Crisis Management: When Did You Learn About It: What Did You Do About It?: Crisis Response
What did the Catholic Church, Firestone Tires, and Merck have in common? All knew of internal scandal or product defects for years and did nothing about it. The repercussions for the Church and the tire company are well-known, but Merck felt the heat as well. Its stock price fell and the company went on credit watch because of pending and expected lawsuits following news that the company may have known for years of potential cardiac problems with Vioxx. Merck first earned praise for quickly yanking the blockbuster painkiller off the market after research revealed problems the CEO said were “unexpected.” He said his company was “really putting patient safety first.” But then followed a blockbuster of another kind: a Wall Street Journal article saying the company first worried about heart side effects in the mid-90’s and Merck’s own research chief said in 2000 that cardiac events with Vioxx were clearly there, according to emails.
This was bad news for the company, employees and shareholders and pained me at the time. I complimented Merck’s fast action in a previous column. Large companies don’t often sacrifice a $2.5 billion product on short notice to protect customers. Such boldness could have been a benchmark and, possibly one day join Johnson & Johnson’s Tylenol recall in the pantheon of classic crisis management examples. Well, so much for that idea.
Merck’s case was a grim reminder of a crisis principle whose wording I believe derives from a quote by former Tennessee Senator Howard Baker during the Watergate hearings leading to President Nixon’s downfall. He said, “The central question is simply put: What did the President know and when did he know it?”
The derivative crisis management principle is “When did you learn about it and what did you do about it?” Bottom line: when you first become aware of a significant internal problem, act fast to fix it even if you think it will never become public. Then, should the trouble surface, you can say, “I learned about it on day 1 and took action on day 2.” Merck appeared to have done that. The company said it learned of the Vioxx cardiac finding on September 24 and pulled the drug September 30. Apparently, that was misleading (thus violating another rule, “tell the truth,” a subject for another day.)
“When did you learn about it and what did you do about it” is now in full force after NY Attorney General Eliot Spitzer laid siege to the insurance industry in 2004, issuing subpoenas against companies for bid-rigging to collect huge fees. A chief target was Marsh & McLennan Companies, the biggest insurance broker in the world. Within 11 days after Spitzer sued Marsh, the company’s board demanded the long-time CEO resign, suspended four executives, and announced that it would stop accepting commissions of any kind from the insurers to whom the company steers business from corporate clients. Those expensive moves will not solve all the problems, but, according to the Journal, avoided criminal action by Spitzer. Some criticized Marsh for overreaction (and Spitzer for overzealousness), but the rapid responses undoubtedly ameliorated future troubles.
Other insurance companies acted even faster. Just days after Spitzer asked if they engaged in bid-rigging with Marsh, they said yes, hurriedly provided documents to Spitzer, and several people pleaded guilty. Why so fast? Impress Spitzer and reduce eventual punishment. Again, “When did you learn about it and what did you do about it?
Coke and Pepsi give us a final example. They announced they would put full nutrition information, including total calories, on their labels. Kraft Foods was already doing this. Why? All wanted to get the jump on new FDA labeling requirements to fight obesity.
So, the next time clouds gather on your corporate horizon, immediately break out the umbrella and raincoat. Give yourself a good answer for “When did you learn about it and what did you do about it?”