Johnson and Johnson: Recalling, Reassuring, and Reviving


Case Background

Three decades ago in Chicago, seven people died after taking extra-strength Tylenol that was laced with cyanide. A still unknown culprit had taken the Tylenol bottles off the shelves, infected the capsules with cyanide, and returned the bottles to the shelves. The extra-strength Tylenol accounted for 17 percent of Johnson and Johnson’s net income, making it the company’s bestselling product.[1] Obviously, this is a worst case scenario for any company. Maintaining trust, doing the right thing, and saving the brand image were all concerns for Johnson and Johnson. The company’s success in handling the crisis in 1982 exemplified various types of ethical reasoning and its benefits in the business world.

Once the crisis occurred, the connection was made between the deaths and the Tylenol capsules. Announcements warned people about the potential dangers of taking the product. The CEO of Johnson and Johnson, James E. Burke, needed to make a monumental play call given that the reputation of the company and its most profitable product were both on the line. To do this, he had to weigh a few different certainties. The first was that a recall would cost the company over $100 million, and this loss would not be insured. If there was a recall, this news would potentially hurt the product so much that public confidence and a 37% market share might not be regained. Such news would also result in a drop in the company’s stock. Lastly, Johnson and Johnson had to worry about competitors in the industry exploiting the crisis as much as possible.[2] After weighing these options, Johnson and Johnson made an ethical decision that was in line with their core values as a firm, which ultimately saved its reputation and public welfare. They recalled 31 million bottles at a cost of $100 million, and stopped all advertisement for Tylenol.[3] Despite not being responsible for the tampering, Johnson and Johnson decided it was their responsibility to keep the public safe. Burke took action immediately without any urging from the government. Whether he knew it or not, Burke incorporated various approaches to ethical reasoning in his decision to make one of the largest consumer recalls in history.

A Deontological Perspective

The first approach one might use in making an ethical decision is deontology. Essentially, a company has a duty that it must abide by. It must not use human beings as a means to an end unless they are the end as well. What is important in this type of ethical reasoning is less the outcome, and more the motives. Immanuel Kant believed that it is not the result of an action that makes it right or wrong. He contended that humans “have dignity or a value beyond price,” and thus a human being cannot use another human being merely to satisfy his or her own interest. This is also applicable to companies in business as it “puts constraints on the nature of economic transactions.” [4] This type of thinking can be applied to the Tylenol case seeing as Johnson and Johnson did not use its stakeholders as a means to corporate profit. It did the exact opposite by taking a large monetary hit as a means to an end in protecting its stakeholders. The very first principle that Bowie lists in his Kantian approach to his organizational design of a business firm is that the firm should consider the interests of all the stakeholders that a decision might affect.[5] Johnson and Johnson’s decision to recall the bottles exemplified that principle.

The theories of John Rawls also focus on the rules and duties of human beings and can also be applied to the Tylenol case in a similar fashion. He believes people should reason from an “original position.” John Rawls stated that “no one should be advantaged or disadvantaged by natural fortune or social circumstances in the choice of principles.” When approaching issues from the original position, everyone is deprived of information that might cause them to be biased in their judgment and “guided by their prejudices.” [6] This perspective is what Rawls calls, a “veil of ignorance.” In other words, a person should act as if they do not know their position in society and are essentially as free, equal, and rational as any other person. Despite having different goals than others, a company may not pursue them at the expense of others. From a Rawls perspective, Johnson and Johnson would have been neutral and unbiased. It wouldn’t act in way that would result in a detriment to its stakeholders, because it wouldn’t want to be put in that same risky situation. The fact that a recall would be costly should not have had an impact on Johnson and Johnson’s decision, and it did not in this case.

