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Ethics Case: Magnetic Toys Can Hurt

Mega Brands has been selling Magnetix toys for many years. It also sells Mega Bloks, construction toys based on Spider-Man, Pirates of the Caribbean, as well as other products in over 100 countries. In 2006, Mega Brands had over $547 million in revenue, including over $100 from magnetic toys, but its share price fell approximately $27 to $20.30 in mid-July 2007. One reason for the fall was that a child, who had swallowed a magnet that had fallen out of a toy, had died in the late fall of 2005. The U.S. Consumer Products Safety Commission (CPSC) had issued a product recall in March 2006.

Subsequently, a number of lawsuits appeared involving other children who had suffered bowel complications. The symptoms resulting from a child swallowing a magnet are similar to those of a stomach ache, cold or flu, and so the problem is sometimes misdiagnosed. The consequences can be much worse if a child swallows more than one magnet, particularly if they are the super-powerful magnets like those in Magnetix toys. They are so strong that they do not pass through the child’s digestive system; instead, the magnets rip through tissue as they are attracted to each other. Complex surgery is required for extraction and complications can continue afterward.

After refusing twice, Mega Brands engaged in two voluntary recalls at the request 4748of the Commission in March 2006 and April 2007. Defective merchandise was still found on store shelves by CPSC investigators in April. Even then, at a hearing on June 18, 2007, Senator Robert Durban stated: “The company did everything in its power to derail the commission’s effort to take the product off the shelf.” In frustration, Senator Durban commented: “When a company is selling dangerous products in America and refuses to co-operate with the CPSC, we have few laws and few tools to use to protect consumers.”

In addition, the company did not quickly comply with CPSC requests for information and violated the terms of one recall. Finally, on December 1, 2007, after failing to respond on time to a subpoena, data was submitted covering 1,500 complaint reports made to Mega Brands or to Rose Art Industries, the toy’s manufacturer. Mega Brands asserted that they had to search through warehouses to gather the data, because they lacked an organized comprehensive reporting system.

A new product, supposedly improved, has been introduced with new labeling that indicates the suitable minimum age to be six instead of three.

Questions

1.

If you were an executive of Mega Brands, what concerns would you express to the CEO about the Magnetix toy issues noted above?

2.

If the CEO didn’t pay any attention, what would you do?

3.

Should the CPSC have more powers to deal with such hazards and companies? If so, what would they be? If not, why not?

Source: “Magnetic toys attract suits,” Gretchen Morgenson, Financial Post, July 17, 2007 FP3.

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