Business Ethics and Stakeholder Management: Mattel's Toy Recall

This report provides a comprehensive analysis of Mattel's toy recalls, focusing on the ethical dilemmas and stakeholder management issues that arose. The report examines the context of the recalls, including the safety concerns related to lead paint and loose magnets in toys. It delves into the application of various ethical theories, such as virtue ethics, utility theory, rights theory, and justice theory, to evaluate Mattel's actions and decisions. The analysis explores Mattel's responses to the recalls, its interactions with stakeholders, and the broader implications for children's toy safety. The report also discusses the roles and responsibilities of different stakeholders, including government regulators, consumers, and the toy industry. Ultimately, the report provides lessons learned from the event of toys recalls and offers recommendations for improving ethical practices within the company and the industry. The report highlights the importance of corporate social responsibility and ethical considerations in the global business environment.

Executive Summary
In the business, it is important for the organizations to gain the confidence and trust of their main
stakeholders; especially, when goes for global operation, for this purpose they adopt the business
ethics, global codes of conduct, corporate citizenship, and corporate social responsibility to improve
corporate behavior. Mattel, Inc. is a leader in toys and family products worldwide that faced the problem
of toys recalls due to the toy safety related issues. Product recalls are generally considered normal
practice in a business environment. Since the company is designing, producing and marketing the
products mainly for children in the global environment, so there is always chance of conflict due
to concerns about social rights of children. This report discusses the recalls issues of the toys,
Mattel’s response upon the issues with respect to ethical theories, the Mattel’s response to
stakeholders, children’s toys concern safety issues, and at the end lesson for the Mattel from the
event of toys recalls.
The business ethics are related to the applied ethics branches of ethics. This report will discuss
Virtue ethics, the Utility theory, the rights theory, and the Justice theory of ethics. In the case of
Mattel, it did not act in an ethical manner as its action were against the principles of Virtue
ethics, and Utility ethics theories: it delayed to take action of toys recalls upon the exploration of
defect in toys; on the other way, the action of shifting the production of toys to China to reduce
the cost, brings the consequences of low product quality that contribute towards the potential
danger to children, share price decline, and worries in the life of its customers not happiness. On
the other hand, Mattel failed to adopt the strategies that could adhere its counterparts to the
Mattel’s adopted policy of high standards, and its best efforts to produce the safest product, that
came it under the controversy of unsafe toys. It was due to the negligence of one segment of
stakeholder of the organization and other segments suffered from it. Mattel also missed the
complete compliance of the all standard and allow industry, companies, and almost the children
exposed. Instead, taking proper action it delayed it by engaging in expending a huge amount of
exertion on upholding its repute by use of media to blame the Chinese manufacturers and suppliers,
but actually the issue of loose magnet in the toys purely related to the Mattel’s internal design flaw.
This delay in the action upon the harmful product might demonstrate the Mattel's anterior
towards business interests by dominating the interest of its customers and product quality.
To prevent the issues concern to the children toys safety Retailers, Parents of the children, the
Government, Standard setting agencies and Toy industry have huge obligation and
responsibility. The U.S. Government has laid down various laws and regulation to ensure the
safety of toys, it completely disallows the use of lead paint on toys exported to the country,
emphasize the more inspections of the toys that are imported.

Table of Content
Page No
1.0. Introduction
2.0. The Matte, Inc. and the Toys Safety Controversy
3.0. The Controversy in terms of Business Ethical Theories
3.1. The Virtue ethics
3.2. The utility theory
3.3. The rights theory
3.4. The Justice theory
4.0. Stakeholder Management & Business Ethics
5.0. Mattel’s Response on issues
6.0. The Safety of Children's Toys
6.1. Government Regulators
6.2. Consumers Advocate
6.3. The Toy Industry
6.4. Children’s Product Retailers
6.5. Standard Setting Organizations
7.0. The lessons for Mattel, Inc from Business Ethical Dilemma
8.0. Conclusion
9.0. Recommendations
10.0. References

