A new study reveals the following about the recall of medical devices and the behaviors of their CEOs:
The greater the level of stock ownership by the CEO, the longer the delay in issuing the recall for the medical device
The greater the defect in the medical device, the longer the delay
The greater the delay in recalling the medical device, the more the stock market punishes the company
While it is true that the delay could be the result of trying to determine the root cause of the defect, the studies offer the wisdom of the ages: If a company has bad news, take your pain: Get the information out there and get it over with. With medical devices, the motivation to disclose early and often should be paramount because lives and health hang in the balance.
For board members, watch the CEO’s stock ownership and review and discuss delay risks in recalls. And it must follow, as the night the day, the market punishes the stock of companies with recalls, as it should. However, wait too long and the market punishment is greater because the market punishes for lack of trust and not just the costs and litigation that come with product defects.
Jessica Darby, David J. Kitchen, Jr., George P. Ball, and Ijjal Mukherjee, “CEO Stock Ownership, Recall Timing, and Stock Market Penalties,” Manufacturing & Service Operations Management (2023),