Don’t like federal government regulations? You will want to keep those that require the recall of products with safety problems.
Faulty ignition switches in General Motors cars caused 124 deaths, and 2.6 million cars were recalled. Takata airbags caused 14 deaths and many injuries, and 100 million cars worldwide were recalled. One of the recalled cars was my wife’s.
Both of these companies knew about the problems for more than 10 years before taking action.
How many product safety recalls are there each year? Enough to justify the bureaucrats necessary to do it? Surprisingly, up to 9,469 products are recalled each year. You can find them at www.recalls.gov.
That does not count all of the defective products and services we have received that are not recalled because the flaws are not safety-related. For example, my TV set burned out one of its HDMI circuits after three months. My water heater and printer lasted only a few years. None were recalled for safety purposes, and both were past their short warranty period.
Those of us who have some mileage on us can remember the days long ago when corporations were proud of their high-quality products and services. Because we trusted them, we continued to buy from them.
So how and why did corporations lose their way?
I blame much of it on the quarterly financial reports corporations file, showing their profit for the preceding three months. It has been required since 1970 by the Securities and Exchange Commission to provide information to investors on the state of a company.
That sounds like a reasonable idea. However, it has had the unintended consequence of forcing companies to make short-term decisions to increase the income in the current quarter rather than permitting them to make long-term decisions that would increase profits in the long run.
For example, Takata engineers apparently warned 10 years ago that there was a problem with exploding airbags. However, the company decided not to recall them at that time, undoubtedly because the cost would hurt profits. They were not recalled until a total of 34 million had been placed in cars, causing greater expense.
Would the companies have saved lots of money and lives and preserved their reputations if they had immediately issued a recall? Yes, but short-term profits would have suffered, and when that loss showed up in the quarterly report, the stock price would have gone down. The executives’ salaries would have suffered, if they were not fired.
One local example is the once-every-decade renewal of the contract between the Hancock County Emergency Operations Center (911) and its telephone service provider. In 2010 that was SBCglobal, the predecessor of AT&T. Hancock County was given the option to pay monthly over 10 years or pay a one-time lump sum.
Our CPA figured that we would save a large sum of money by issuing bonds to make the one-time payment, so that’s what happened.
If it was a great deal for the county, it must have been a bad one for the telephone company, right? Why did they do it? It had to be the desire to make the quarterly report look good, because profits would be significantly increased for that quarter. But every quarter after that, for 10 years, was decreased, to the disadvantage of shareholders.
The required filing of quarterly reports has caused corporations to make short-term decisions that in many cases are not in their best interests or ours. Unfortunately that requirement is not likely to be reversed, because shareholders think the information is useful to them for making investment decisions. So we will keep getting shoddy products and services. Too bad.
Ray Richardson is a former state lawmaker who currently serves as Hancock County attorney. Send comments to [email protected].
