1

Tylenol’s Rebound

Business Ethics

Xavier Institute of Management Bhubaneswar

Tylenol’s Rebound

Presented By: -

1. Sahil Bansal, u1101042. Subhradeep Mitra, u1101153. Sherwin Trindade, u1101084. Sukant Bisoi, u1101185. Tapaswini Mallick, u110120

2

Case Highlights

• One of the landmarks in the extensive growth of Johnson & Johnson was the writing of credo that codifies the company’s ethical and socially responsible approach to conducting business

• Mc Neil, a Johnson & Johnson subsidiary, has a painkiller called Tylenol.

• Tylenol was a market leader in the OTC analgesic product category with a market share of 35.4 % and contributed to 17-18% of the company’s revenues

• In 1982, a series of murders in Chicago involving tampering of Tylenol capsules and lacing them with cyanide created a major crisis for the company.

• As a result, the market share came crashing down to 18.3%, millions of bottles were pulled off the shelves and the stock prices of J&J plunged.

3

Case Highlights

• Poisoned capsules were from four manufacturing lots and they were taken from different pharmacies over a period ofweek or even month.

• The person responsible for the death of seven person spent few hours in tampering 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.

• The publicity about the cyanide laced capsules created a nation wide panic.

• Johnson & Johnson received 1411 telephone calls within the 10 days of crisis.

4

Tylenol’s Recall Decision

The two vital questions before Johnson & Johnson were• How to Save the Consumers?

• How to save the product?

Johnson & Johnson executives had to weigh several certainties:

• A recall would involve a loss of up to $100 million.

• The loss was not covered by insurance.

• News of a recall could so damage the product that Tylenol might never be able to regain public confidence and its 37 percent of market share.

• The news and loss would surely result in a dramatic drop in the company’s stock.

• The competition in the analgesic market was fierce. Competitors would try to make Tylenol’s loss their gain.

Universal Obligation

Immanuel Kant View:

• Actions are not good or bad based on the purposes for which we act. Ask if

the basis of our action could become a �universal law� for all moral

actors in similar circumstances.

• If it is wrong for any company to sell a potentially defective product, it is

wrong for Johnson and Johnson to do so despite the considerable cost of a

recall. This rule would prohibit seeing the consumer purely as a means to

corporate.

John Rawls View:

• People will choose proper rules when they are forced to reason impartially.

• Management and stockholders of Johnson & Johnson would have reasoned

impartially, that is, they would never have put the consumer at risk any

more than they would have been willing to put themselves at risk!

5

Utilitarianism

• This approach to ethical reasoning is known as Utilitarianism and was argued most strongly by John Stuart Mill.

• According to Mill, actions that produce the most good for the most people are considered morally right.

• Following this course, the decision makers at Johnson & Johnson would be forced to consider not only the interests of Johnson & Johnson, but also the interests of the public at large. Determining the greatest good for the greatest number would require a cost and benefit analysis for all parties concerned.

• This method of reasoning probably would have required the product recall. The protection of the millions of Tylenol users represents the greater good and outweighs the financial costs to Johnson & Johnson.

6

Economic Personalism

• This approach has human dignity at its center.

• Ethical reasoning according to this approach will ask the question: Which action most leads to the protection and promotion of human dignity?

• This approach also includes the wisdom contained in the prior methods. Universal obligation (Kant and Rawls) must be respected because of our equal human dignity, and we must consider carefully the ultimate impact (Utilitarianism) on actual human beings when reaching a judgment.

7

Tylenol’s Recovery Measures

The expensive measures taken included

– Task force of top level executives set up

– Massive product recalls of 22 million bottles

– Media messages in the form of press conferences

and TV Shows.

– Product Testing

– Halting of all advertisements for a few weeks

8

Tylenol’s Recovery Measures

• Consumer Research to study company perception

• Swapping of Tylenol capsules with Tylenol tablets

• Developing tamper resistant packaging.

• Sales promotion tools like Coupons and Discounts

• Letter of backing from the Food and Drug

Administration

• These measures cost the organization tens of

millions of dollars.

9

Resurgence of Tylenol

A resurgence of Tylenol by the end of the year can be attributed to

– Johnson & Johnson management,

– Compton advertising,

– Public confidence in the product.

– Media

10

Crisis Management

• The company’s proactive and extremely prompt actions helped tide over the crisis, protect consumer interest and re-build the brand.

• US Consumer Product Safety Commission, R David Pittle commented: “They did the right thing and they did it promptly. Putting customer safety above all else can help develop a loyalty from the consumer”.

• The company accepted complete responsibility for the crisis and incurred lot of expenditure for damage control instead of being in denial mode. Their concern for public safety led to mass recall and several other measures won them a lot of empathy for their plight.

11

Crisis Management

• Even though the company had the easier option of changing the product name and re-launching it, they chose otherwise.

• Because the tampering happened outside the factory premises, the company could have put the blame on the distributors or the retail outlets.

• The company’s communication strategy was also aligned towards creating public awareness, addressing safety issues and offering a swap.

