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Fixing Non-Problems, Take 2

Yesterday I directed your attention to an article by the former general counsel of the CPSC pointing out the legal and policy issues in the agency’s proposed rule revamping the requirements of the voluntary recall process.  She is not the only former senior manager of the agency to weigh in on the proposal.  Matt Howsare, former Chairman Tennenbaum’s chief of staff, has also discussed the serious issues inherent in the agency’s proposed approach.

I think that it is significant that two former senior agency staffers—one a career staffer and the other a political appointee of the majority party–are rejecting the notion that the proposal is merely a “tweak” of the process, as has been claimed by some commissioners, and instead characterize the proposal as a major overhaul of the voluntary recall process.  The agency leadership’s insistence on fixing what isn’t broken is very curious–and ominous–indeed.

Fixing Non-Problems; Creating New Ones

In an exercise that exemplifies a solution in search of a problem, the CPSC has proposed an interpretive rule that sets requirements for voluntary recalls.  I have questioned the wisdom of this activity on several occasions (see here and here).

I wanted to flag for readers an excellent analysis of the proposal written by the CPSC’s former general counsel, Cheryl Falvey. During her four year tenure at the CPSC, Ms. Falvey was a career employee, rather than a political appointee.  She understood the need to represent the Commission, not Commissioners.  She has laid out some of the practical concerns of the voluntary recall proposal in a very detailed and compelling manner.

With no evidence that the process is not now working, the Commission proposes requirements that may well make the voluntary recall process certainly less flexible and, most certainly, more adversarial.  Such a result would erode the trust that has been build up over the past 30 years as the agency and product sellers have worked cooperatively to make the marketplace safer for consumers. Public comments on this proposal are due February 4, 2014.

CPSC Burden Reduction Mantra: “Maybe One of These Years . . .”

An interesting op-ed in last week’s Wall Street Journal pointed to how the regulatory process impedes efforts called for by President Obama, among others, to shore up this country’s infrastructure.  The piece, written by Philip Howard, President of the nonpartisan reform group Common Good, focused on how interminable environmental review can stymy public projects and made several interesting suggestions for change.

As I read Mr. Howard’s article, I could not help but think about how the regulatory process has been used at the CPSC to slow activity, mandated by Congress and required by common sense, to reform the product testing regime dictated by CPSC regulations.  Recall that the testing rules setting the parameters for when products must be tested by independent third party testing labs imposed such impressive costs on the system that Congress told the agency to find ways to reduce those costs.  That was in 2011.  As we head into 2014, the agency has managed to avoid adopting any concrete relief to those who are now required to conduct unnecessary and expensive testing.  The Commission has done this by repeatedly asking for public comment on the same questions over and over again.

Last week the Commissioners met to adopt an operating plan for the rest of FY 2014.  Predictably, the issue of reducing testing burdens came up and, predictably, the Commissioners again punted.  This time, the agency staff was directed to finish their analysis of the public comments on a limited set of suggestions for relief by the end of FY 2014.  A majority of Commissioners rejected the notion of asking Congress for statutory changes suggested by the agency staff to make operation and review of safety processes more efficient.  Clearly, a majority of CPSC Commissioners do not see reducing unnecessary testing burdens as a core duty of the agency.

It is remarkable that for the past three years, product manufacturers have been conducting expensive testing that most (outside of a handful of advocates with a political agenda and several CPSC Commissioners) do not see as necessary to assure the safety that American families rightly expect.  That those families have to shoulder the costs of this added weight to the system seems to be a forgotten fact. I know that I have written about this issue before.  But as a consumer, I am mad.  I am mad that my choices are being limited and that, for example, I cannot buy beloved toys that are safe but are no longer being imported only because of the CPSC testing rules.  I am mad that I have to overpay for safety regulations of questionable value.

Rather than blindly defending regulations that are costing consumers without advancing safety, the CPSC should give them a thanksgiving gift:  how about getting down to work and stopping the procrastination on this.  It is time for big strides, not baby steps.

Companies Are Not The Enemy

It is gratifying to know that the folks at the CPSC do read my blog posts.   How do I know this?   My last post pointed to the statement, in a Fox News story about the Buckyballs lawsuit, of the agency spokesman denying that the agency “punished enemies”.  Apparently today the story was changed so that the agency is now denying that it punishes companies, not enemies. Since this change was pointed out to me by the agency spokesman, I want readers also to be aware of this change.