1.0. Introduction
What are important for the organizations to sustain in the business? The stakeholders! It is
crucial for the organizations to derive confidence and trust of their main stakeholders. Business
organizations adopt different strategies to create a convinced relationship, for this purpose and
for guidelines they follow the business ethics, global codes of conduct, corporate citizenship, and
corporate social responsibility to improve corporate behavior. This report is around the Mattel,
Inc. that is a giant in toys and family products worldwide that designing, producing and
marketing the products mainly for children in the global environment. This report will discuss
the toys recall issues of the toys due to the safety concerns. This report will demonstrate the
Mattel’s response upon the issue with respect to ethical theories; the Mattel’s response to
stakeholders; children’s toys concern safety issues and important steps to make sure the toy
safety; and at the end lesson for the Mattel from the event of toys recalls.
This report will show the response of the Mattel according to the above ethical and stakeholder
management concepts, this report will show that either it has respond according to socially
responsible manner or not. This report will discuss the issue with respect to the Virtue ethics: the
decision maker should “take the steps in a right way at the right time in the right place to do the
right thing”; Utility ethics are tightly concerned with the effects or consequences of an action, a
positive or negative effect on the other; the Rights theory of ethics is grounded in moral
principle, it is related to the norms, and it does not regard the consequences of an action; and
according to the Justice theory of ethics, the human should be treated fairly.
The responsibility to take care the interest of all stakeholders, including shareholders, employees,
investors, suppliers, customers, society, etc. is called stakeholder management. In business the
stakeholder management is crucial for success and the organization should regard the contracts
and agreements concern to stakeholders according to ethical standards. It is the role of the
management to adopt the strategies those could inspire the stakeholders to put their all exertions
for the production of quality products. The organizations those failing to treat their stakeholders
properly are damned to failure. this report will discuss the important role of different segments of
the society, as to improve the toys and other product, retailers, parents of the children, the
Government, standard setting agencies and toy industry have huge obligation and responsibility.
At the end this report will show the significant lesson for the Mattel from the toy recall event.

2.0. The Matte, Inc. and the Toys Safety Controversy
Mattel, Inc. is considered as a leader in toys and family products worldwide. Mattel, Inc. has
designed and manufactured various famous brands such as Disney, Tyco, Cabbage Patch Kids,
Barbie doll, Fisher-Price, Hot Wheels, Matchbox, board games, etc. The company started in
1945 with the business of picture frames, but soon the company switched to the toy business.
The company has offices all over the world, and its headquartered is situated in El Segundo,
California. Its annual revenue is nearly $5.9 billion.
Product recalls are normal practice in the business environment, especially in some industries,
Mattel Inc. has been more than 14 safety recalls since 2007 but the recalls of the toys at the
season of Christmas in 2007 were different from normal due to its time and circumstance of its
occurrence. That Christmas was the occasion, that Mattel Inc. must remember to learn a lesson;
there were two unlike recalls for two unlike reasons, the first was due to the lead paint and the
second was due to the loose magnets; during that recalls Mattel had faced the bitter response of
the media and general public. The issue has come out when a European retailer disclosed that
toys by Mattel contain lead paint. Investigation revealed that about 10 million toys made in
China were involved. Mattel, On August 2, 2007, declared a recall of lead paint affected toys. In
September 2007, Mattel announced another recall due to the issue of loose magnets used in the
toys that could cause the choking hazards in babies in this case Mattel recalled more than 21
million toys despite the lawsuits.

