15Aug/130

Coaching the C-Suite in Times of Crises, By Professor Errol P. Mendes

Catastrophe hit one of the most respected companies in the U.S. on September 30, 1982. Tampered capsules of Extra Strength Tylenol had caused the deaths of three individuals from cyanide poisoning in the Chicago area. Then four more people died from the tampered Tylenol produced and marketed by Johnson and Johnson, which was the leading over-the-counter pain medication at the time. It was also the most profitable pain medication for the company and contributed approximately 15 percent of the company's revenues.1

When notified of the Tylenol-related deaths, the corporate leaders had little information to go on. They did not know if the seven deaths were just the start of many more. This would depend on how widespread the tampering had been throughout the U.S. They did not even know whether the tampering had been done during the production of the pain-reliever, in the distribution systems or in the stores just in the Chicago area. As a precaution, the U.S. Food and Drug Administration (FDA) had issued a nationwide warning about the use of the pain-reliever, but had not asked Johnson and Johnson to do a recall or order all sales to be ceased.

What the corporate leaders at Johnson and Johnson did know was that there was a "cost-benefit" case to do as little as possible as a recall would result in lost production, destruction of existing stock of 31 million bottles of the medication and other losses amounting to over $US100 million, with little chance of insurance covering the tampering effects and a potential loss of the 37 percent of market share for the drug. The corporate leaders at Johnson and Johnson did know that whatever they did the news of the tampering would affect some of the company's hard-won market share and could result in a sizeable drop in the value of the company's shares, which it did almost by 15 percent amounting to approximately $US1.24 billion.

The corporate leaders at Johnson and Johnson with alacrity dispensed with a cost-benefit analysis to avoid a recall. They had plenty of precedents to follow from corporations from the U.S. and around the world.

For example, one could point to the Ford Motor company's behavior regarding the exploding Ford Pinto in the late 1960s and early 1970s that, in whole or in part, caused the deaths of several owners of the car. These deaths involved the explosion of Ford Pintos due to a defective fuel system design. It is alleged that Ford used a cost-benefit analysis, including assigning a value to the lives of various categories of potential victims in its decision not to upgrade the fuel system based on this analysis. This cost-benefit approach to dealing with corporate crises is often termed the utilitarian approach.

Ford had the ability to retool its assembly lines and improve the fuel system to lessen the chances of explosions from rear-end collisions, but chose not to do so because it would have cost $US11 per car. Company analysis had shown that such an improvement would have resulted in approximately 180 fewer burn deaths (others had estimated approximately 500 deaths), 180 fewer serious burn injuries and 2,100 less destroyed cars potentially along with their occupants. The company then assigned (based on a National Highway Traffic Safety Administration estimate, a product of pressure from the automobile industry) an average value of $US200,000 to each death, $US67,000 to each serious burn injury and $US700 per automobile. Ford then used these cost estimates to decide that since the total cost of potential liability damages of $US49.5 million was less than the redesign costs of $US137 million, it would not redesign the exploding Pinto fuel system. When the slew of liability suits went to civil trials in the U.S., it became obvious that juries in these trials would not buy the cost/benefit analysis of Ford and were prepared to issue multi-million dollar verdicts. Ford eventually settled and hoped that its defense in this notorious case of corporate violation of human dignity would remain sealed in court documents.2 Some have surfaced.3

More recently we have seen examples of a major drug company like Pfizer refusing to countenance any plans to pull its highly profitable and popular painkiller Celebrex off the market, despite data showing that patients using the drug in a long-term cancer study had more than double the risk of heart attacks.

In contrast, the corporate leaders at Johnson and Johnson ordered a recall of all Tylenol containers and their contents. The corporate leaders stated they were unwilling to risk the lives of any further individuals no matter how small or widespread the tampering actually was. The corporate leaders at the company also decided not to put the medication back on the shelves until the company had developed tamper-proof production of the medication and its bottles. For that, the company rightfully has earned longstanding praise for ethical corporate leadership. Within five months of doing the right thing in the Tylenol crisis, the company had recovered 70 percent of its market share for the medication and the overall brand and reputation of the company itself skyrocketed over the succeeding years right up to the present.

The Johnson and Johnson response and the contrasting behavior at Ford and Pfizer present case studies for coaching the C-suite on ethical decision making in times of crisis.

The C-suite at Johnson and Johnson based their actions on the company's mission statement written in the mid-1940s by Robert Weed Johnson. It stated that the company‘s responsibilities were to the consumers and medical professionals using its products, employees, the communities where its people work and live, and its stockholders. Following this mission statement meant that public safety came above all else.

What lessons can coaches of the C-suite draw from the Tylenol crisis? Scholars in moral philosophy and ethics could postulate that the C-suite in Johnson and Johnson followed either expressly or intuitively universal ethics principles proposed by one of the main architects of Western moral philosophy and ethics, Immanuel Kant. Taking his approach to ethics in his seminal work4 titled Groundwork of the Metaphysics of Morals, Kant would have coached the C-suite in companies dealing with a crisis such as the Tylenol tampering that their decisions and conduct should be the basis of a "universal law" for all other moral actors in similar situations. Taking this approach to the Tylenol tampering, the leaders at Johnson and Johnson may well have thought that if it is wrong for any company to endanger the lives of consumers with mass marketing of a contaminated or defective product, no matter how profitable it may be to do so, then it is wrong for Johnson and Johnson to do so.

