Thursday, August 16, 2007

The Market Imposes a $2.75 Billion Fine on Mattel

Mattel stock price, March-August 2007
Mattel vs. S&P500, March-August 2007:
The discipline of the market can be strict, swift and severe. Mattel's stock price has dropped by almost 24% since late May (see chart above), largely due to two separate recalls of Chinese-made toys, which represents a $2.75 billion penalty for Mattel in the form of a loss of market value from about $11.45 billion in late May vs. $8.7 billion today (even accounting for the overall recent decline in stock prices (red line is S&P500), Matell (blue line) has fallen even further).

See related Forbes article here.

Bottom Line: Market competition is often the ultimate regulator. Who needs the FTC and FDA when you've got the market imposing immediate fines and discpline?

6 Comments:

At 8/16/2007 11:56 PM, Anonymous Anonymous said...

The fine is imposed on Mattel shareholders. I don't think Mattel management ever consulted them on the risks of blindly buying in China.

 
At 8/17/2007 1:35 AM, Anonymous Sudha Shenoy said...

Mattel management are there to _manage_: On how many _other_ management decisions were shareholders consulted? Shareholders are the ultimate owners: they're responsible. Let them now change the managers, or demand to be consulted before _every_ management decision.

 
At 8/17/2007 6:10 AM, Blogger Walt G. said...

“Who needs the FTC and FDA when you've got the market imposing immediate fines and discpline?”

This seems like a call to expand the FTC, FDA and other consumer protection groups. By the time the market reacts, the damage is already done. People may even die in the meantime. Do you like brushing your teeth with anti-freeze and feeding your dog plastic dog food?

Would Mattel have checked for the lead-based paint without oversight? It's blatantly obvious that China can't inspect or meet basic safety standards for export, so imported items will have to be inspected upon arrival in the U.S. to protect the consumer. This seems like a call to expand the FTC, FDA and other consumer protection groups.

When can we expect Mattel's management to commit suicide? With the way global C.E.Os are paid, they’ll probably get a raise instead, or a golden parachute to leave.

 
At 8/17/2007 8:40 AM, Blogger Gregory said...

Well, since we already have an FTC and FDA, and yet the damage was already done, when are the heads of these government organizations going to commit suicide?

Using your logic, instead of suicide they are to be given even larger organizations with even more power. Nice incentives: fail, get a raise.

At least at Mattel, their fuckup means they lose money immediately and sell fewer toys in the future.

In the market, harm consumers and your organization shrinks as it is displaced by competitors.

In the government, harm consumers and your organization expands as it gobbles up competitors. Perhaps George Bush can also give them the medal of freedom.

So, who is it that has the conflict of interest?

 
At 8/17/2007 9:50 AM, Blogger Walt G. said...

Globalization has some built-in problems for accountability. Why shouldn’t manufacturers, Chinese or otherwise, be held to acceptable standards for the products that they are legally contracted to produce. Apparently that’s not their way of thinking. Is there a cultural disconnect at work here. See a Chinese official’s remarks below.

“An official of a trade group, the China National Light Industry Council, argued that responsibility for meeting foreign standards should not lie with Chinese manufacturers.

"The quality of Chinese-made toys with American brands should be the responsibility of the American brand owner, not the Chinese manufacturer," said Zhang Yanfen, secretary of the council's panel on toy standards.”"
Source: Forbes Website 8-15-2007

 
At 8/18/2007 6:41 AM, Blogger juandos said...

Amen Sudha Shenoy!

Let kids continue to suck on lead tainted toys and they'll start sounding like Hillary Clinton or John Edwards...

 

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