3.0. The Controversy in terms of Business Ethical Theories
The business ethics are related to the applied ethics branches of ethics. The business ethics are
important code of conduct to address the problems related to moral and principles that have been
arisen in a business. The question is that why the business ethics is important, because in this era
the business organizations gaining power and influences of the society. In business, sometimes
situations arise where the issues of right and wrong gain importance, to address those situations,
business ethics help to assess those situations either wrong and right morally. Generally, people
are more conscious about ethics as they desire to live their lives in a good manner and in a good
society. Business is not apart from society and people, that’s why it could be asserted that the
ethics and business are not separate. Business ethics address the matters that are not covered
under the law.
Global ethical problems have taken the serious involvement; there is a rising demand for positive
responses from business organization. Business organizations have to take care of the global
code of conduct that is a set of principles or guidelines that institute the ethical standards,
especially when it goes for international business. International business codes of conduct have
gained the importance as a vital component in the world economy with the development of
international business. It is evidenced that organizations operating in global environment have
produced ethical issues with regard to important stakeholders; consumers, human rights,
employees; the natural environment, and developing nations. The international business
environment; Different cultural and legal systems; and the use of technology also create ethical
conflicts dilemmas, and complications for the organizations. The ethical dilemma is the
condition when the values of different entities are conflicting. In the following paragraphs, the
virtue, utility, right and justice ethical theories will be discussed.
3.1. The Virtue ethics:
Virtue ethics underlie appropriate qualities related to behavior and the appropriate action to take.
It does not set any standards that are different from the general standard ethical theories to assess
the possible decisions. Instead, it stress on individuals’ internal characteristics with those they
want to establish a trusted relationship. For this concept, the decision maker could “take the steps
in a right way at the right time in the right place to do the right thing”. Virtue Ethics is also
known as applied ethics or professional ethics, its mean “Be a good person”, on the other way it
is also known as corporate or business ethics that analyze ethical problems in the business
environment in the light of ethical principles. Sometimes, it is reported as a substitute approach
to ethics altogether. A virtue is not exactly a notion it is an attribute that leads to a person doing
well as a human being. For example bribe is not wrong as it has bad results not as it breaks the
rules, but as it is not a deed that an honest and virtuous person does. In the case of Mattel, did not
act in an ethical manner as it delayed to take action of toys recalls upon the exploration of defect
in toys.
3.2. The utility theory:
The utility theory is related to the utilitarian approach, as the ethics could be divided into two
prominent classes: the first one is the utilitarian class of ethics and the second is the
deontological class of ethics. According to the utilitarian class of ethics is tightly concerned
with the effects or consequences of an action. Its mean the consequences of the action of any
entity will produce a positive or negative effect on the other. According to this theory, firstly,

actions or activities are evaluated right or wrong upon the scale of their consequences, actions
with good consequences are right actions; secondly, actions or activities are evaluated upon the
scale of happiness, the right actions yield the greatest amount of happiness ( Hill, 2014). In the
case of Mattel, the action of shifting the production of toys in the China to reduce the cost
brings the consequences of low product quality that contribute towards the potential dangers to
children, share price decline, and worries in the life of its customers not happiness.
3.3. The rights theory:
The rights theory of ethics is related to the deontological class of ethics that is predominately
grounded on moral principle, it is related to the norms, and it does not regard the consequences
of an action. According to the deontological class of ethics, the act of lying is unethical
nevertheless what it has consequences ( Nantel & Weeks, 1996). Rights ethics theory imitates
that individuals have an appropriate claim of to be honored with the right of privacy, and
freedom of speech. It has been derived from Kant’s theory that states, everyone should act for
other having certain rights as moral agent. This concept is instituted on certain moral rules that
are also called the moral principle that also ask for the catholicity of moral actions. Ethics and
morality are same, could be used interchangeably, morality is all about the values, norms,
believes. The moral values and norms also demand for responsibility of the organization to make
a repair or compensation for wrongdoing. The examples of such salient cases are damage to the
environment and persons. ( Arnold, Audi, & Zwolinski, 2010). Morally it was wrong to use the
lead paint on the children's toys with respect to, health, safety, and in the same way the use of
loose magnet is also unethical.
3.4. The Justice theory:
According to the Justice theory of ethics, the human should be treated fairly especially in the
matter of health care. The justice theory’s conceptualizations rooted back to fifth century B.C of
Plato and Aristotle, and the significant modern contribution is made by John Rawls. The
significant factors of this theory are nonpartisanship, impartiality, fairness, and equity. These
conceptions demand to take actions that could show relative treatment of all groups and
individuals (Rawls, 1999). Including the positive responsibility to avoid and correct injustice.
The factor of the justice is applicable to almost all human relations, particularly in the process of
distribution of burden and benefits. Its significant practical applications are in business: within
the organization the conduct of employees (promotion, bonus, and salary), outside the
organization conduct with (its supplier, customers, and society in which it operates) (Rawls,
1971). It will be an unjustified act if the people are harmed by somebody that is also unwilling to
recompense. The justices theories of ethics are not considered as moral theories since it is
somewhat that are more particular and should be treated distinguish from morality. According to
this theory the controversy of lead paint and the loose magnet was injustice.
In my point of view above mentioned four theories are applicable on Mattel’s decision, because
these four theories has implication in decision making in the case of toys controversy of Mattel,
and to be ethical the Mattel should follow the concepts the four theories. As according to the
virtue ethics theory the decision maker could “take the steps in a right way at the right time in the
right place to do the right thing”, as In the case of Mattel, it did not act in an ethical manner as it
delayed to take action of toys recalls upon the exploration of defect in toys; the utilitarian class
of ethics is tightly concerned with the effects or consequences of an action, its mean the