The "universal law" of Kantian ethics would also advocate that the "categorical imperative" of moral action is not treating human beings as means to an end, but as an end in themselves. This is the core of the content of the concept of "human dignity." Human beings have an intrinsic value beyond any cost-benefit analysis. There can never be a moral cost-benefit analysis that allows corporate leaders and their corporations to unjustly exploit or endanger employees, customers and local communities exclusively as means to corporate profit or in the case of the Ford situation as a means to save expending resources to remedy a defective product or not risking corporate profits and reputation by recalling a potentially dangerous product. In the latter situation there is a contrast between the behavior of corporate leaders at Johnson and Johnson and Pfizer.

One wonders whether the corporate leaders at Ford had personal moral misgivings about refusing to upgrade the fuel system of the Ford Pinto, thus violating a Kantian universal law on defective products, yet the cost-benefit or utilitarian analysis forced them into not doing the necessary upgrade.

One major downside of coaches advising the C-suite on taking the Kantian approach to moral actions in times of crisis is that it focuses too much on the motivation for individual or collective action and not at all on the consequences of such action. The opponents of Kantian moral reasoning in the C-suite would expressly or intuitively prefer a consequentialist or utilitarian basis for their worldview. The main architects of this analysis of moral conduct were John Stuart Mill and Jeremy Bentham.5 The simplest form of their thesis argues that consequences that produce the greatest good for the greatest number are the only way to judge the morality of human actions. One could argue that Johnson and Johnson could also have followed a more humane utilitarian approach in the Tylenol crisis and arrived at the same decision to recall the medication. In this moral framework, the company would consider not only the greatest good for Johnson and Johnson, but also the protection of the potentially very large numbers of actual or potential users of the medication if the tampering had been widespread and possibly the even larger numbers of the public whose family members or close relations may have been affected. Certainly a cost-benefit analysis under this more utilitarian approach demands a recall, while at the same time preserving the human dignity of those who could suffer from not ordering a recall.

But what if police authorities had managed to find the individual who had effected the tampering and coerced (another area where Kantian ethics and utilitarian ethics would do combat) a confession that only a dozen bottles had been tampered, but the person who had done the tampering and the distributor of the medication had no idea where those bottles were now on sale to the public? Some, but not all, applications of utilitarian analysis of moral action would support the refusal to order a recall as the good done by the medication to millions of users outweighs the grave harm done to the potential users of the dozen tampered bottles of Tylenol. One can only wonder if Pfizer adopted this utilitarian approach in refusing to take Celebrex off the market.

If decisions of the C-suite rest on this basic utilitarian approach to moral conduct with such potential grave consequences for the few that are sacrificed for the good of the many, then it violates the basic notions of human dignity that have been espoused by leading moral philosophers of Western civilization such as Immanuel Kant. However, a more humane form of utilitarian ethics could in many circumstances arrive at the same ethical outcome as discussed above.

The ultimate task of corporate leaders in times of crises according to, both the Kantian and the more humane utilitarian approach, is to utilize their power to promote and protect the human dignity and the greatest good of all those who are involved or affected by their operations if at all possible. I suggest that the main goal of coaching ethics in the C-suite is to demonstrate that the exercise of corporate power in times of crises is really only ethically responsible when it takes into account both the human dignity and the greatest good, if at all possible, of all those affected by its operations.

1 For details of this paradigm example of swift corporate moral and ethical action see the following: http://harvardbusinessonline.hbsp.harvard.edu/b02/en/common/item_detail.jhtml?id=583043 and http://www.mallenbaker.net/csr/CSRfiles/crisis02.html (accessed February 10, 2008)

2 See the Mother Jones article on the exploding Pinto case that caused an outcry in the U.S. at http://www.motherjones.com/news/feature/1977/09/dowie.html (accessed July 21, 2007)

3 See the Ford calculation memo on value of lives versus an $US11 per car cost at http://www.motherjones.com/news/feature/1977/09/death.html (accessed February 10, 2008)

4 Zweig, Arnulf, trans. Hill, Thomas E. Jr., and Arnulf Zweig, eds. 2002. Groundwork of the Metaphysics of Morals. Oxford; New York: Oxford University Press.

5 A variation of utilitarian thinking that could have a greater moral content is rule-utilitarianism. This variation advocates first ascertaining the best rule or rules of particular conduct. This is achieved by ascertaining the consequences of following one or more particular rules. The rule that produces the best consequence is therefore the best rule that should be followed. Proponents of rule-utilitarianism included John Austin in The Providence of Jurisprudence, (1892) and John Stuart Mill in Utilitarianism.

This article first appeared in Business Coaching Worldwide (June 2008, Volume 4, Issue 2). Copyright © 2011 WABC Coaches Inc. All rights reserved.

If you wish to reproduce this article in any material form, you must first contact WABC for permission.