Consumer Protection Act should not affect good governance companies
"Companies already complying with the principles of good corporate governance contained in the King Report on Corporate Governance (King III) shouldn't have anything to worry about," says Natasha Bouwman, supervisor at the Institute of Directors of Southern Africa's (IoDSA) Centre for Corporate Governance. She was commenting on the final enactment of the new Consumer Protection Act, due to kick in on 24 October 2010, which has some companies in a flap about potentially huge claims over substandard products.
"The ones who should be panicking are those who've never heeded the Institute's call for organisations to be guided by King III; specifically, provisions that call for boards to take tough decisions - like recalling products when taking into account the interests of customers and other company stakeholders."
Surveys show that while the first priority of company stakeholders is the quality of products or services, their second priority is trust and confidence in the company. "Although the board is accountable to the company, the board should not ignore the legitimate interests and expectations of its stakeholders, whom it should keep in mind when making decisions," she adds.
The spirit of King III is to encourage boards to recall potentially hazardous products, even if this means economic losses. "Taking account of consumer interests will prove the integrity of a business and build a reputation as a responsible corporate citizen, which will result greater returns in the long term.
On the other hand, says Bouwman, failure to protect consumers could result in liability imposed by consumer protection laws. The new Act will hold producers, importers, distributors and retailers liable for harm caused by substandard products. It will allow consumers to claim compensation from these persons for any harm caused by goods that are unsafe, product failures, defective goods or not adequately warning consumers of hazards that might arise from the goods.
Take tough decisions
"Product recalls strike fear into the hearts of any organisation, but history has shown that avoiding them inevitably causes reputational damage that could cost it more in the long run anyway," she says. "However, Johnson & Johnson's survived the 1982 decision to recall Tylenol following deaths caused by the product, which is still one of the top-selling painkillers in the world. The bottom line is: they managed to rebuild consumer trust because of the tough decision they took at the time."
Earlier this year, Nestle also decided to recall some of its coffee products due to concerns over jars breaking during the delivery process. By doing so, Nestle demonstrated its commitment to quality and safety as 'a non-negotiable priority'.
"In the end, it all comes down to 'doing unto others as you'd have them do unto you'," concludes Bouwman. "Keep this in mind in all decision-making, and your company shouldn't have anything to worry about."
Related
