After a brief sabbatical, Legalliteracy is back; and what better day to return than today — May 1st — Law Day.  While some people hiss and boo at lawyers and lawsuits and otherwise poke fun at a profession they think takes itself too seriously, let’s not forget that a mature legal system and rule of law does have some real business advantages.  Advantages that should be celebrated.

An enforceable system of contracts and reliable property rights provides the stability necessary to support solid economic growth and prosperity.  The process of accountability creates trust and confidence.  It is precisely that trust and confidence that lets a business deal be a calculated risk instead of a gamble.

Indeed, the consequences of a developing rule of law and the business risk it creates was driven home last week by Home Depot’s top legal beagle, Jack A. VanWoerkom, who shared his views about the risk of doing business in fast growing foreign markets.  His views were informed by his international experiences at Home Depot as well as the chief legal positions he has previously held at three other global companies.

Here are a few of his candid observations: 

Sao Paolo is a very dangerous place to do business, if you are in Brazil, you operate with a body guard.  [One of my former employer’s competitors in Brazil] paid bribes, the other [competitor] didn’t pay taxes.  It was widely accepted and considered a competitive advantage

[Indian] courts are overwhelmed.  I have great concerns about the enforceability of contracts.  [Extreme poverty and separation of people into social and economic groups causes] people to either manipulate or buy justice.

China has only had property ownership for about 15 years, [its economy and business infrastructure is] very immature.

I did not buy a business in Russia because the level of corruption was so great it just didn’t seem worth it.

Doing business in the world’s fastest growing markets sounds very good; but when things go bad they can go bad very quickly simply because there is no effective recourse when contracts are breached.  Unfortunately, there is no foolproof way to contract around the law of the jungle. 

 It’s no secret that the U.S. toy industry has been wrestling with product liability issues associated lead based paint used by their foreign suppliers.  Indeed, the health and safety of our children is so important that it has caused a shake-up at the Consumer Product Safety Commission and spawned pending legislation in Congress. 

Unfortunately, this “toy story” is an example of how cheap off-shore labor in unregulated environments can have unintended consequences when the exports subsequently land in markets with higher safety standards.  These disappointed expectations create legal liability, triggering product recalls and lawsuits.  It’s a cautionary tale of how the cheapest solution is not always the least expensive.  But in this case, one company is turning lemons into lemonade. 

Instead of trying to fight the lead paint battle by challenging test results, trivializing their significance, or blaming suppliers, Toys “R” Us took initiative last week and in a judo style flip turned the issue into a marketing coup.  

It voluntarily imposed strict guidelines on its vendors to insure compliance with higher safety standards aimed at reducing lead content in toy coatings.  It also executed a pre-emptive strike on another hot button issue: cadmium.  It instructed its vendors to take immediate steps to eliminate the use of nickle-cadmium batteries from all products manufactured exclusively for Toys “R” Us.  

Being proactive in addressing this product liability issue turns a growing concern and legal liability into a competitive advantage.  It helps build consumer confidence and helps burnish the company’s image as trustworthy.  It also distinguishes Toys “R” Us favorable by carving out a market segment and establishing itself as a leading source for safer toys.  As a new grandmother, I can tell you that such peace of mind is priceless.

Best of all, the company gets mileage out of regulating itself before Congress does it for them and making the announcement on the eve of the Annual American International Toy Fair to maximize buzz probably didn’t hurt either. 

Turning a legal liability into a competitive edge is what Legal Leverage(R) is all about; but you can’t achieve legal leverage without sufficient legal literacy to know where you’re at risk. 

A big Legal Literacy tip of the hat goes to Toys “R” Us this week.  Bravo!