Mattel CEO contrite before Senate

Eckert, testifying before subpanel, says toymaker has an aggressive safety system for its toys made in China; legislators call CPSC an 'inadequate' agency.

By Parija B. Kavilanz, CNNMoney.com senior writer

NEW YORK (CNNMoney.com) -- Mattel CEO Robert Eckert made another public apology Wednesday over unsafe toys that were made in China, and sought to convince a Senate panel that the company was determined to avoid more recalls in the future.

"On behalf of Mattel and its nearly 30,000 employees, I apologize sincerely," said Eckert, who testified before a Senate Appropriations subcommittee on toy safety.

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Sen. Dick Durbin, D-Ill., heads the Senate subcommittee on on Financial Services and General Government, which also oversees the CPSC.

"I can't change the past, but I can change the way we do things," he said.

Referring to Mattel's string of big toy recalls over the summer due to lead paint hazards and choking risks, Eckert blamed Mattel's vendors in China. "As to lead paint on our products, our systems were circumvented, and our standards were violated," he said.

"What has made these events particularly upsetting is that Mattel has long had in place what we believe are some of the most rigorous safety protocols in the toy industry," he said.

Going forward, Eckert said Mattel had two jobs, to prevent what happened from happening again and to let consumers know about recalls at the earliest.

He also outlined a "three-step" safety plan to enforce compliance with all regulations and standards applicable to lead paint. Eckert said every batch of paint its vendors buy would have to be purchased from a certified paint supplier and would be re-tested before it is used.

The paint on products will be tested for lead either by Mattel's own laboratories or by laboratories certified by Mattel before toys reach store shelves. And Eckert said Mattel has increased the frequency of random inspections of vendors and subcontractors for safety and quality compliance with U.S. standards.

Toys "R" Us CEO Jerry Storch, who also testified at Wednesday's hearing, said he supported new legislation that would strengthen third-party testing for toys and make the U.S. Consumer Product Safety Commission (CPSC) more "effective" in combating unsafe products from reaching store shelves.

"We recognize that the issue of toy safety goes well beyond business and directly to the well-being of the families we serve," Storch said.

Storch also outlined new initiatives that the retailer has set forth to ensure that its customers get timely information on recalls. He said these include a new Web site, www.Toysrus.com/Safety, that will contain information about the company's safety standards and procedures as well as specific recall information.

The retailer will also introduce an e-mail notification system for recalls and new safety boards in stores with product safety information, including recall notices.

Moreover, he said Toys "R" Us would support increasing penalties for noncompliance from vendors on safety issues.

"We are also moving to require that our vendors submit to us certification of testing for each batch coming to Toys "R" Us," he said. "To reinforce this direction, we strongly support strengthening third-party testing."

U.S. product safety agency 'inadequate'

Sen. Dick Durbin, D-Ill., who heads the Senate subcommittee on Financial Services and General Government, which also oversees the CPSC, announced the decision to hold oversight hearings on toy safety this month following successive toy recalls over the summer.

While Durbin said he was "heartened" by the response of the toy industry and what he called "the level of openness" by Mattel to notify the CPSC and the public about the unsafe toys, he was much more critical of the safety agency.

"Our toy safety standards are not as strong as they need to be," Durbin said at the start of the hearing."The CPSC is an agency that many have not noticed until the recent [toy] controversy. It has flown below the radar for most of the time. It has one person responsible for toy safety. This is significantly inadequate."

He said with a staff of just 400 and 30 lab technicians, the CPSC is "not up to the task of building any kind of confidence in consumers," he said, adding that China's agency that handles product safety employs 210,000 people with over 1,800 labs.

"It's hard for me to preach to them [China] when we see what we're dealing with [in the U.S.]," he said.

Moreover, Durbin said the CPSC's jurisdiction covers more than just toys but thousands of different products."As we face the holiday shopping season, families are very concerned," he said.

