Toy story with a tough moral for managers
Saturday, 18 August 2007
Bernard Simon
Marc Bertrand is a chastened man. Over the course of four decades, Mr Bertrand's parents, followed by Marc and his brother Vic, turned their small Montreal toy distributor into one of the world's biggest makers of children's building sets, art materials and magnetic toys.
The family-controlled company, Mega Brands (www.megabloks.com/), of which Mr Bertrand is chief executive, has 5,000 employees and sales topped $500m (£245m) last year. Until recently, it was best known as the maker of Mega Bloks, a Lego rival.
Mega Brands takes pride in its creativity and quality, Mr Bertrand says. Beyond that, however: "We try not to get emotional about issues." But flashes of exasperation and anger emerge as Mr Bertrand talks about the storm that has engulfed the company since a Seattle toddler died in November 2005 after swallowing magnets that had come loose from a Mega Brands Magnetix toy. Injuries to 27 more children have since been reported.
Each magnet is little bigger than a pill, but when clamped together they can tear through a child's intestines.
The story contains sobering lessons in crisis management. Mr Bertrand says the company has pulled out all the stops to restore confidence in the colourful, magnet-tipped plastic rods, which can be assembled into myriad shapes. "We've done everything, every step of the way, to make sure the consumer is safe," he says.
But the furore has not gone away. Critical questions about the product's safety were raised at a US Senate hearing last month. Mr Bertrand is especially upset that a recent feature on Mega Brands' woes in The New York Times was accompanied by an illustration of Magnetix pieces shaped into a skull-and-crossbones.
Mega Brands had acquired the product as part of a takeover of a New Jersey-based company in mid-2005. Kim Thompson, director of Kids Risk, a project at Harvard's School of Public Health, says: "It's a real risk for companies when you're bringing in things that haven't grown up organically in your culture."
Managers, she adds, may have fallen into the trap of thinking "that once you've solved a problem, it's gone".
Sure enough, Mr Bertrand was confident last autumn that his response to the accidents had put consumers' and regulators' minds at rest.
He had phoned the toddler's parents to offer condolences, and Mega Brands quickly redesigned the toys so the magnets were embedded more deeply and the adhesive reinforced. Stricter warning labels were added to packaging and a safety education booklet in seven languages was included. Mega Brands also fired the former owner of Rose Art, the New Jersey company that made Magnetix.
In March 2006 the company and the Consumer Product Safety Commission (CPSC), a US regulatory agency, agreed a voluntary recall and replacement programme. "They were definitely looking for all the help they could get," says Prof Thompson, one of several outside experts to whom Mega Brands turned for advice.
The company paid $13.5m last October to settle 14 injury claims, after which Mr Bertrand said: "We are pleased to put this behind us."
But he now acknowledges one misstep. In Mega Brands' eagerness to keep Magnetix on the shelves, it at first used the same packaging for the redesigned product as for the recalled one. Although a warning sticker was added, the unchanged packaging caused confusion.
"Our priority was on changing the product, not necessarily the package," Mr Bertrand says.
By April this year, the company had little choice. It agreed a second recall and new packaging of all Magnetix sets.
The flames of controversy were further fanned by a 4,000-word story in the Chicago Tribune on shortcomings at the CPSC, pegged to the Magnetix saga.
CPSC documents provided to congressional investigators and leaked to the media alleged that Mega Brands had not fully co-operated with the agency. The recent furore over product safety in China, where the Magnetix sets are made, has not helped.
Mega Brands has taken more drastic action to restore confidence in Magnetix. Employees and agents scour stores and warehouses for the old, defective products. An intern at head office uses his boss's credit card to buy any old sets for sale on Ebay.
In some ways, Mega Brands has contributed to its own misfortune. Stevanne Auerbach, a California-based industry and consumer adviser who is known as Dr Toy, says the Montreal company's toys had a strong reputation. But, she adds: "Rose Art did not go out of their way to make a high-quality product".
In the opinion of a Canadian securities analyst who asked not to be identified, Mega Brands did not do sufficient due diligence on Rose Art and was tardy in providing details of lawsuits and writedowns. "It took months for them finally to begin discussing how big a business Magnetix is," he says. (It makes up about 15 per cent of the company's total sales.)
The good news for Mega Brands is that it has received no complaints about the redesigned Magnetix toys. But challenges remain. The company faces four remaining lawsuits and 11 other complaints. It is also embroiled in litigation with Rose Art's former owners.
Second-quarter results to be published today are likely to show a sizeable drop in Magnetix revenues. Mr Bertrand says shipments have resumed to all big retailers and new Magnetix products are to go on sale in the autumn.
The risk, Ms Auerbach cautions, is that "there's bad press, then the toy stores pull the product off, then people are sceptical about the new product".
Prof Thompson is more upbeat. Magnetix, she says, "is and remains a very exciting product for many parents and kids".
