Explain the reasons small businesses fail and how small business owners can avoid the major pitfalls of running a business.
Since there is so much writing due this week, please post a COURSE RELATED meme (keep it clean!) related to the reading topics from the course. Course related content may include stakeholders, ethics, globalization, sustainability, technology, etc.
“Lumber Liquidators’ Laminate Flooring People shopping for new flooring for their homes usually focus on appearance and price, not safety. But this changed abruptly in 2015 when the CBS News program, 60 Minutes, aired a segment alleging that wood laminate flooring sold by Lumber Liquidators contained dangerous levels of formaldehyde, leading to a wave of consumer concern about the safety of products they walked on every day.”
“Lumber Liquidators was a leading retailer of hardwood flooring, selling to both home-owners and contractors in around 350 stores in the United States and Canada. It carried a range of products, including solid hardwood; laminate flooring; and bamboo, cork, and vinyl planks. Under the slogan “Hardwood Floors for Less!” the company pursued a low-cost strategy, telling its customers on its website that it negotiated “directly with the mills, eliminating the middleman and passing the savings on to customers.” This strategy had proven successful, and the company had grown steadily since its founding in 1996, earning revenues of over a billion dollars in 2013. Its share price had risen dramatically from $13 in 2011 to $119 in 2013.
Formaldehyde was a strong-smelling chemical used in some building materials and household products because of its properties as a preservative, fungicide, germicide, and disinfectant. In laminate flooring (a cheaper alternative to solid wood), formaldehyde was sometimes used in glues that adhered composites that were then topped with a thin layer of real wood. These products could release formaldehyde into the air, in a process called off-gassing. At relatively low levels, airborne formaldehyde could cause short-term eye, throat, and skin irritation. The chemical’s long-term effects were not fully understood. Some studies showed that formaldehyde caused cancer in rats, and in 1987 the Environ-mental Protection Agency (EPA) classified it as a human carcinogen (cancer-causing agent) under conditions of high or prolonged exposure.
In 2015, regulation of formaldehyde in consumer products was, however, spotty. The EPA had drafted national emission standards, but had not finalized them. The Consumer Product Safety Commission had no rules for formaldehyde. Congress had passed a Form-aldehyde Standards Act, but it had not yet gone into effect. One state—California—had adopted its own standards; in 2008 the California Air Resources Board, known as CARB, had established limits for formaldehyde emissions for composite wood products sold in that state, known as the CARB 2 standards.
In the 60 Minutes segment, which first aired on March 1, 2015, the executive director of the activist organization Global Community Monitor told CBS that his group, working with an environmental attorney, had purchased 150 boxes of laminate flooring from stores in California and sent them to independent labs for testing. Products purchased at Home Depot and Lowe’s—other home improvement stores—met the CARB 2 standards, but every sample of Lumber Liquidators’ products, which were made in China, failed. In some cases, their formaldehyde levels were six to seven times over the standard.
“You’re in a chamber so you’re living with it,” the activist said on the 60 Minutes episode, speaking of consumers with the products installed in their homes. “You’re sleeping in there. And you’re constantly exposed. That’s the threat. The constant exposure to a potent carcinogen over a long period of time.”
60 Minutes followed up by sending investigators to several mills in China that manufactured laminate wood flooring for Lumber Liquidators, posing as buyers and using hidden cameras. In one scene, a Chinese manager said that flooring made with formaldehyde was 10 to 15 percent cheaper and admitted that his mill fraudulently labeled the product. Here was the exchange, as the investigator pointed to laminate flooring the manager had described as a “bestseller for Lumber Liquidators:
Investigator: “Is this CARB 2?”
Manager: “No, no, no. . . . I have to be honest with you. It’s not CARB 2.”
Investigator: “Can I get CARB 2?”
Manager: “Yes, you can. It’s just the price issue. We can make CARB 2 but it would be very expensive”
Interviewed on the 60 Minutes segment, company founder Tom Sullivan stated, “Our goal is to sell a good product at a good price. We get the price by low overhead, huge volume, and being very efficient at what we do. And we’re never going to sell something unsafe.” In response to footage showing the apparently fraudulently labeled product, Sullivan said, “I will guarantee we’ll be in that mill tomorrow and test it. And that is not anything we can condone in any way, to save a cent.
In the wake of the 60 Minutes episode, Lumber Liquidators voluntarily offered free indoor air quality screening to customers who had purchased Chinese-made laminate flooring, suspended all sales of laminate products made in China, and hired an outside organization headed by former FBI director Louis Freeh to review the company’s compliance programs. For their part, advocacy organizations and attorneys pursued several class action product liability lawsuits against Lumber Liquidators, accusing them of endangering consumers and breaking California law. The government also took action; the Consumer Product Safety Commission launched an investigation of Lumber Liquidators in collaboration with several other federal agencies. “We are committed to move as fast as possible to get answers for consumers,” said the CPSC director, “especially for the parents of young children.”
Sources: “Lumber Liquidators Faces U.S. Safety Inquiry,” The New York Times, March 25, 2015; “Lumber Liquidators Under Investigation by Consumer Agency,” Bloomberg Business, March 25, 2015; “Lumber Liquidators Provides Update on Laminate Flooring Sourced from China,” press release, May 7, 2015; and National Cancer Institute, “Formaldehyde and Cancer Risk,” www.cancer.gov. Lumber Liquidators’ website is at www.lumberliquidators.com. The 60 Minutes segment is available at www.cbsnews.com/news/lumber-liquidators-linked-to-health-and-safety-violations” would be very expensive.”
- If you were a manager at Lumber Liquidators, what if anything would you do now, beyond what the company has already done?
- Do you think the government acted appropriately to protect consumers? What more can or should it have done?
- Do you believe that lawsuits filed by consumer activists will help solve the problem of unsafe flooring?