A Donaldson and Hartman Perspective

Thomas Donaldson worked to spell out the duties a firm has to its stakeholders. He put duties in three main categories: 1) The duty to avoid depriving people of their rights; 2) The duty to help protect people from such deprivation; and 3) The duty to aid those who are deprived.[7] Which of these duties can be applied to the Tylenol case? I contend that Hartman’s fourth additional category of duty is the most applicable to Johnson and Johnson. Hartman believed there was a fourth significant kind of duty that lies between the first and second. He described it as “avoiding helping to deprive.”[8] If the additional kind of duty rests on a distinction between being an agent of deprivation and only cooperating passively with its agent, Johnson and Johnson would be doing the ladder by helping the agent. The agent, of course, would be the culprit who poisoned the Tylenol bottles. By not recalling the 31 million bottles, Johnson and Johnson would be assisting in depriving human beings of their right to safety, no matter how slim the chance is of the capsules being poisoned. Johnson and Johnson proved a commitment to this fourth duty by make a proactive move in recalling the bottles. They did not fail to intervene.

A Utilitarian Perspective

While Johnson and Johnson was ethical from a duties based mindset, it also was when through a utilitarian lens. This perspective focuses on the consequences of actions. Whatever actions result in the most good for the most people are deemed ethically right. Act utilitarianism holds the belief that an act is morally right “if and only if the balance of benefit to harm calculated by taking everyone affected by the act into consideration is greater than the balance of benefit to harm resulting from an alternative act.”[9] In weighing the benefits and harms of making a decision during the Tylenol crisis, Johnson and Johnson would be concerned with not just itself, but all of their stakeholders that are affected by their decision. Clearly, calling for a recall of the Tylenol would result in the greatest good for the greatest number. It would protect the millions of users around the world, despite hurting relatively few people at the company. However, it is also interesting to think about the fact that basing a decision off consequences is difficult, because nobody can predict the future and know how extreme the consequences will be. For instance, perhaps only a few people would die if there was no recall. I argue that this is no reason to take the chance, and utilitarian decision making should be based on the worst possible consequence.

The Outcomes

While Johnson and Johnson made an extraordinary ethical move, it also was a great business decision. The costs and outcome actually helped Johnson and Johnson’s long-term value. Initially, market share in the industry dropped from 37% to 7%. Stock price also took a hit, as expected, dropping from its fifty-two week price high.[10] Yet, two months after the tragedy it increased to the same price. Johnson and Johnson has paid out increasing dividends for the past forty years. If management had not decided to take an ethical approach in their decision, Johnson and Johnson might not be the pharmaceutical powerhouse it is today. Today, 45% of its sales come from pharmaceutical drugs compared to 18% in 1980.[11] It is safe to say that customer confidence was restored.

Pre-Crisis Stock Price: September 28, 1982 – $2.9453

Post-Crisis Stock Price: October 5, 1982 – $2.4375

Decrease: 17.24%

Customer confidence was restored partly because of Johnson and Johnson’s campaign to re-introduce Tylenol to the public. The drug was packaged in a new and improved triple-seal tamper resistant package. This became the industry standard rather quickly. They motivated customers to buy the product with a $2.50-off coupon upon every purchase of the product. Johnson and Johnson also created a new pricing program that gave consumers up to 25% off the purchase of the product. Lastly, about 2500 sales people made presentations for the medical community.[12]

Conclusion

Johnson and Johnson proved that ethical reasoning in the business world can help a company prosper. Despite not being involved in the poisoning, and there being a temptation to be shortsighted, Johnson and Johnson stayed true to their mission statement which maintained 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.” Essentially, Johnson and Johnson exhibited a commitment to their stakeholders by putting human beings above profit during the Tylenol crisis. A managing director of the public relations firm that helped Johnson and Johnson stated “before 1982, nobody ever recalled anything. Companies often fiddle while Rome burns.”[13] Johnson and Johnson didn’t fiddle. Rather, it acted decisively and stayed true to the values of their company, which put their customers above everything else, despite it costing upwards of $100 million for the recall. Ultimately, shareholders were affected negatively for a brief period of time. In looking at Johnson and Johnson’s actions from different ethical perspectives, it is clear that the company is a great example of how business and ethics cannot be separated. The Tylenol case proved that a business has the potential to positively impact society, as well as itself, by having and committing to a framework made up of stakeholder values.


