Safety First

Dec. 21, 2004
Toro Co. finds getting the legal department involved early in product development can dramatically reduce the risk of costly lawsuits.

Ken Melrose knows foreseeable misuse when he sees it. However, unforeseeable misuse is another matter. "One fellow, a big guy, picked up his mower and tried to trim his hedge with it," says Melrose, chairman, CEO, and president of Toro Co., Bloomington, Minn. (Toro is a leading manufacturer of outdoor-work equipment for consumer and commercial use, including power lawn mowers.) "That is unforeseeable misuse, and the difference between the two is crucial. At some point there has to be some judgment used. "Still, in designing a product we must allow for irresponsibility and bad judgment. You cant just argue, It clearly states in the manual or the video that you are not supposed to do that. We assume there will be some degree of misuse. To the extent we can foresee it, the philosophy is to design a product that can go through foreseeable misuses without any injury." A product-liability lawsuit can be devastating to a small-to-medium-sized company and can be a blow to even the largest companies. Jury Verdict Research, Hiroshima, Pa. -- which maintains a nationwide database of personal-injury cases -- reports that the average award in product-liability lawsuits was $773,000 in 1996. The average settlement was $176,000. Punitive damages in the 6% of cases that reached a verdict averaged $2.5 million. These figures dont give the complete picture. "When we talk to people about prevention," says product-liability-prevention specialist Kenneth Ross of Bowman & Brooke, Minneapolis, "we say there are a whole lot of things in addition to the cost of the case [to consider] -- things like the good name of the company and executive time." The concept of foreseeable misuse became an important factor in product-liability lawsuits in the 1970s, with a series of precedent-setting cases. The fact that the product was being misused was far less likely to be a defense in a product-liability lawsuit. For Toro, the legal principle of foreseeable misuse presents a major challenge. Steel blades on Toro products rotate at thousands of revolutions per minute just inches from the operators foot. Toro work vehicles maneuver around uneven terrain, such as golf courses and parks, where they are at risk for rollovers. The list of potential injuries is long, ranging from minor engine burns to dangerous penetrating wounds. Toros business is inherently at risk for product-liability lawsuits, and for years it had its share of them. But Melrose says the number of such lawsuits during the last several years has been reduced to virtually zero. "Toro has essentially exited the product-liability system," says assistant general counsel James J. Seifert. "We have not had a single officer in the whole company deposed or sidetracked from management duties in the 1990s." Toros record on product liability reflects a conscious strategy that Melrose began to implement at the beginning of the decade. A major component has been to integrate the legal department into product development at the earliest stage and for the duration of the process.Today, he says, safety is a key component of every product that Toro develops. "We treat safety just like we treat durability, aesthetics, or cost," he says. "We want to design a product that is not -- in Seiferts term -- legally defective." Under One Roof Toro, which had more than $1 billion in sales in 1997, has manufacturing facilities in nine states. But most product development takes place at the Bloomington facility, a sprawling one-story complex that also includes corporate headquarters. The technical group includes about 300 employees, who work at computers in relatively informal surroundings or in the immaculate factory-sized shops in which prototypes are built. The annual research-and-development budget is about $30 million. "Building prototypes is an enormous job of procurement and material management," explains Jim Swindal, managing director-technical operations for the commercial division. "On the commercial side, there are some big machines, containing from 1,500 to 3,000 parts." Small parts can be "drawn" on a computer, rotated, analyzed for stress points, modified, and then machined on the shop floor in one seamless operation. "We can produce a prototype in a very short time," Swindal says. Toros engineering efficiencies are state-of-the-art, but not that unusual for a successful small-to-medium-sized manufacturing company with an evolving product line. What is more unusual is having corporate functions, including legal, located so close to engineering and having an assistant general counsel who works as closely and apparently smoothly as Seifert does with the engineers. "Ive been in product creation 35 years, 26 of them here at Toro," Swindal says. "Jim Seifert brought a different way of thinking about these things. Formerly, there was a focus on litigation-defense posture, and legal was outside the development process. And as a group they were not very product-knowledgeable. When they did get involved with product development, it was after the fact. After wed gone along for some time, they might say, This isnt going to fly. It was untimely input and often very disturbing to the project. It sounds like a clich but its true: Jim made the legal department part of the development team." A product idea at Toro is likely to begin with a request for seed money from marketing or engineering. It could be anywhere from tens of thousands of dollars up to half a million dollars. "The next step," says Melrose, "if things look promising, is to authorize a product-development team." At that point there is a formalized six-step process that can lead to a product on the market. At each stage of the process, "risk areas" are identified, and Seifert and the engineers are obliged to keep those areas in their sights. "Jim Seifert might say, Now its starting to look like you are treading in one of these risk areas. Im going to instruct the team to go back and come up with a different way of executing that feature." Early prototypes are likely to be tested by Toro employees. Subsequent versions, closer to market, might be tested under formal arrangements with selected customers -- golf-course superintendents, for example. Their use of the product will be videotaped and the tapes scrutinized by Seifert and others on a safety committee. A key to success in this area, say Seifert and engineers involved in the process, is that the safety team looks carefully at actual operator behavior, rather than at idealized or wished-for behavior. The Workman Toro officials cite the Workman as the prime example of the way the Toro design process works. The Workman is a multipurpose vehicle much in demand by golf-course managers and others who have a large expanse of turf to maintain. With its functional, clean lines and its wide tires, it looks like something that might have been designed for work on the moon. Development on the Workman began in January 1989, shortly before Seifert was hired. It turned out to be the biggest single project ever undertaken by the company, with total development costs exceeding $10 million. The project began shortly after Toro lost out on a bid to buy Racine, Wis.