To his point, the upcoming November-December shopping months account for more than 80 percent of annual toy sales as well as more than half of most retailers' annual profits and sales.

Durbin has introduced bills to modernize the Consumer Product Safety Act, boost funding to the CPSC and increase fines on companies that are found to have sold unsafe products.

Officials with the CPSC countered criticism from Durbin and other senators, saying that the agency was at "crossroads" because of a lack of funding and ongoing proposals by both the Senate and the Congress to reduce its staffing.

The CPSC maintains that its staff of 400 and annual budget of $60 million is not enough to effectively monitor the unprecedented surge in imports from China, which is now the No. 1 source of U.S. imports.

"Any more reduction in staff would put us in a position where we are no longer an effective force in consumer protection," CPSC Commissioner Thomas Moore, said during the hearing.

CPSC's acting chairman, Nancy Nord, also faced tough questioning from Durbin. He asked why the agency did not move to stop imports of children's jewelry from China despite knowing that a large percentage of those products were earlier found to have contained lead.

Durbin said the CPSC initiated a recall of 150 million pieces of children jewelry in 2004. "But we're still receiving lead jewelry from China. What step has the CPSC taken to stop and inspect these shipments?" Durbin asked.

Nord said the CPSC currently does not have the legal authority to ban imports from China. "In January 2007, we issued proposed rulemaking [on that matter] and we intend to take it to the next stage."

Durbin admonished Nord, saying that her response gave "no consolation to families across America."

"I think either the law or the Commission needs to change," he said.

The Consumers Union, publisher of Consumer Reports magazine, also had little praise for the CPSC's ability to limit recalls.

"The CPSC, the watchdog agency that is charged with ensuring the safety of over 15,000 types of products bought and sold in the United States, has no bark and no bite," Sally Greenberg, senior product safety counsel with Consumers Union, said in her comments before the panel. "The CPSC needs more inspectors and investigators to ensure safety and restore consumer confidence."

"We believe the agency hasn't used its full regulatory authority to aggressively move against companies that violate its rules," she said. "Never before has the CPSC been so challenged as an agency."

What's more Greenberg agreed with Durbin that Nord's explanation that the CPSC's hands are tied with regard to banning dangerous jewelry from China was inadequate.

"The agency's hands are not tied. The CPSC statutes give it enough leeway to take a number of actions in that matter," Greenberg said. "If the CPSC has enough evidence that a product is hazardous, it can go to Congress and say its needs help to get a law to put a ban in place."

The CPSC said it has asked legislators to consider updating the Consumer Product Safety Act, which was last updated by Congress in 1990, to address ongoing product safety issues.

Among the changes, the CPSC wants to shorten the 30-day notice given to U.S. companies to investigate safety concerns before they alert the public and to make it unlawful for anyone - manufacturer or retailer - to sell a product that has been recalled.

Both Eckert and Storch said they support the CPSC's recommendations. Storch said the recall process would improve if legislation shortened the time frame between identification of a problem and the eventual recall of that product.

Eckert said Mattel supported more resources for the CPSC. "The work they've done with us over the lead recalls is exemplary," he said.

In June, Oak Brook, Ill.-based RC2 Corp. (Charts) recalled 1.5 million "Thomas & Friends" wooden railway toys that were made in China over concerns that the surface paints on the toys contained lead, a substanstance that can result in toxic poisoning in young children.

Two months later, El Segundo, Calif.-based Mattel (Charts, Fortune 500), the world's largest toymaker and a company reputed to have one of the toughest safety standards in the industry, announced three recalls this summer for millions of Chinese-made toys that were found to contain excessive levels of lead or posed a choking hazard.

On Tuesday, China agreed to ban the use of lead paint on Chinese-made toys that are exported to the United States.

The agreement was announced in Washington at a "Consumer Product Safety Summit" where Chinese officials met with officials from the CPSC to hammer out a game plan to effectively tackle product safety lapses that have resulted in an escalating number of recalls. Top of page

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.