consequences of the action of any entity will produce a positive or negative effect on the other, in
the case of Mattel, the action of shifting the production of toys in the China to reduce the cost
brings the consequences of low product quality that contribute towards the potential dangers to
children, share price decline, and worries in the life of its customers not happiness; the Rights
theory of ethics is related to the norms, and it does not regard the consequences of an action,
ethics and morality are same, morally it was wrong to use the lead paint on the children's toys
with respect to, health, safety, and in the same way the use of loose magnet is also unethical; and
according to the Justice theory of ethics, the human should be treated fairly these conceptions
demand to take actions that could show relative treatment of all groups and individuals, in the
case of Mattel the use of lead paint and the loose magnet was injustice.
4.0. Stakeholder Management & Business Ethics

The concept of a stakeholder management has significant importance in organizational
management and in the business ethics framework. This concept was firstly used by Freeman,
(1984) in his book that adumbrates the ways for management to gratify the interests of all
stakeholders (Boatright, 2006). The responsibility to take care the interest of all stakeholders,
including shareholders, employees, investors, suppliers, customers, society, etc. is called
stakeholder management. In the organization stakeholders are in different group or segments
“groups who can affect, or who are affected by the activities of the firm” (Freeman, 1984).
According to the stakeholder management, it is the responsibility of the management to take
such decisions that could benefit the all segments through market and there should be no need for
the management to take decision for one segment. As in the business the managers’ act as the
agents of the owners and the shareholders are the owners of the firm; the ultimate goal of the
organization is to increase the wealth of shareholders that could separate the stockholder and
stakeholder management. Stakeholder management goes wrong by shareholder primacy. In
practice, although some segments of the stakeholders are not treated effectively or management
fails to provide due benefits due to the agreement violation, the failure of the market and
exteriors or due to the effects of third-party.
Mattel operates in many countries so it is considered that it should abide by the all the
regulations and laws of each country. In the case of employees, Mattel takes care of due rights of
its employees, provides render a safe working conditions and environment. According to the
governing laws and regulations, all Mattel manufactories and vendors set the wages (workers are
paid as per local standard or at least minimum wage), overtime, and working hours. It is
prohibited in Mattel to work under the age of 16; it is declared by it that Mattel produces
products for children not jobs. Mattel, Inc. uses no prison or forced labor, favoritism is not
allowed in Mattel, Inc.
It is postulated by the Mattel, Inc. that it will go hand in hand with those partners, suppliers, or
manufacturers who abide by all the relevant regulations and laws and contribution the dedication
to the environment. The Mattel Inc. emphasizes on their partners, vendors, and all facilities to
employ best efforts to adopt ethical and legal business practices; should follow the national and
local laws and regulations of the countries. Regarding to the product quality and safety, Mattel,
Inc. announced for all business cooperators to contribute their allegiance to product quality and
safety and must be clinging to the essential operating practices to conform the rigorous quality
and safety standards.
It is the role of the management to adopt the strategies those could inspire the stakeholders to put
their all exertions for the production of quality products. The organizations those failing to treat
their stakeholders properly are damned to failure. As this happened in the case of Mattel, because
it failed to adopt the strategies that could adhere its counterparts to the Mattel’s adopted policy of
high standards, and its best efforts to produce the safest product, that came it under the
controversy of unsafe toys. It was mainly due to the no adherence to all overseas manufacturers
to Mattel’s policies and standards. It was due to the negligence one segment of stakeholder of the
organization and other segment suffers from it. The overseas manufacturers used the high
percentage of dangerous lead in the paint of toys, in the other case they fixed the loose magnets
in the toys that could be swallowed by children.