In the minds of some this may be a distinction without a difference. Craig Zucker of course, would be one of those who does not see a difference and it is easy to see why.  At the same time that small powerful magnetic desk toys are being sold legally across the country, the agency has demanded in a law suit that the magnetic product he distributed be recalled, and since his company is now out of business, that Zucker, one of the founders of the company, personally undertake this recall.  While two manufacturers have volunteered to do recalls of small magnets, I understand that only a handful have actually been returned.   In other words, the agency has put a company out of business and now has brought a lawsuit in order to accomplish a recall of a product that consumers apparently do not want to part with–a recall that the agency should know will not be effective.

I could go on about the questionable actions of the agency. The obvious prejudgment of both the law suit and the related rulemaking and the inappropriate extension of the “responsible corporate officer” doctrine are just two examples.   But I have written about these issues before.  For the purposes of this post, please rest easy knowing that the CPSC only punishes companies, not enemies.

A CPSC Enemies List?!

This morning, Fox News had a story on the ongoing saga of Craig Zucker, founder of the company selling the Buckyballs magnetic adult desk toy, who is refusing the CPSC’s demand that he personally conduct a recall of that product.  The CPSC is alleging that the product is defective because children have been injured by swallowing the small powerful magnets  even though the product is designed and marketed for adults and has warnings all over the box about the dangers of ingesting magnets.  Since the agency put the company out of business, it is now suing Mr. Zucker individuallenemies listy to make him recall the product.

The reason this particular story caught my eye, however, is the sentiment stated in the story and attributed to the CPSC spokesman that the agency was trying “to keep a dangerous product from children, not to punish enemies. “  That the agency thinks of those who challenge it as enemies is troubling, to say the least.

The agency is not used to being challenged and Mr. Zucker’s tactic of using humor to point to the weaknesses of the government’s case is unexpected.  Yet to brand as an enemy someone who does not capitulate and who forces the government to prove its case, even after that same government has forced him out of business, goes way beyond appropriate behavior.  If the sentiment is as stated in the story, then this is a frightening development.

 

 

Not Tweaking But Twerking

Anyone who watched the CPSC Commission meeting last Wednesday (November 13) knows that the word de jour at the agency is “tweaking.”   That was the verb form used over and over again by certain commissioners to minimize some rather dramatic changes that are being proposed to the way in which the agency and companies accomplish voluntary recalls of potentially unsafe products.  But the commissioners who used that verb clearly know that “tweaking” is not what actually is being proposed.  Those commissioners very well know that they are not tweaking the process but changing it radically.

The issue came to the commission in the form of a staff proposal to set out “guidance” (read “requirements”) for negotiating voluntary recalls and what must be included in the press release announcing the recall.  The staff proposal ranged from the helpful (encouraging direct notice to consumers who can be identified) to the innocuous (specifying type font) to the silly (requiring that recall posters be sent out in all instances—when was the last time you noticed a recall poster when shopping?)  The staff proposal also continued the theme that the CPSC should be dictating and designing corporate compliance programs, now as a part of a voluntary recall.  As I have stated often enough, the expertise of the agency’s excellent compliance staff is in negotiating recalls, not designing compliance programs.

The proposal morphed into something more when the Democrat majority of commissioners decided to undo 30 years of experience to change a system that everyone agrees has been working quite well.  The solution in search of a problem that they agreed to is to make the plan setting out the details of a voluntary recall binding and enforceable. As best as I can decipher from watching the meeting and reading their statement, the majority is troubled by the notion that there is no recourse in the courts if a company violates a voluntary agreement made with the commission.  It does not seem relevant to those commissioners that this has not been a problem over the course of the past 30 years that the system has been in place.  Apparently the thinking is that, in theory, this could be a problem so let’s fix it before it breaks.

The majority points to one or two instances where they say the company was slow-walking the agency.  What they do not point out is that, in those instances, the agency did not lack tools to modify conduct (and that any slow-walking was as much the agency’s fault as the company’s) or that going to court would result in an even slower and more burdensome process.  And they completely ignore how their proposal will remove the flexibility the agency now has to address problems that may be discovered as the recall is rolled out.  Under the majority’s proposal, the parties’ obligations will be as described in the agreement—no more and no less.

What is being proposed has the potential to delay and burden a process that everyone thinks has been working well–all to address a hypothetical problem that exists, it seems, only in the minds of some commissioners.   The agency’s mission is to protect consumers.  By decreasing flexibility and adding time and burden to a process that works well now, consumers stand to be on the wrong end of that “tweak.”  As my high school auto shop teacher said, “If it ain’t broke, don’t fix it.”

