A recent study published in the Journal of Marketing analyzed the adoption of universal demand (UD) laws across different states in the US. These laws, designed to mitigate unwarranted shareholder litigation, inadvertently weaken the ability of shareholders to hold managers accountable. The study reveals a near 30% decrease in the likelihood of managers initiating product recalls as a result of this legislative shift.

Reflecting on these findings, one of the authors Arvid Hoffmann (University of Adelaide) emphasizes, “The most important lesson from our study is that well-intended laws to avoid firms being distracted by frivolous litigation can have unintended negative consequences for consumer safety.”

Hoffmann further advocates for a more comprehensive perspective among policymakers, stating, “Public policymakers should take a more holistic approach when evaluating and anticipating the impact of new regulation, taking into account possible unintended negative consequences for groups of stakeholders that might not seem to be directly involved with the issue at hand.”

 

The article is openly available at: https://doi.org/10.1177/00222429241231236