Above paragraphs show that the Mattel, did not manage properly all the segment of stakeholders,
especially it fails to manage its suppliers, vendors, and contractors that used the low quality material
in manufacturing of toys that lead the Mattel’s customers at risk, on the other hand it fails to abide by
the laws and regulation of the state. It could be concluded that Mattel did not manage its stakeholders
effectively. After the controversy of toys safety the Mattel should act in delicate and careful manner
with all segments of the stakeholders, on the one side with its manufacturer and suppliers in China to
enforce the quality related laws and regulations to achieve the high quality products; on the other side
the organization should also reassure the other segments of the stakeholders that the organization will
not sacrifice the quality of its productions by shifting the production in China this will help the
Mattel to enhance the customers’ confidence as well.
5.0. Mattel’s Response on Issues

In the business organizations, the management have to take different actions to gain confidence and
trust of their main stakeholders that are the part of stakeholder management, especially, when goes
for global operation. In the global environment organization take several actions to improve the
business ethics, global codes of conduct, corporate citizenship, and corporate social responsibility to
improve corporate behavior, particularly in developing countries. Organizations in this regard
formulate different rules, regulations, requirements, and code of conduct. The Mattel Inc. had laid
down various rules; regulations, requirements, and code of conduct. Mattel Inc., in 1997 has
formulated a global code of conduct, known as “Global Manufacturing Principles.” According to its
global standards the vendors have to buy the paint for toys from specific certified suppliers. It was
required by the Mattel that the paint should be tested to ensure that they are according to the laid
down standards, it was also required by the Mattel that the vendors and certified suppliers should be
audited to ensure compliance of the laid down standards.
The logics that some people give in the favor of Mattel response in the event of toys recalls
controversy show Mattel Inc. acts in the socially responsible manner because when Mattel
announce the monolithic recalls of potentially dangerous toys for children and had confronted
the negative response of the media and the general public. Toys recalls were with the aim to save
the children from harm as the toys were defective in design by unscrupulous industries of China.
Mattel recognized that harmful toys could not be left for sale nevertheless there was season of
Christmas the season of the huge sale of toys; on the same time, the economy of the country also
bearing financial crisis. Therefore, in a condition when the season of sale is on, the consumer
confidence is lower due to economy position, the step of recalls by Mattel was looking to be a
brave step to safeguard the children from the danger of potentially harmful toys, consequently
jeopardizes its position, reputation, and its share value fall down more than by 45% (Casey,
2008). The unexpected recalls show the Mattel’s efficient short-term strategy of crisis
communication. With the help of Consumer Product Safety Commission Mattel communicate
the recall to the general public with hastening speed by sending personal letters to customers and
retailers; arranged newspaper ads; posting the notice in 20 different languages on its website; and
also take the help of media to communicate.
In the toy safety controversy, I think Mattel did not behave in a socially responsible manner with
respect to safety of toys along with the concepts of stakeholders’ management. Nevertheless, Mattel
missed the complete compliance of the all standard because the Mattel did not take strict action to
oversee the compliance especially in china. In this way, Mattel allow industry, companies, and
almost the children exposed. Mattel expend a huge and disproportional amount of exertion on
upholding its repute by use of media. Infect, Mattel misinformed the general public to conceive that
Chinese manufacturers and suppliers has committed the mistakes of lead paint contamination and the
loose magnets but actually the issue of loose magnet in the toys purely related to the Mattel’s internal
design flaw; eventually, Mattel accepted that the recall due to the magnet was not the fault of China’s
manufacturer.
The above mentioned Mattel’s successful positive reactions never entirely avoid its errors and
mistakes. There were vast mistakes those show the Mattel Inc. didn’t response to the controversy
of toys recalls in socially responsible manner; evidence show that the surmised taint paint was
reported two months earlier to first recalls in August e.g. in June. This delay in the action upon
the harmful product might demonstrate the Mattel's anteriority towards business interests by
dominating the interest of its customers and products quality. It was the duty of the Mattel