• It also made itself available to the media for questioning.

12

Crisis Management• Came out with a permanent solution of Triple sealed

tamper resistant packaging which shows their sensitivity to the issue

• Customer loyalty – Because of Tylenol’s image as a brand endorsed by medical practitioners and its ad campaign which showed real life incidences, it commanded immense consumer loyalty.

• In their PR campaigns the task force even decided to appear on 60 minutes despite initial reservations about its aggressive style of questioning.

• They adopted a direct stance which was much appreciated.

13

Summary

• Johnson & Johnson understood its social responsibility to protect persons, whose unique value is inestimable. Human beings were put before things or money. This action was consistent with the protection of human dignity, and therefore the recall was a proper exercise of managerial freedom.

• Recognizing their social obligation, Johnson & Johnson acted to protect people on the material level. Because they too were fragile and morally inconsistent, the J&J executives could have chosen otherwise. They recognized basic equality by not putting their own good above others.

• In sum, they chose the action that most led to the protection and promotion of human dignity.

14

A look into Toyota’s response to product defects

The Problem

• Recall on 02/11/09: To correct a possible incursion of an incorrect or out-of-place front driver's side floor mat into the foot pedal well, which can cause pedal entrapment.

• Recall on 21/01/10: It was after some crashes were shown not to have been caused by floor mat incursion. This latter defect was identified as a possible mechanical sticking of the accelerator pedal causing unintended acceleration, referred to as Sticking Accelerator Pedal by Toyota.

• Toyota also issued a separate recall for hybrid anti-lock brake software in February 2010. NHTSA reported the total no. of deaths as 37.

Effects of Recalls

• The worldwide total number of cars recalled by Toyota stood at 9 million by end of January’10.

• Sales of multiple recalled models were suspended for several weeks as a result of the accelerator pedal recall, with the vehicles awaiting replacement parts.

• Numerous lawsuits were filed.

Root causes

• Toyota’s desire to supplant General Motors as the world’s number-one car-maker pushed it to the outer limits of quality control.

• Ingrassia, who has just authored a new book on the auto industry, notes that in 2005 Toyota recalled more cars and trucks than it sold; by 2007, Consumer Reports magazine stopped automatically recommending all Toyota models because of quality declines on three models.

• Delay in identifying the source of the problem – sticky gas pedals/ gas pedals stuck to floor/ both.

Accepting Responsibility

• What went horribly wrong in Toyota’s case was its reluctance to accept responsibility when the problems first emerged. It took 39 deaths in the USA for the top management to get out of denial mode. Consumer confidence was dented and the lack of effective communication and PR aggravated the problems.

• Toyota now seems to have learnt a lesson in crisis management, albeit too late.

Toyota lessons

• Reputation can be easily lost – and Toyota’s reputation is indeed threatened – but it’s highly unlikely the company will collapse completely.

• And that may be one of the one of the biggest lessons for other companies as they study how Toyota emerges from this recall crisis.

• The reality is that Toyota is positioned for recovery about as well as it could be – owing, in large measure, to the reputation for quality products and corporate responsibility it has developed over the last two decades.

BE Presentation 21

The Recall of VIOXX The Arthrite drug recalled by Merck and

Co. Inc(global Pharma major)

BE Presentation 22

Introduction

• Merck and Co Inc is a global pharma company which develop, manufacture and markets a broad range of human health products.

• Vioxx was approved by FDA for the treatment of pain, inflammation and stiffness caused by arthritis.

• The drug was also approved for use of rheumatoid arthritis in both children and adults.

• The product was promoted aggressively by Merck and had emerged as one of the best selling drugs for the company within a year of its launch.

BE Presentation 23

The Problem

• Early 2000, medical expert raised doubt about the cardiovascular risks associated with Vioxx's long-term usage.

• Study shows increased blood pressure in Vioxx patients compared to patients who took the drug Celebrex.

• Study shows twice the rate of serious cardiovascular problems and five times the rate of heart attacks as compared to Naproxen.

BE Presentation 24

The Recall

• September 30,2004 – Merck pulled Vioxx from pharmacy shelves – the largest drug recall in the history of Pharma

• Merck has been criticized for being slow to acknowledge the health risk linked to the consumption of Vioxx.

• The Food and Drug Administration (FDA) sent a warning letter to Merck's CEO Raymond Gilmartin on September 17, 2001

BE Presentation 25

Learnings

• Merck aggressively marketed an unsafe drug, under the brand name Vioxx, without properly disclosing its serious side effects to consumers. After the facts were revealed, the company faced costly lawsuits, angry investors and falling profits. This shows how a disaster can occur when a company becomes greedy and seeks undeserved profits at the expense of ethics and social responsibility.

BE Presentation 26

Learnings

• Building a successful and competitive business requires managers to make decisions that balance profit and social responsibility. When business managers run their business solely for profit, problems will almost certainly occur. Such problems can cause severe damage not only to the company's customers but also to the company itself.

27

Thank You!