-based Cushman, its major competitor in the utility-vehicle field, says David S. Klis, senior engineering manager in Toros commercial division. "Our chairman said, We lost the bid, but we think we can get into the business ourselves," Klis says. He and marketing manager Richard T. Cairns became development-team leaders. "I called our first team meeting Jan. 2, 1990," Klis says. "We were really starting from scratch." The market at the time was dominated by three-wheel utility vehicles, which were highly maneuverable and relatively cheap. But Toros research and testing soon revealed a problem. "We found out," says Cairns, "how easily these things can tip over." The engineers didnt like it, says Klis, and neither did Seifert. For one thing, in product-liability matters, knowledge can be fatal. What the company now had on record was just the kind of material that could be damning years later in a lawsuit. Four-wheelers were safer, but the competition had the market with three-wheelers, and three-wheelers were cheaper. There was, says Klis, tension between engineering and upper management on this score. "Seifert," Klis says, "was instrumental in refereeing the fight. He explained that we should go after safety." At that point, Toro engineers made a breakthrough, designing a four-wheel configuration that was almost as maneuverable as a three-wheeler. But there was a kicker. It added $200 to the vehicles cost. The problem essentially had been transformed from an engineering dilemma to a marketing dilemma. Again Seifert was enlisted to solve it. The strategy, says Klis, was to put out publicity, first as a trade-journal article that alluded to safety problems with the three-wheelers and the research that Toro had done indicating that many golf-course superintendents recognized those problems. "Jim was really into helping us write that article," Klis says. The design decision to go with four wheels was perhaps the most critical, but there were others nearly as fundamental. Testing of prototypes revealed that even with four wheels and the addition of a stabilizer bar, some rollovers were inevitable. Attention turned to a rollover protection system, or ROPS. Essentially a ROPS consists of an overhead metal bar or frame member. "Again, Jim was very helpful as an in-between person between the design team and upper management," Klis says. "When the competition doesnt have something and you have to add it, that is going to make your product to some degree less competitive. That is the great fear: You add a $60 or $100 part that the competition doesnt have, and you cant compete." The rollover bar was accepted. That led to a third major decision having to do with seat belts. The conclusion was surprising. Seat belts normally are considered an essential component of rollover protection, because if the operator or passenger is not held in place, he or she could end up between the rollover bar and the ground, with obvious and dire consequences. To help analyze the problem the company brought in an outside consultant, someone who also served as an expert witness in rollover lawsuits. With the consultants input, Toro decided that in this case seat belts wouldnt work. The reason: Company studies showed the average time someone ran a golf-course utility vehicle before getting off and then on again was a little more than two minutes. This meant that in practice almost nobody would buckle up. Seat belts might be politically correct, but given the evolution of the doctrine of foreseeable misuse, their presence probably would not win a lawsuit or save a life. As an alternative, Toro designed metal hip restraints that keep the passengers from sliding sideways, along with an auxiliary bar for the passenger to grip in the event of a mishap. Instructions on the vehicle tell the operator to hang onto the steering wheel and advise the passenger to grab the bar. Skeptics might point out that nobody reads instructions during a rollover. But according to Toro, grasping the steering wheel or a bar, if there is one, is an instinctive reaction during this kind of mishap. The combined system of an ROPS, hip restraints, and support bar did raise the price of the vehicle. "What I did," Seifert says, "is present the long-term liability risk of not doing it. And when you compare that to the small incremental cost, it was an easy judgment to make." "Essentially," Klis says, "Seifert was an advocate for us. Engineers basically want to do the right thing, and they are usually very safety-conscious. But then you have marketing and sales and upper-management, all of whom want the best product at the lowest cost -- and of course we do, too -- but sometimes safety gets in the way. It shouldnt. And thats where our legal department came in very handy, through the whole process." A Key Alternative The final component of the safety program is the alternative dispute-resolution system. "We treat an accident or an injury as a human and not a legal issue," Melrose says. "Jim or someone on his team will always go confront the customer or the customers family and say, Look, we want to understand what happened here. They hop on a plane when they hear someone got hurt -- sometimes before they have called their lawyer. "Our intention is to make the family whole if we can. We want the customer to know that we dont want to fight them in court, but we want to correct the problem and do what we can for them. We consider them customers, not adversaries. They bought our product in good faith, and something unfortunate happened. We want to meet them in their homes and say we are really sorry, and we ask what we can do. "That doesnt necessarily mean that there are not lawyers involved, but ever since we started this program we havent ended up in court yet."

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