Jehool of har’ — Case Study —_——— : How Ethical Practices Saved Johnson & Johnson from Collapse (This case is developed from published reports, and is purely meant for class room discussion. It is not intended to serve as endorsement of sources of primary data or illustrations of effective or ineffective management.) Company Background Robert Wood Johnson along with his two brothers, James Wood and Edward Mead Johnson, formed a partnership in 1885 to make commercial use of the discoveries of Sir Joseph Lister, a reputed English surgeon, who identified airborne germs as the invisible assassins that caused infection in the operating room. This partnership firm was incorporated as Johnson & Johnson in 1887 and began its operations in New Brunswick, New Jersey. It developed Listers’ methods of manufacturing antiseptics, and supplied to hospitals in the United States the first ready-made, sterile, ready-to-use, wrapped and sealed surgical dressings. The company’s first products were improved medicinal plasters containing medicinal compounds mixed in an adhesive. Johnson & Johnson introduced a slew of products in course of time that included antiseptic surgical dress materials, adhesive plasters and even a book on antiseptic practices titled Modern Methods of Antiseptic Wound Treatment, which for many years remained the standard text on antiseptic practices. Johnson & Johnson's international growth, which ‘commenced in 1919 with the establishment of an affiliate in Canada, spread rapidly. New subsidiaries were created in more than 50 countries including Australia (1931), Sweden (1956), Japan (1961), Greece (1973), Korea (1981) and Egypt (1985). One of the landmarks in the extensive growth of Johnson & Johnson was the writing of credo by General Johnson that codifies the company’s ethical and socially responsible approach to conducting business. The credo epitomises the company's responsibility to the people who use its products and services—to its employees to the community and environment and to its shareholders. The Tylenol Crisis Johnson & Johnson’s subsidiary, McNeil Consumer Products has an analgesic called Tylenol which became a market leader in the $1.36 million US analgesics market with 37 per cent share. Tylenol also accounted for 17-18 per cent of Johnson & Johnson's net earnings and 7.4 per cent of the company’s worldwide revenues for the period 1981-82. Tylenol was the absolute leader in the market for pain-killers outselling the next four leading pain-killers including Anacin, Bayer, Bufferin and Excedrin. ‘On 30 September 1982, the CEO of McNeil Consumer Products received a shocking news that seven persons had died mysteriously after taking cyanide laced capsules of Extra-Strength Tylenol in Chicago's West Side. The deaths that were broadly reported in the media spread like wildfire and became the cause of a massive, nationwide panic. The company’s immediately initiated investigations revealed that a malevolent person ora group of such persons, for reasons known to him/them, presumably replaced Tylenol Extra- Strength capsules with cyanide-laced capsules, resealed the packages, and deposited them on the shelves of at least half-a-dozen or so pharmacies and food stores in the Chicago area. The Extra- Strength Tylenol capsules were each found to contain 65 milligrams of cyanide, 10,000 times more cyanide to kill a human being. The poisoned capsules were bought and used, by seven unsuspecting persons who died a horrible and instantaneous death. Johnson &¢ Johnson, the parent company of McNeil Consumer Products Company which made the concerned Tylenol had to suddenly explain to the world why its trusted and premium product was killing unsuspecting people. ‘McNeil Consumer Products Company officials asserted that the cyanide-laced capsules had not emanated from either of its plants. A spokesman of the parent company, Johnson & Johnson, informed the media of the strict quality control at the plants or in the company's premises. Since the cyanide-laced Tylenol had been discovered in shipments from both the company’s plants and had been found only in the Chicago vicinity, officials came to the conclusion that the tamperings could have taken place only after the product had reached Illinois Itwas also found that the poisoned capsules were from four manufacturing lots and that they were taken from different pharmacies/ stores over a period of weeks or even months. It ‘was also observed that the person or persons whose vicious act caused the seven deaths should haveED) corporate Governance spenta few hours in tampering with and resealing the bottles with five or less cyanide capsules and one with ten and then placing them back on the shelves of five different stores in the Chicago area. Four different individuals who died had consumed the deadly cyanide coated pain-killer from four different bottles, while a family of three died after consuming it from the fifth. ‘The publicity about the cyanide laced capsules created a nationwide panicimmediately and with the expansion of 24 hour electronic media, people were bombarded with more and more news on the subject. Aroused by such sensational news through the media, people started calling hospitals to enquire about Tylenol. A Chicago hospital was, reported to have received 700 telephone calls just ona single day. People in cities across the United States were admitted to hospitals on suspected cyanide poisoning. It was reported that within the first 10 days of the crisis, Johnson & Johnson received 1411 telephone calls on its most controversial product of the time. Another interesting offshoot of the incident was that there were a number of copycats who attempted to stimulate the tamperings in Chicago. In the first month after the seven deaths that occurred due to the poisoned capsules, the Food and Drug Administration (FDA) counted 270 incidents of suspected product tampering. In the considered perception of the FDA, this large ‘number of product manipulations might have been due to the