, however, did come up with three specific additional recommendations that, if implemented, actually might reduce the testing burdens now being imposed by the Commission.  Admittedly, what the two proposed is still quite modest—thin gruel but still some nutrition.  Yet I cannot help but think that if each had written an individual letter, those letters would have been quite different—one more expansive and one less so.  The point is that, presumably, the two were able to accommodate their differing views to get to a consensus.   (But since nothing substantive has been done to drive forward the ideas articulated in the letter, it remains to be seen whether they are merely words on paper, like the rest of the agency’s burden reduction efforts, or whether there is anything real behind them.)

My hope in thinking that perhaps a new effort at consensus building was alive and well at the CPSC was dashed a couple of weeks ago when the agency voted to propose a rule to regulate recreational off-road vehicles (ROV’s). The agency and the industry have been working on safety issues associated with ROV’s for many years. These issues are perhaps the most complex that the agency has ever been presented with and, hence, are not easily resolved.  The industry has developed and recently revised a voluntary standard even as the agency staff worked to write a proposed mandatory standard.  When the proposed standard was made public shortly before the Commission was scheduled to vote on whether to issue it for public comment, the industry engineers met with the staff to discuss various technical issues presented by the draft, an effort which staff agreed was productive. Rather than make further attempts to work through these technical issues, three Commissioners chose to vote to issue the notice of proposed rulemaking. The result was a 3 to 2 vote, along party lines, to issue a proposed rule that is probably not the best work product the agency could have put out.  An amendment to delay the vote by 90 days to give the technical experts the opportunity to work through the issues raised was defeated, again along party lines.

If the leadership of the agency was serious about trying to compromise, then agreeing to this amendment would have been a no-brainer.  If issues could have been resolved, or at least clarified, in that 90 day period, then efficiencies would have been gained. If not, then the industry’s hand would have been called.  Either way, no one can make a credible argument that a rulemaking this complex and potentially lengthy would be so delayed as to jeopardize safety.  A controversial issue would have been diffused, the dissenting commissioners would perhaps have a harder time voting against the NPR; complex technical issues may have been clarified with a resulting better proposed rule—all around a win-win.

Finding consensus and reaching a compromise is very hard work.  If you are in the minority, sometimes achieving small wins may not feel as satisfying as keeping to your principles.  Yet small wins can still be wins.  But when you are in the majority, compromise means that you have to be willing to try to reach common ground even your vote count says you do not need to and when the temptation to jump on the steamroller is strong.  As we are seeing, finding the promise in compromise is not an easy thing to do.

Connecting Corporate Counsel

Readers who are in corporate law departments may be interested in a conversation I had recently with the editors of Corporate Counsel Connect, a Thomson Reuters publication focusing on corporate law departments.  The focus of the piece was the development and 30 year history of the Association of Corporate Counsel (ACC), where I served as its first executive director.  You can find the interview in the October issue of Corporate Counsel Connect, here.  In a separate article I discussed with the editors the challenges that corporate counsel face in the current regulatory environment.

Corporate counsel who are not members of ACC may want to check out the resources it offers.

 

When Reality Creeps Into Paradise

For fly fishermen, paradise has to be defined as casting for salmon in the pristine rivers and “loughs” of Ireland.  As a novice angler, I got a taste of paradise this past week fishingwhen I tried my hand “dapping” for salmon in a beautiful but utterly remote area of Connemara in western Ireland. (The salmon were quite safe while I was in the river.) At a totally-off-the-beaten-track fishing lodge, I meet an American couple who were also seeking a quiet corner of paradise.  As we talked, they told me they had sold their business and were taking a bit of time to decompress.  That is when reality came creeping in.

This couple had for many years imported toys which they sold in retail stores they owned in the middle and western part of the country. They also designed toys which were manufactured to their specifications in China and other parts of Asia for sale in their stores. With my gentle prodding, they told me that they took pride in being in compliance with all safety regulations and had never had a safety-related problem with any toy they designed or sold. They told me how much they loved their business and the joy their products brought to their customers.
When I asked them why they decided to sell their business, they said that they got out because of Proposition 65 and the CPSIA.  I was very surprised that they specifically mentioned those two laws so I pressed them further. They said testing and regulatory compliance costs had impacted the viability of the business.  This was exacerbated by marketplace confusion with complex regulations that were impossible to comply with with any certainty. They made a decision that they could not–and would not–deal with the potential compliance liability that the U.S. regulations had imposed.
I suppose that some will say that this couple was merely the unfortunate victim of a system designed to make the marketplace safer for all.  To those, I have to point out that the CPSC, in its testing and related regulations, made no attempt to find a balance between imposing regulations that address defined and documented risks as opposed to every conceivable risk, no matter how remote or undocumented, and, thus,  allow those businesses that sell safe products to flourish.  As evidence, just read the regulatory flexibility analysis that the agency economists did prior to promulgation of the testing rule which predicted that the regulation would result in market dislocations. Nevertheless, and not surprisingly, a majority of commissioners soundly ignored that predication. The testing regulation went much broader than the law required or that safety could justify. How does such a result benefit consumers?
I have not been shy in criticizing the inept efforts of the agency to identify and implement ways to reduce the burden of unnecessary testing.  The agency persists in nibbling around the edges of the problem rather than addressing the real problem  which is that the underlying regulations were written too broadly. Perhaps if the agency delays long enough, the casualties will have been taken and there will be no one left standing to complain about regulations that impose undue costs and burdens on American consumers.  But as most fishermen know, the reality is that if you cast too wide a net, you may end up killing more than you catch.

