As CEO of Johnson & Johnson, James E. Burke was at the helm for one of the largest crises in American history.
In September of 1982, seven people from the Chicago area died after taking Tylenol which had been laced with cyanide. The resulting panic could have destroyed Johnson & Johnson (J&J), and effectively ended public confidence in Tylenol, the best-selling over-the-counter painkiller that controlled 35% of the domestic pain reliever market. Indeed, the immediate after-effects of the tragedy saw J&J stock plummet more than 20% and Tylenol’s market share slide from 37% to 7%.
James Burke had been the CEO since 1976 and fully understood the magnitude of the situation — not only on a corporate level but on a human one. Burke could have waited for the FDA to weigh in, at which point they may or may not have forced J&J to issue a nationwide recall (with the tainted bottles only discovered in Chicago, the company might well have avoided the costly recall and saved millions).
He could have led a P.R. campaign depicting the seven deaths as tragic, but local, and unconnected to his company’s product deflecting all fault to the killer to show that instead, it was his choice only to use Tylenol as a murder weapon. He could have reassured millions of customers that, unless their Tylenol capsules were purchased in Chicago, they were very likely safe to use.
Instead, Burke chose a different path.
Full refund or replacement
Not waiting for the FDA to act, Burke ordered a nationwide recall of Tylenol, offering consumers their choice of a full refund or a replacement bottle of Tylenol tablets (the capsules were all removed from circulation). The recall of 31 million bottles of Tylenol had an estimated cost of $100 million (an amount that would be well over $300 million today, adjusted for inflation).
J&J also posted a $100,000 reward for information leading to the killer’s capture. The company established two toll-free hotlines, one for consumers and one for medical professionals, to answer questions about the crisis, and Burke made the rounds on highly-rated news and talk shows like 60 Minutes and Phil Donahue, putting his heartfelt face on the company’s response.
Finally, the company worked closely not only with law enforcement in their attempts to capture the killer (who was never caught), but with the FDA to produce tamper-evident packaging—including glue-sealed cardboard boxes, outer safety seals, inner foil seals, and child-resistant caps—that became the standard for all products, and remains so to this day.
A case study in crisis management
J & J’s reaction to the Tylenol crisis remains a case study for crisis management and framing it as an existential crisis for the company is hardly an overstatement. In the first three quarters of 1982, Tylenol had been responsible for 19% of J&J’s corporate profits, 13% of its sales growth, and 33% of its profit growth. The September 1982 deaths staggered Tylenol’s market share, but less than a year later, Tylenol was once again the #1 pain reliever in the country, and within a few years of the crisis, it was back to its original 37% market share.
The company culture is driven by the behavior of its leadership
It goes without saying that a company’s culture, driven by the behavior of its leadership, is the bedrock of the company itself, and can often be the primary determining factor of a company’s success or failure. One of the most important indicators of this culture is not how a company behaves in good times, but how it responds in bad times, up to and including the occasional existential crisis. Johnson & Johnson demonstrated compassion and empathy in their response to the tragedy, and in so doing provided a model for future companies to follow, illustrating that concern for the victims and their families could coexist with concern for corporate well-being and profit. Choosing one need not come at the expense of the other.
Of course, some companies and their CEOs make different choices that come with different results.
British Petroleum (BP) – Tony Hayward
On April 20, 2010, the oil rig Deepwater Horizon exploded and sank in the Gulf of Mexico, killing 11 men on the rig and subsequently resulting in the largest oil spill in the history of marine oil drilling operations. The rig sank two days later, and the uncapped well-gushed oil into the Gulf of Mexico for 87 days, spilling over four million barrels of oil into the pristine Gulf waters before engineers finally succeeded in capping it. As British Petroleum (BP) was the operator of the rig at the time, all eyes turned to CEO Tony Hayward for his leadership.
Two weeks after the explosion, Hayward denied BP’s culpability in the explosion, noting that Transocean owned the rig: “It was their rig and their equipment that failed, run by their people and their processes.”
Hayward wasn’t done. In mid-May, as the well continued to gush crude oil into the Gulf, Hayward tried to minimize the impact, noting that the Gulf of Mexico was a “very big ocean” and that the amount of oil was “tiny in relation to the total water volume.” A few days later, he repeated his contention that “the overall environmental impact of this will be very, very modest.”
He also shrugged off criticism of the dispersant that BP was using, a highly toxic substance called Corexit that had been banned in Europe for ten years by then due to its propensity not to break up the spill, but sink it to the bottom of the ocean, where it would still wreak unfathomable damage but would not be as visible (a metaphor not lost on BP’s critics).
As oil began to reach the shores of Louisiana, Hayward delivered the coup de grace, following his apology for the massive disruption the explosion had caused by reminding everyone: “There’s no one who wants this over more than I do. I would like to have my life back.” That masterclass in tone-deafness earned Hayward the epithet of “the most hated—and most clueless—man in America” in a New York Daily News headline in June.
Perhaps the most bitterly ironic aspect of this entire tale? The example of how to handle an oil disaster had already been well-established — by BP itself! Some twenty years earlier, in February 1990, the BP-chartered tanker American Trader accidentally ran over its own anchor off Huntington Beach in Orange County, California, spilling 400,000 gallons of crude oil that eventually came ashore on a strip of beach renowned for its surfing. There was no finger-pointing, no one pointing out that BP hadn’t built the tanker, but was merely chartering it.
Instead, BP America Chairman James Ross not only flew directly to the scene—accompanied by a crisis team led by 36 specialists from the firm and a team of oil-skimming vessels—but also stood on the polluted beach and informed the press: “Our lawyers tell us it’s not our fault. But we feel like it’s our fault, and we’re going to act like it’s our fault.”
It had taken a scant two decades for BP to completely forget the principles of crisis management that they appeared to have known so well. Namely…
4 Principles of Crisis Management
What can we learn from James Burke, Tony Hayward, James Ross, and BP
Simply put, it was evident to the observers that James Burke cared, while the same could not be said about Tony Hayward and BP.
Fred Smith in his book Learning to Lead said that when a leader’s identity and actions are consistent, the results they get are consistent. When they are inconsistent, then so are the results.
Leaders set the tone for all the people working for them. Therefore, leaders need to be what they want to see. If a company is going to rise to the occasion when adversity hits it will be because of the leader.
As a leader . . .
Our expertise in corporate law has shown us the impact of competent leadership and strategic planning on organizational success. We’ve seen both failures and victories, from struggling Fortune 500 companies to thriving startups.
Our General Counsel Services provide CEOs, entrepreneurs, and business leaders with professional advice and a fresh perspective. It can be challenging to maintain a balance between growth and perspective, and any missteps or missed opportunities can come at a high cost. Our services can help you avoid mistakes and maintain focus.
Our General Counsel Services offer the same benefits as an in-house legal team but at a lower cost.
We provide an array of services, which encompass:
For mid-level companies, maintaining an in-house legal team can be cost-prohibitive or require more resources than necessary. On the other hand, hiring a law firm may result in paying for unnecessary services. That’s where our General Counsel Services come in. We offer customizable legal advice at an affordable price point, and clients can work with one or more staff members based on their specific needs.
We can learn from James Burke, Tony Hayward, and James Ross by taking inventory of our own character, attitude, and behaviors. By setting the tone for what we want to see. Otherwise, we might be a casualty should a crisis strike.