mass hysteria created by the media frenzy that led to blame any type of headache or nausea on food and medicine they thought that they might have been poisoned. The FDA estimated that only about 36 of the cases were “genuine” cases of tamperings. Johnson & Johnson's C Communication Strategies James Burke, chairman of Johnson & Johnson, reacted ina matured manner to the adverse media reports by forming a seven-member strategy team forthwith. There were two questions that had to be addressed urgently without any loss of time. ‘The first and foremost question was""How do we protect the people?” and the second, "How do we save this product?” Even against the advice of some worried insiders, the company initiated its first action by cautioning the users of the medicine. Through the use of the media, the company immediately alerted consumers across the country not to consume any type of Tylenol product. They advised the consumers not to resume using the product until the extent of tampering was determined and necessary corrective action initiated, Johnson & Johnson withdrew all forms of Tylenol capsules from the store shelves in ‘Chicago and the surrounding area, after stopping the production and advertising of the drug Further, after realising the vulnerability of the product with the discovery of two more contaminated bottles of the now much-maligned product, the company ordered the withdrawal of all Tylenol capsules from the width and breadth of the United States of America. J Even though the company was convinced that there was little chance of discovering any more cyanide coated tablets, Johnson & Johnson made itknown that they would not like to take any risk with the safety and health of the Tylenol- consuming public, even if it cost the company its reputation and millions of dollars. A day later, the Food and Drug Administration also advised consumers to avoid taking Tylenol capsules, Itwas ‘estimated that the recall included approximately 31 million bottles of Tylenol, with a retail value ‘of more than $100 million. The normally media- shy company also used the media extensively, both for publicrelations and paid advertising, to inform the public on their strategy during the crisis. The company established a 1800 hotline for consumers tocall to enable the company executives torespond to enquiries from them concerning the safety or otherwise of Tylenol. It is worth repetition here that within the first 10 days of the crisis, Johnson Johnson received 1411 telephone calls enquiring the company on the various aspects ofthe Tylenol crisis. The Impact of the Strategy Itis now well known that the recall of the Tylenol capsules was not an easy decision to make for the company. Many well-informed analysts were of the opinion that recalling all Tylenon-related products could adversely affect the business prospects of the company. There was a great deal of discussion on the recall of the pain-killer at the national level. Some company executives were really concerned about the panic that could be caused to the industry over such a widespread recalling of the company’s premium product.‘The Tylenol Crisis: How Ethical Practices Saved Johnson & Johnson from Collapse GEEKY ‘There were others too who felt that the nation- wide recall of Tylenol would effectively bury any chance for the product to survive in future. ‘What Johnson & Johnson faced was an unusual situation for a large corporation of its size and reach in facing accrisis ofsuch dimensions. Johnson & Johnson's handling of the Tylenol tampering crisis was considered to be one of the best in the history of public relations by experts in the field. Moreover, in many such instances companies in crisis had put themselves first and ended up doing more damage to their reputations than if they had immediately taken responsibility for the crisis. ‘According to many commentators, the way Johnson & Johnson handled the crisis became the ‘model and lesson for crisis management. It was the considered opinion of many that thecompany’s response to the crisis demonstrated clearly its commitment to customer safety and quality of its product. Besides, the candidness with which the ‘company approached the issue and the open and transparent communication with, public helped the company maintain a high level of credibility and customer trust. In the case of many other companies, the top brass would have thought of the huge financial loss the company would have to incur and also its reputation once it decided to recall its own product at a national level. But in this case, the then chairman and CEO of Johnson & Johnson, James E. Burke, said, “Itwill take time, it will take money, and it will be very difficult; but we consider it a moral imperative, as well as good business, to restore Tylenol to ts preeminent position.” Burke and his executives rather than thinking about the huge financial implications, followed both the letter and spirit of the company's credo which said that the company’s primary responsibility “is to the doctors, nurses and patients, to mothers and fathers and all others who use our products and services. In meeting their needs, everything we do must be of high quality.” In the wake of Tylenol tampering, Burkesent immediately a team of scientists to find the source of tampering, The former commissioner for the US Consumer Product Safety Commission, R. David Pittle, commented: “They did the right thing and they did it promptly. Putting consumer safety above all else can help develop a loyalty from the consumer.” All these public relations work paid off ultimately. The public at large were led to believe that Johnson & Johnson was the victim of a conspiracy by one or more malevolent persons to sully the company’s reputation and to destroy premium product that was its major profit earner. In this connection, it is worth recalling an article that appeared in the Washington Post on 11 ‘October 1982. It said: “Johnson & Johnson has effectively demonstrated how a major business ought to handle a