The Baby and the Bathwater

Former long-time CPSCer and agency executive director Patsy Semple used to regularly remind the staff  to “not throw the baby out with the bathwater.”  In other words, do not, through excessive zeal, eliminate the good while working to eliminate the bad. baby-bathwater

Patsy’s admonishment came to mind when, earlier this week, I read an excellent article by Lee Bishop, a very well-respected practitioner, in the Product Safety Letter.  Here is a link to the article.

Using CPSC published statistics, Lee notes that the number of voluntary Section 15(b) reports (required when a company has reason to believe a substantial product hazard may exist) resulting in a recall has dropped dramatically in 2013 compared to earlier years.  Because these reports are what usually triggers a recall, it is no surprise that the number of recalls has also gone down. Lee catalogues recent agency policy changes that, taken together, have resulted in a more punitive posture on the part of the CPSC. As a result, rather than following the agency advice of “when in doubt, report,” more companies are being cautious about reporting to the agency for fear that a marginal safety issue may be turned by the agency into a big enforcement headache.  Lee concludes that the statistics suggest “more companies appear willing to take the risk of a penalty for late or non-reporting for marginal safety issues over the second-guessing and punitive treatment that are now routine for companies that turn themselves in and volunteer to conduct recalls.”

As one seasoned CPSC staffer told me at a recent event, the focus of the agency is more on finding violations and seeking penalties than on trying to work with product sellers to solve safety problems. This is a short-sighted approach that ignores the fact that product safety can best be achieved when regulators and product sellers work collaboratively to address problems.  It is time for the agency to start paying more attention to the baby and less to the bathwater.

 

Illusory Process = Diminished Results

The CPSC staff is now collecting and cogitating on information about how phthalates—substances added as plasticizers to make plastics soft and pliable—are used to manufacture children’s toys and child care articles.  This activity is part of the agency’s effort (perhaps its only effort?) to minimize the burdens of third party testing, as required by Congress in P.L. 112-28.  If the agency can conclude that certain substances do not and cannot contain illegal phthalates, then it can determine that products made up of those substances do not need to be tested for phthalates.

The problem is that the way the agency is going about its inquiry is almost guaranteed to result in very little relief.  And since phthalates testing is very costly, an illusory process that is structured to minimize any relief available does not reduce the testing burden Congress was trying to achieve, much less what responsible regulators should insist on.  The problem with the phthalates inquiry is that the agency is requiring that stakeholders not only show that phthalates are not now being used in the manufacturing process, but also to show that it is impossible that they will be so used any time in the future, in any place in the world.  In other words no matter how much real world data one supplies, it cannot proof the negative as is being asked by the CPSC staff.  Although we all know the moon is not made of green cheese, who can say what will happen in the future.

The outcome of this inquiry is pretty clear.  Certain predictable substances, such as natural wood and fibers, will eventually receive exclusions from testing (after how many years of costly and unnecessary testing?).  The bulk of products that do not use phthalates but whose makers cannot now predict the future in the absolute terms required by the agency will not get relief.  The agency will claim this as an accomplishment and close up shop on any real burden reduction.

I do not understand why the agency has taken the approach it has.  A real and honest effort to understand where phthalates are used, where they are not and then address its compliance efforts at where they are used and its burden reduction efforts at where they are not would result in significant relief.  Rather than ask stakeholders to prove a negative, they should ask stakeholders to help them understand where the agency should be looking for phthalates.

The response, no doubt, is that a collaborative approach does not guarantee that phthalates will not be added by some unscrupulous manufacturer at some point in the future.  However testing relief does not relieve anyone of complying with the underlying phthalates prohibition.  And the agency has plenty of tools to address that eventually if it were to occur.  Because the phthalates prohibition must be complied with regardless of testing, the agency cannot say that its current constrained approach is required to be consistent with assuring compliance with the existing law.  Denying testing relief to the vast majority of manufacturers who do not use phthalates because of some imagined future scenario which the agency can address should it occur does not carry out the spirit of the law Congress passed.

