A little over a year ago the El Segundo-based toymaker was engulfed in a string of recalls involving 2 million toys that had potentially hazardous levels of lead paint. The recalls included some of Mattel’s most popular lines: Sesame Street characters, Sarge cars, and Barbie-brand pet and furniture play sets. Parents got nervous and U.S. lawmakers held hearings on how such a thing could happen to a company that up until then had been considered one of the more reliable American manufacturers in China. What became clear was that such a thing could easily happen - and now, China faces another scandal, this time involving baby milk formula. It’s no doubt more serious than what happened with Mattel - 53,000 infants have been sickened by the tainted formula that was adulterated with an industrial chemical and four have died. But many of the same circumstances were at play in the Mattel case, including a lengthy supply chain and minimal government enforcement. While the company has taken steps to tighten up its inspection process, the system is far from foolproof, as I examine in the October issue of Los Angeles magazine. Here are some snippets:

Mattel has limited the fallout by simply keeping quiet. Since Eckert’s damage-control efforts that summer, the subject has largely disappeared from press releases, Wall Street analyst meetings, and toy industry presentations. Most amazing was an analyst conference call to discuss earnings for the October-December 2007 period. Such calls provide a quarterly review of the company, warts and all, so it would have been the logical time to update investors on how Mattel was improving its quality standards. Yet the topic came up only when Eckert briefly mentioned an ad campaign that ran during the holidays. “I thought it was time to stop talking about lead, and I’m glad we did,” he said. Nor did any of the analysts bring it up. It would be like President Bush delivering his State of the Union address without mentioning Iraq.

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What’s not acknowledged is the reason lead found its way into toys in the first place: too many products being made in too little time for too cheap a price—and in a country where cutting corners is a tolerated business practice. “You’ve built a system that ultimately goes back to consumers who demand the hot toy at exactly the right moment at exactly the right price,” says Dara O’Rourke, an associate professor of environmental and labor policy at the University of California at Berkeley. Mattel has not said anything about this bigger part of the story, the why part.

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“The speed to market and the compressing of delivery cycles in the toy industry is really phenomenal, probably more so than in any industry I’ve studied,” says O’Rourke. “There’s enormous pressure on Chinese factories to produce for 24 hours a day within a short period of time. That puts pressure to outsource contract work. At the same time, there’s massive downward pressure on pricing, largely due to the bigger retailers—Wal-Mart, Target. So you have huge pressures on delivery times and huge pressures on cutting price, which almost guarantees that these factories in China will subcontract and the subcontractors will be working to shave pennies to be able to make any profit.”

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The timing of the August 2 announcement could hardly have been worse. Just a week earlier The New York Times had published a glowing feature about how “Mattel may be the best role model for how to operate prudently in China.” When it came to integrity and trust, the company not only tooted its own horn but tsk-tsked the ethical misdeeds of others. Every time a major business scandal is uncovered, [CEO Robert] Eckert said during a 2004 UCLA commencement address, “the American public trusts a little bit less.” He called such instances “reprehensible.”