The Saga of Buckyballs–How Not to Regulate

Today’s Wall Street Journal has an Op Ed I wrote about the CPSC’s actions against Buckyballs and one of its founders, Craig Zucker.  While the Op Ed gives you the overview of the controversy, there is a substantial back story that space considerations only allowed me to touch on.  Nevertheless, that back story is important and it illustrates how the actions of the CPSC discourage the kind of corporate responsibility that the agency needs to encourage to protect consumers.

Skip the Warning—Just Ban the Product

We all acknowledge the harm that small powerful magnets can cause when several are swallowed.  The CPSC is aware of about 50 incidents of swallowed magnets over the past three years and, from this, estimates that there have been approximately 1700 incidents involving these magnets.  We also must acknowledge that the harm is only now being recognized by the medical community and that efforts to educate the public have been inadequate.

A number of manufacturers make small powerful magnet desk toys and manipulatives.  Buckyballs had the largest share of that market.  Even though Buckyballs were not intended for or primarily sold to children, when reports of ingestion started coming in, the company making them, Maxfield and Oberton, stepped up with an aggressive safety education program to warn against the danger of children swallowing powerful magnets.  Even though that education program was fully discussed with and encouraged by the agency, the CPSC then demanded a recall and decided to sue the company when it disagreed with its demand—all before the safety education program could be fully put into place.  A principle tenet of the agency’s case is that warnings were not sufficient to protect the public.  Yet, the only evidence it has to support that contention is its speculative conclusions, since the aggressive safety campaign envisioned by the industry was prematurely shut down by the agency.

I could point to other instances where the agency has worked to encourage public education campaigns to successfully address problems with equally serious injury patterns.  In this case, the agency apparently made a decision that warnings would not work and that a recall and product ban were needed before it had the real world evidence to support that conclusion.

Influencing the Process

The lawsuit against Maxfield and Oberton is not the only action the agency is pursuing.  Shortly after the agency sued the company, it also started a rulemaking proceeding to ban small powerful magnet desk toys and manipulatives as presenting unreasonable risks. The problem is that the agency in this rule is answering substantially the same question that it is litigating in the Buckyballs case.

Why is this a problem?   First, by issuing a rule essentially banning these products before the lawsuit against Maxfield and Oberton is concluded, the agency is determining that the product does in fact present an unreasonable risk of injury.  The issue before the judge is whether the product has a defect that presents a hazard. It is naïve to think that the judge will consider this case in a vacuum and that the agency’s determination in the rulemaking proceeding will not have an impact on the litigation.  By proceeding with the rule before the law suit is completed, the agency seeks to put too heavy a thumb on the scales.

Second, the commissioners are the venue for appeals coming out of the law suit.  When they have already make the ultimate decision that this product should not be on the market, it is questionable about how objective they are thought to be or actually are.

I am not arguing that the CPSC should not protect the public through the rulemaking process.  I am arguing that, when it made the decision to bring suit against Buckyballs, it then needed to recognize that procedural fairness comes with that decision.  As I stated at the time, both processes conducted simultaneously does not allow for an even playing field.

Legal Gamesmanship that Sacrifices Long-Term Safety

The agency staff’s decision to add Mr. Zucker as a party to the case is a truly pernicious development that, in the long run, may seriously damage the agency’s ability to work with stakeholders to carry out its mission.  Working with companies collaboratively to effect voluntary recalls is the foundation of the agency’s success.   The CPSC relies on the involvement of senior management to assure that cooperation.  To now say that senior management’s involvement, so essential to help protect consumers, could result in mind-blowing penalties imposed personally can only result in destroying the cooperative relationship the agency needs to do its job effectively.  It creates the perverse incentive for corporate officers to avoid involvement, hide behind lawyers and shun scrutiny of their safety systems when what is needed is more involvement.

If the agency seeks the involvement of senior corporate managers to help them assure compliance with regulations and then it penalizes them for that same involvement; if business owners have to fear personal financial ruin for making the government prove its case; and if speaking out against government action that is thought to be unfair results in what appears to be a personal vendetta, then we have to wonder about the quality of leadership that allows such results.

Yesterday, Mr. Zucker took the unprecedented step of suing the CPSC.  His lawsuit is being financed by the profits of his newest product, “Liberty Balls.”  I understand they are selling quite well.


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