Marc Bertrand is a chastened man. Over the course of four decades, Mr Bertrand's parents, followed by Marc and his brother Vic, turned their small Montreal toy distributor into one of the world's biggest makers of children's building sets, art materials and magnetic toys.
The family-controlled company, Mega Brands (www.megabloks.com/), of which Mr Bertrand is chief executive, has 5,000 employees and sales topped $500m (£245m) last year. Until recently, it was best known as the maker of Mega Bloks, a Lego rival.
Mega Brands takes pride in its creativity and quality, Mr Bertrand says. Beyond that, however: "We try not to get emotional about issues." But flashes of exasperation and anger emerge as Mr Bertrand talks about the storm that has engulfed the company since a Seattle toddler died in November 2005 after swallowing magnets that had come loose from a Mega Brands Magnetix toy. Injuries to 27 more children have since been reported.
Each magnet is little bigger than a pill, but when clamped together they can tear through a child's intestines.
The story contains sobering lessons in crisis management. Mr Bertrand says the company has pulled out all the stops to restore confidence in the colourful, magnet-tipped plastic rods, which can be assembled into myriad shapes. "We've done everything, every step of the way, to make sure the consumer is safe," he says.
But the furore has not gone away. Critical questions about the product's safety were raised at a US Senate hearing last month. Mr Bertrand is especially upset that a recent feature on Mega Brands' woes in The New York Times was accompanied by an illustration of Magnetix pieces shaped into a skull-and-crossbones.
Mega Brands had acquired the product as part of a takeover of a New Jersey-based company in mid-2005. Kim Thompson, director of Kids Risk, a project at Harvard's School of Public Health, says: "It's a real risk for companies when you're bringing in things that haven't grown up organically in your culture."
Managers, she adds, may have fallen into the trap of thinking "that once you've solved a problem, it's gone".
Sure enough, Mr Bertrand was confident last autumn that his response to the accidents had put consumers' and regulators' minds at rest.
He had phoned the toddler's parents to offer condolences, and Mega Brands quickly redesigned the toys so the magnets were embedded more deeply and the adhesive reinforced. Stricter warning labels were added to packaging and a safety education booklet in seven languages was included. Mega Brands also fired the former owner of Rose Art, the New Jersey company that made Magnetix.
In March 2006 the company and the Consumer Product Safety Commission (CPSC), a US regulatory agency, agreed a voluntary recall and replacement programme. "They were definitely looking for all the help they could get," says Prof Thompson, one of several outside experts to whom Mega Brands turned for advice.
The company paid $13.5m last October to settle 14 injury claims, after which Mr Bertrand said: "We are pleased to put this behind us."
But he now acknowledges one misstep. In Mega Brands' eagerness to keep Magnetix on the shelves, it at first used the same packaging for the redesigned product as for the recalled one. Although a warning sticker was added, the unchanged packaging caused confusion.
"Our priority was on changing the product, not necessarily the package," Mr Bertrand says.
By April this year, the company had little choice. It agreed a second recall and new packaging of all Magnetix sets.
The flames of controversy were further fanned by a 4,000-word story in the Chicago Tribune on shortcomings at the CPSC, pegged to the Magnetix saga.
CPSC documents provided to congressional investigators and leaked to the media alleged that Mega Brands had not fully co-operated with the agency. The recent furore over product safety in China, where the Magnetix sets are made, has not helped.
Mega Brands has taken more drastic action to restore confidence in Magnetix. Employees and agents scour stores and warehouses for the old, defective products. An intern at head office uses his boss's credit card to buy any old sets for sale on Ebay.
In some ways, Mega Brands has contributed to its own misfortune. Stevanne Auerbach, a California-based industry and consumer adviser who is known as Dr Toy, says the Montreal company's toys had a strong reputation. But, she adds: "Rose Art did not go out of their way to make a high-quality product".
In the opinion of a Canadian securities analyst who asked not to be identified, Mega Brands did not do sufficient due diligence on Rose Art and was tardy in providing details of lawsuits and writedowns. "It took months for them finally to begin discussing how big a business Magnetix is," he says. (It makes up about 15 per cent of the company's total sales.)
The good news for Mega Brands is that it has received no complaints about the redesigned Magnetix toys. But challenges remain. The company faces four remaining lawsuits and 11 other complaints. It is also embroiled in litigation with Rose Art's former owners.
Second-quarter results to be published today are likely to show a sizeable drop in Magnetix revenues. Mr Bertrand says shipments have resumed to all big retailers and new Magnetix products are to go on sale in the autumn.
The risk, Ms Auerbach cautions, is that "there's bad press, then the toy stores pull the product off, then people are sceptical about the new product".
Prof Thompson is more upbeat. Magnetix, she says, "is and remains a very exciting product for many parents and kids".