Mattel's Blues: Lessons from a Global Crisis Management Effort

“There will be a Christmas!”

As the critical holiday shopping season bears down like a toddler on a Big Wheel and Mattel announces yet another recall, Chairman and CEO Robert Eckert finds himself repeating this mantra to customers, retailers, analysts, reporters, consumers, regulators, investors, and the board of directors—frankly, to anyone who will listen during the stormiest period in Mattel’s storied 62-year history.

The voluntary recalls that have beset the world’s largest toymaker since June, and now number 11, couldn’t have come at a worse time. They halted product shipments to anxious retailers stocking up for a less-than-merry shopping season, given rising oil prices for consumers and uncertainty in the financial markets.

In the first of what became a veritable recall epidemic, Mattel announced that 436,000 Chinese-made die-cast toy cars were covered with lead paint. Subsequent testing turned up numerous other products tainted by lead paint, which the United States banned more than three decades ago. Mattel also issued a separate recall for another 18.2 million toys, including some in its popular Polly Pocket and Barbie product lines, containing small, powerful magnets that could be harmful to children if swallowed. In all, more than 21 million Mattel-made toys (including more than 80 different Fisher-Price models) from 43 international markets have been deemed unsafe.

The Mattel recalls highlight how quickly a problem in the global supply chain can erupt into a fiasco of such magnitude that it threatens the reputation, possibly the very life of a company. In some ways, Mattel’s recalls share characteristics with the mortgage-backed securities meltdown currently menacing Wall Street: In such an intermediated global economy, companies that traditionally operate well downstream often have little insight into the processes of providers several generations upstream. The result is well known by now: companies so affected, whether they are investment banks selling products to hedge funds or makers of children’s toys, are often left holding unmarketable inventories that may be harmful to customers, balance sheets, or both. For their boards of directors, what’s prescribed is a post-mortem inquiry to review and revise their risk-management systems, make management changes, and reconsider the reliability and risk factors inherent in their supply chains, especially those that pertain to suppliers overseas.

The Mattel case also shows how important a quick and decisive reaction can be to surviving a crisis. Having a good crisis-management program in place long before an actual crisis develops is the only way to give the company a chance to orchestrate the immediate, wholesale response that the public now demands.

While the 53-year-old Eckert has earned mixed reviews for his efforts at damage control, there’s no doubt Mattel’s ability to restore consumer confidence and recover lost sales will become a critical measure of his performance as chief executive. Some crisis experts chastise Mattel for having to issue a recall at all, while others commend it for what they consider to be a model response to the ongoing crisis. From the outset, Eckert has been out front on damage control, delivering Mattel’s message on the top morning shows, the evening newscasts, and in numerous other media outlets. And he has moved quickly to attempt to win back the trust of customers. He apologized to parents in a webcast on the portion of the Mattel website now devoted to the voluntary recalls, testified before Congress on how to better ensure the safety of toys, and wrote an op-ed piece in The Wall Street Journal. Mattel’s actions have backed up its words. Rather than wait for all the facts to come in, the El Segundo, Calif.-based company quickly halted all toy deliveries from the Far East and began inspecting every toy.

Eckert has also leaned heavily on Mattel’s 12-member board of directors. Stacked with new recruits since Eckert joined Mattel in 2000 as well as seasoned executives with years of service to the toy maker, Eckert says the board has played an important role as “informal advisers” while meeting regularly and in emergency session for updates on the recalls. “We in management are involved so deeply in the day-to-day tasks at hand that it’s helpful to have someone who isn’t in the fray to give you advice,” he says. And he adds that speed in communications with the board has helped with the response to the crisis. “What’s most helpful to me is, ‘Can you answer me quickly?’ I can call anybody [on our board] at any time and get the call returned.”