$375,000: The Price for Peace

Yesterday the CPSC announced that it has reached a settlement with Craig Zucker, in the litigation to force a recall of Buckyballs.  The Commission alleged that 0727_buckyballs_630x420Buckyballs, although designed and marketed for adults, were defective because a number of children had sustained serious injuries after swallowing the tiny powerful magnetic balls.  The settlement calls for the CPSC staff to establish a recall trust fund to manage the recall. Mr. Zucker will fund an escrow account to dole out money to the trust fund up to $375,000.  In its press release, the CPSC trumpets that this is “a win for safety.”  Mr. Zucker, on the other hand, says that he hopes “the settlement will discourage the CPSC from wrongfully pursuing . . . entrepreneurs in the future.”

Who, then, won and who lost?  In the most simplistic terms, perhaps one could say that the agency won since it accomplished a recall that would not otherwise have occurred.  But what is that recall worth and at what price was the recall obtained?

Left on the table is the question of whether Buckyballs are defective.  The government’s theory of defect was that warnings are not sufficient to prevent injury to an unintended user group and therefore the product cannot be made and sold, even though there were no injuries to the intended user group.  In the settlement Mr. Zucker does not concede that Buckyballs are defective, and the settlement leaves unresolved the agency’s apparent philosophy that a product can be banned if warnings do not work.

Also left on the table is the question of whether the agency even had jurisdiction over Mr. Zucker in his personal capacity. The agreement makes clear that Mr. Zucker is not conceding the issue of jurisdiction and so the applicability of the Responsible Corporate Doctrine is not addressed by this agreement except to say that Mr. Zucker personally is released from all agency liability (assuming it existed in the first place).

The recall itself is very curious.  The CPSC staff will implement the corrective action plan and claims (accompanied by proof of purchase or an affidavit attesting to purchase location and price) must be presented within six months of the recall trust being established and consumers notified of the recall.  Refunds will be made in the order they are received and any consumers who either file after the six month period ends or after the funds have been depleted are out of luck.  A web site paid for out of the recall fund will be established and maintained by the Commission for five years. The escrow account funding the recall will be closed after 12 months with any remaining funds reverting back to Mr. Zucker.  But since the government does not have experience administering recalls and will, no doubt, have to hire a third party (paid for out of recall funds) to administer the fund and oversee the recall, it is pretty unlikely that there will be any monies going back to Mr. Zucker.

The settlement agreement does raise a side issue that may be interesting to lawyers or students of regulatory policy.  The Antideficiency Act prohibits a federal agency from obligating the government to pay out money before funds have been appropriated and a real question exists as to whether this agreement violates the Antideficiency Act.  Further, administering recalls is not within the specified functions of the Commission and the act is rather specific in stating that recalls will be undertaken by the product seller.  It is not clear to me that the agency has the authority to take the actions specified in the agreement but it is also not clear who (other than the agency’s inspector general) would be in a position to object.

Going back to the question of winners and losers, it seems that there are lots of losers but I don’t see any winners.  The agency lost since it has spent substantial public resources (would it not be interesting to know how much the government has spent on this?) to reach an agreement that is about half a percent of what it initially wanted.   The agency lost because the issues that were central to the litigation were left unresolved.  Mr. Zucker lost because he, no doubt, ended up spending more in legal fees than the value of the recall and basically paid the government to get them off his back.

But at the end of the day, consumers lost. Scarce public resources were spent to achieve a recall that cannot be effective both because of how it is structured and what it is trying to accomplish.   Past experience shows that very few of these products will be returned, thereby achieving little added safety even if the government’s theory of hazard is correct.  And if the past is prologue, then the government achieved very little at a very great cost with consumers footing the bill.

 

 

Good Bye to a Dedicated Public Servant

 

Part of the satisfaction of working in government is the quality and dedication of your colleagues.  And, for a commissioner, that satisfaction is multiplied by having exceptional personal staff who can provide the necessary interface with the agency career experts.  I served as a CPSC commissioner for over eight years.  For five of those years, Joe Martyak served as my legal counsel, as chief of staff when I was acting chairman and also, for a time, as acting director of public affairs.  He did all these jobs with extraordinary competence and good grace.  After I left the commission, he continued to serve as an advisor to Commissioner Ann Marie Buerkle.  Joe has now announced that he will be leaving the CPSC, heading off to new adventures in Hawaii.  On his desk he had a sign that read:  “Just your average Joe.”  I beg to differ; Joe is anything but average.

While Joe will be greatly missed, Commissioner Buerkle has really scored a coup by enticing CPSC veteran Gib Mullan back to the agency.  Gib served as general counsel, director of compliance and was detailed to Customs when the agency was setting up its Import Surveillance Division—in other words, he has seen it all.  When he was at the agency, he was known for his deep intellect, his creativity in solving problems and his honesty—he understood the need to speak the truth even when those in power did not necessarily want to hear it. While no one can “replace” Joe, kudos to Commissioner Buerkle for bringing on such an asset as Gib Mullan.


Enter your email address to subscribe to my blog and receive notifications of new posts by email.

Join 918 other followers

Let’s keep the conversation going on Twitter. You can find me at @NancyNord.

Nancy's Photos

More Photos

  • 59,776 visits

Follow

Get every new post delivered to your Inbox.

Join 918 other followers