organization to abide by the all rules and regulations of the Consumer Product Safety
Commission, according to which organization must report the issues of potential hazards within
24 hours of espial. It is witnessed that Mattel announced the defect of Power Wheels in 2001
after three years, and again in 2007 after six years Mattel delayed two months. The question is
why Mattel failed twice to fulfill the reporting regulations of federal agency; stakeholders,
investors and consumers are also astonished that why the organization is deficient in the
infrastructure and procedures to avoid the similar issues.
6.0. The Safety of Children's Toys

It is the duty of all of us to improve the toys and other product related to our children health and
life. To achieve this goal, we could divide effective people in different groups to work together
for the betterment of toys for children with common motivator, having different expertise in their
fields.
6.1. Government Regulators:
The U.S. government has laid down various laws and regulation to ensure the safety of toys, it
completely disallow the use of lead paint on toys exported to the country, emphasize the more
inspections of the toys that are imported. Governments in the “Code of Federal Regulations” laid
down the relevant instructions related to toys safety (Toy Safety Standards Around the World,
2011). US Government also have rendered and governed trainings, enhanced the surveillance
over the organization retailers, departmental stores, importers, and hold them accountable when
not complying with the lay down standards. The China Government also takes serious action on
the safety of toys and launched a committee of cabinet-level to enhance the safety and quality of
their products. From 2007 the toy industry in china is regulated, chain government has launched
the “China Compulsory Certification (CCC)”. Now in china no toy could leave the factory until
the certification of CCC. They also cancelled the export license of the organization that apply
the paint of lead; also introduced the new recall system regarding to children’s products with the
aim to crack down on poor-quality products. Chinese government also corresponded in positive
way to forbid the application of lead paint on products exported to the U.S., and regular dialogue
with safety regulators of America to enhance the inspections and safety.
6.2. Consumers Advocate:
The Consumer Advocates are relating to the safety of the products. Their duty is to conduct the
safety certification programs, to do pre-shipment inspections. Parents of the children who go for
purchasing of toys for their children are the main advocates should emphasize on the toy
manufactures to make the safe toys, and to follow the safety regulations and standards. In the
children toys business the parents and retailers are considered as the greatest stakeholders.
Parents should check the toys from time to time for broken parts, looseness, and for wear tear if
found any discrepancy should be removed. The parents while purchasing toys should check the
material of the toy, percentage of lead, and should not take the toys with long strings that could
engage in the infant’s neck. Parents should teach their children about the safe use of the toys.
6.3. The Toy Industry:
The toys industry should follow the safety standard and safety regulations to ensure the safety of
our children. They have to implement the standards and procedures lay downed for testing and
verifying that their toys are safe in all respect. In this regard it is the duty of organizations to
ensure that they have testing labs according to the standard and the staff is qualified. The
organization should ensure that they are rendering proper trainings to the employees and working
staffs that are part of the manufacturing and marketing process. The toy industry should follow
the directive and standards related to toys while designing, manufacturing and testing them. The
manufacturer should insure the proper testing of the toys in respect to their flammability,
electrical, mechanical, chemical safeties and should be labeled with material specifications, age
limit of children,
6.4. Children’s Product Retailers: