Q&A/Discussing Today’s Business Trends:
Risk Management—One Industry Perspective
Wendy’s International, Inc., is one of the world’s largest restaurant operating and franchising companies, with approximately 6,000 restaurants primarily operating under the Wendy’s Old Fashioned Hamburgers® brand. Much Shelist spoke with Joseph Karpowicz, Vice President and Assistant General Counsel at Wendy’s, about emerging trends in risk management, and how the food-service industry is addressing these concerns.
Much Shelist: What are some of the key risk management trends affecting today’s businesses?
Joseph Karpowicz: One of the major issues businesses currently face is the growth in regulatory oversight and legislative action at the state and local level. For example, product safety concerns have traditionally been handled at the federal level, through government agencies such as the FDA, the USDA and the Consumer Product Safety Commission.
Now, states and municipalities are taking action on issues that are important to their constituencies. For example, in December 2006, New York City’s Board of Health approved proposals requiring certain restaurants to display calorie information on all visible menus, whether posted over a counter or handheld.
Other municipalities have banned the use of trans fats in the preparation of food products. In California, Proposition 65 would require businesses to post warnings relating to products that contain acrylamide, a substance that occurs naturally in foods such as olives, asparagus and prunes and that is formed when foods containing carbohydrates are cooked at high temperatures (as in corn chips, french fries, cereals and bread). Although acrylamide is present in approximately 40% of foods eaten by consumers—and has been since food was first cooked—it is also a suspected carcinogen when consumed in large amounts.
MS: What is driving this level of regulatory oversight?
JK: Today, much of it comes from the bottom up. Regulation has traditionally been initiated by government agencies that sponsored or conducted the research and subsequently set policy. Now, special interest activists are driving much of this action. In obesity lawsuits, for example, activists are accusing businesses of failure to warn and other violations under existing consumer protection statutes.
MS: What are some of the effects of these regulations?
JK: One major outcome is the creation of a patchwork of laws and regulations, many of them in conflict with each other, spreading across the country. This makes it difficult for businesses—especially national and multinational companies—to comply with every statute. It also has a complicating effect on business planning, financial modeling, training, delivery, new product development and the like.
Some of these laws also punish businesses that are trying to do the right thing. For example, the New York labeling law applies only to restaurants that already offer nutrition information to their customers. While cynics have characterized this as an attempt to promote single-operation, family-owned businesses and hinder larger chain restaurants, the simple fact is that a company, such as Wendy’s, that provides nutrition information on its website and in print materials at its restaurants, now must take the added step of labeling menus. We are currently determining how to comply with these laws, especially when many of our products are made-to-order.
At a consumer level, there are concerns that certain legislation may have an adverse effect on individuals. With respect to the acrylamide issue and Proposition 65, the FDA has warned that unfounded fears of acrylamide may cause dietary changes that could actually have significant negative consequences.
MS: Recent outbreaks of foodborne illnesses have made headlines. Is the food-service industry more susceptible to risk than other industries?
JK: Yes and no. Every company has risks that are unique to its industry and business. By virtue of the products and services we provide, food-service businesses are exposed to risks, including foodborne illnesses, that do not concern other companies. On the other hand, virtually all enterprises face a number of common issues: employee and customer safety, corporate accountability, white-collar crime and employee relations, among others. No matter what the risk, the processes for minimizing the likelihood of their occurrence are similar across all industries.
But to address the recent headlines, the prevention of foodborne illnesses is an ongoing focus for a company like Wendy’s. Every day, we engage in millions of transactions with our customers around the world. Our own kitchen and food-handling standards are among the most stringent possible—they must be, in order to ensure the health of our employees and customers.
As we’ve seen in recent cases, an isolated problem can have a domino effect. This is especially frustrating when the source of the contamination is beyond a company’s control (e.g., a faulty product—such as bagged, chopped lettuce—provided by a third party). That’s why we also work closely with our vendors to ensure the highest safety standards and minimize our risk.
MS: Given its position in the public eye, is the food-service industry the proverbial canary in the risk management coal mine?
JK: In light of recent publicity, you would think that we are at the leading edge of risk management issues. However, there is a bit of a pendulum effect. At different points in time, certain industries face emerging risk management challenges. If we’re smart, we learn from their experiences to shape our own policies and procedures.
For example, the tobacco industry litigation of the 1990s offered tremendous lessons on product liability, product labeling and failure to warn. Smart businesses assessed that information, and by working cooperatively with federal and other agencies, took steps to protect their customers and their employees from similar risks.
Ultimately, a successful business will have a well-established program that enables it to keep a sharp eye on the risk management horizon.
For more information on Wendy’s International, visit http://www.wendys.com/.
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