disaster. What Johnson & Johnson's executives have done is to communicate the message that the company is candid, contrite, and compassionate, committed to solving the murders and protecting the public.” The much- respected newspaper also applauded Johnson & Johnson for being honest with the public and stressed the fact that it must have been difficult for the company to withstand the temptation to disclaim any link between Tylenol and the deaths of seven people. It also added that the company never attempted to do anything, other than try to get to the bottom of the deaths. It also mentioned that Johnson & Johnson almost immediately put up a reward of $100,000 for nabbing and nailing the killer, Johnson & Johnson’s Strategy to Win Back Public Trust ‘The strategy adopted by Johnson & Johnson to win back the trust of the public both for reinstating its product and restoring its own reputation in the aftermath of Tylenol crisis was implemented in two phases. The first phase was the actual handling of the crisis. The comeback of both Johnson & Johnson and Tylenol was the second phase in the company’s strategy to win back the trust of people on both counts. The planning of phase one started almost immediately as phase ‘one was being implemented. With regard to phase onethe company adopted a public relations campaign almost immediately following the discovery of the deaths in Chicago and linking it to Extra Strength Tylenol capsules. ‘As the plan was being considered, Johnson & Johnson’s top executives put customer safety first before they got worried about their company’s profit and other financial concerns. ‘The initial media reports focussed on the deaths of American citizens from a trusted consumer product. In the beginning, the product tampering was not known, thus the media made a very negative association with the brand name. Before the crisis, Johnson & Johnson had not actively sought press coverage, but as a company in crisis they recognised the advantage of openCorporate Governance communication in clearly disseminating warnings to the public as well as a clear enunciation of the ‘company’s stand. The company immediately alerted consumers across the United States, through the media, not to consume any type of ‘Tylenol product. The company advised consumers not to resume using the product until the extent of the tampering could be determined. As ‘mentioned earlier, the company also stopped the production and advertising of Tylenol and ordered the recall of all Tylenol capsules from the market. Along with the nationwide alert and the Tylenol recall, Johnson & Johnson established relations with the Chicago Police, the Federal Bureau of Investigation (FBI) and the Food and Drug Administration. This way the company could have apartin searching for the culprit who laced Tylenol capsules and could help prevent further tampering. Johnson & Johnson also arranged several major press conferences at the company’s corporate headquarters. Within hours, an internal video staff set up a live television feed via satellite to the New York metro area. This allowed all press conferences to gonational. Jim Burke got more positive media ‘exposure by going on 60 minutes and the Donahue show and giving the public his command "The media was notonly focussed on the deaths, but it was also pervasive. Throughout the crisis over 100,000 separate news stories ran in US. newspapers, and hundreds of hours of national and local television coverage. A post-crisis study by Johnson & Johnson said that over 90 per cent of the American population had heard of the Chicago deaths due to cyanide-laced Tylenol. News, clipping services found over 125,000 news clippings on the Tylenol story. One of the services claimed that this story had been given the widest US news coverage since the assassination of President John F. Kennedy. Media reporting continued to focus on Tylenol killing people until more information about what caused the deaths ‘was made available. In most crises media focusses on the sensational aspects of the crisis, and then follow with the cause as they learn more about what really happened, In phase two Johnson & Johnson concentrated on a comeback plan. Actually this phase was already on by the time the first phase was being implemented. To restore the confidence and trust of the public in Tylenol, and to make the product tamper-free, Johnson & Johnson followed a series of concerted measures: First, the company brought in a new Triple Safety Seal Packaging—a glued box, a plastic seal over the neck of the bottle, and a foil seal over the mouth of the bottle. Tylenol became the first product in the industry to use the new tamper resistant packaging within 6 months after the tampering of the product was reported. The company made the announcement of the new Triple Safety Seal Packaging at a press conference at the manufacturer's headquarters. Before the crisis, Tylenol was a premium product and had a massive advertising budget and it was number one alternative to aspirin in the country. On the comeback trail Johnson & Johnson _ unleashed an extensive marketing campaign and promotional programme to bring Tylenol back to its premium position as the number one over-the- counter analgesic in the United States. E Secondly, to promote the use of Tylenol among customers who might have strayed away from the brand asa result of the tampering, the deaths and the adverse media publicility, the manufacturing subsidiary of Johnson & Johnson, McNeil ‘Consumer Products, provided $2.50-off by coupons that could be used towards the purchase of any ‘Tylenol product. The coupons could be obtained by consumers calling a special toll-free number. This offer was also made in November and December through an advertisement blitzkerg in popular newspapers where the $2.50 coupon was printed. Thirdly, to promote the product, salesmen at McNeil were advised to recover former stock off the shelves and place the new-look Tylenol by putting a new pricing programme into effect. This new