Endnotes

[1] Rehak, Judith. “Tylenol Made a Hero of Johnson and Johnson : The Recall that Started Them All.

[2] Bayer, Richard C. “Ethical Reasoning in Business.” Acton Institute: Religion and Liberty. Acton Institute, n.d. Web. <http://www.acton.org/pub/religion-liberty/volume-12-number-1/ethical-reasoning-business&gt;

[3] “The Fight to save Tylenol (Fortune, 1982).” Fortune Features. N.p., 7 Oct. 2012. Web. <http://features.blogs.fortune.cnn.com/2012/10/07/the-fight-to-save-tylenol-james-burke

[4] Bowie, N. E. (2007) A Kantian Approach to Business Ethics, in A Companion to Business Ethics. Pg. 7.

[5] Ibid, Pg. 10.

[6] Rawls, John. A Theory of Justice. Pg. 207.

[7] Hartman, Edwin M. Donaldson on Rights and Corporate Obligations. Pg. 163.

[8] Ibid. Pg. 165.

[9] Snoeyenbos, Milton. Pg. 17.

[10] Krehmeyer, Dean. “The intersecting interests of business and society.”

[11] Rehak, Judith. “Tylenol Made a Hero of Johnson & Johnson : The Recall That Started Them All.” The New York Times. N.p., 23 Mar. 2002. <http://www.nytimes.com/2002/03/23/your-money/23iht-mjj_ed3_.html&gt;.

[12] Susi, Reyna. “The Tylenol Crisis, 1982.” Effective Crisis Management. N.p., n.d. Web. <http://iml.jou.ufl.edu/projects/fall02/susi/tylenol.htm&gt;.

[13] Rehak, Judith. “Tylenol Made a Hero of Johnson & Johnson : The Recall That Started Them All.” The New York Times. N.p., 23 Mar. 2002. <http://www.nytimes.com/2002/03/23/your-money/23iht-mjj_ed3_.html&gt;.

Works Cited

Bayer, Richard C. “Ethical Reasoning in Business.” Acton Institute: Religion and Liberty. Acton Institute, n.d.<http://www.acton.org/pub/religion-liberty/volume-12-number-1/ethical-reasoning-business&gt;.

Bowie, N. E. (2007) A Kantian Approach to Business Ethics, in A Companion to Business Ethics (ed R. E. Frederick), Blackwell Publishers Inc., Malden, Massachusetts, USA.

“The Fight to save Tylenol (Fortune, 1982).” Fortune Features. N.p., 7 Oct. 2012. <http://features.blogs.fortune.cnn.com/2012/10/07/the-fight-to-save-tylenol-james-burke/

Hartman, Edwin M. “Donaldson on Rights and Corporate Obligations.” Mutlinational Corporate Responsibility.

“J&J’s re-entry plan for Tylenol.” Chemical Week. N.p., 7 Nov. 1982. <http://www.lexisnexis.com/lnacui2api/api/version1/getDocCui?oc=00240&hl=t&hns=t&hnsd=f&perma=true&lni=3SJ5-DDG0-0004-6113&hv=t&csi=6940&hgn=t&secondRedirectIndicator=true&gt;

Krehmeyer, Dean. “The intersecting interests of business and society.” The Washington Post. 14 Oct. 2012.

Rawls, John. A Theory of Justice.

Rehak, Judith. “Tylenol Made a Hero of Johnson & Johnson : The Recall That Started Them All.” The New York Times. N.p., 23 Mar. 2002. <http://www.nytimes.com/2002/03/23/your-money/23iht-mjj_ed3_.html&gt;.

Snoeyenbos, Milton. Humber, James. Utilitarianism and business ethics.

Susi, Reyna. “The Tylenol Crisis, 1982.” Effective Crisis Management. N.p., n.d.<http://iml.jou.ufl.edu/projects/fall02/susi/tylenol.htm&gt;.

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