programme gave consumers discountsas high as 25 per cent. Also, a totally new advertising campaign was launched in 1983. Finally, more than 2250 salesmen from Johnson & Johnson and its subsidiaries were instructed by the company to make presentations to doctors, surgeons and the medical fraternity. These presentations were made to promote support for the re-introduction of Tylenol. The Success of the Comeback Trail The Tylenol comeback was a great success. Many executives attribute the success of the comeback to the quick actions of the corporation at the onset of the Tylenol crisis. They think that if Johnson & Johnson had not been so direct in protecting the public interest, Tylenol capsules would not have reemerged so easily.H ‘The Tylenol How Ethical Practices Saved Johnson & Johason from Collapse. (EES In the wake of Tylenol crisis, the nationwide recall of the product and the media frenzy that followed in the aftermath of the death of seven users, there were a number of people who believed that Tylenol could never be resurrected. Many marketing experts thought that Tylenon was doomed by doubts that the public would have had as whether or not the product was safe. “I don’t think they can ever sell another product under that name,” advertising genius Jerry Della Femina told the New York Times in the first days following, the crisis. “There may be an advertising person who thinks he can solve this and if they find him, I want to hire him, because then I want him to tum our water cooler into a wine cooler.” But many skeptics including Della Femiria ‘were proved quite wrong in assuming that Tylenol could never be brought back to the shelves again. Not only is Tylenol still one of the top selling over- the-counter drugs in the country, but it took very little time for the product to return to the market. Johnson & Johnson's handling of the Tylenol tampering crisis is considered by public relations experts to be one of the best in the history of public relations. This was possible because of the company’s realistic reading of the crisis situation, its seriousness, a workable strategy and the tremendously sympathetic media reports, which did much to boost the company’s workand played. a hugerole in Johnson & Johnson's public relations campaign. Ifthe company had not fully cooperated with the media, they would have, in turn, received much less positive media coverage. Disapproving, coverage by the media could have easily destroyed ‘Tylenol’s reputation permanently, and with it Johnson & Johnson’s as well. ‘Analysts have come to recognise Johnson & Johnson's handling of the Tylenol crisis as the ‘example for success when confronted with a threat toan organisation's existence. Berge lauds the case in the following manner, “The Tylenol crisis is without a doubt the most exemplary case ever known in the history of crisis communications. Any business executive, who has ever stumbled. intoa publicrelations ambush, ought to appreciate the way Johnson & Johnson responded to the Tylenol poisonings. They have effectively demonstrated how major business has to handle disaster.” The Tylenol case was the base for many of the crisis communications strategies developed by researchers over the last 20 years. Reasons for Success of Efforts Taken by Johnson & Johnson Tylenol Crisi the We can list a number of favourable factors that have contributed to the success of the efforts initiated by Johnson é Johnson in the aftermath of the Tylenol crisis: (i) by making it known to the consumers in particular, and the public in general, through the use of the media, Johnson & Johnson proved that it was a victim of someone’s ‘criminal behaviour of tampering its product and causing death to innocent victims; (i) Johnson & Johnson provided the victims’ families counseling, and financial assistance even though they wére not responsible for the product tampering; (iil) any negative feelings by the public against the company were lessened as the media showed Johnson & Johnson taking positive remedial action to help the victims’ families; (iv) the company’s developing a Triple sealed packaging and tamper -free sealing and the random inspection procedures before the shipment of Tylenon to retailers brought in a sense of trust and confidence on the most- maligned product of the time; (v) by the'media portraying the company as the unfair victim of a hostile act of an outsider created a wave of sympathy for the company; (vi) Johnson & Johnson's willingness to accept losses by pulling, the Tylenol product across the country deepened the sympathy with the public; (vii) the Johnson & Johnson Tylenol crisis is an example of how an organisation should communicate with the public during a crisis. The organisation's leadership especially set the example from the beginning by making public safety the organisation's number one priority and concern. This is particularity important given the fact that Johnson & Johnson’s main mission with Tylenol is to enhance the public's well-being or heath; and (viii) more importantly, the leadership of the company rose to the occasion and acted commendably during the crisis, especially in the matter of its relations with the Fourth Estate, Johnson & Johnson did not have a proactive public affairs programme before the crisis. The only media relations the ‘company engaged in was in the advertising and marketing area. During the crisis, the company realised the importance of maintaining a good, if not cordial, relationship with the media if it were tosurmount the problem of its life and death. This realisation and their subsequent establishment of excellent rapport with the media quickened the process of the public accepting TylenolKEETS corporate Governance $e_Select Readings ‘Crisis Communication Strategies. htp:/ /www.ov.edu/ deptcomm/ dodice/groups/ 02C2/Johnson’208%20Johnson htm ‘¢ Kaplan, Tamara “The Tylenol Crisis: How Effective Public Relations Saved Johnson & Johnson”, The Pennsybrania State University. «Publications of Johnson & Johnson.