By example

By Stuart Crainer and Des Dearlove

In 1982, a psychopath put cyanide into some Tylenol capsules. Eight people died. In response, Johnson & Johnson withdrew the product in its entirety from store shelves. A total of 31 million bottles were returned to J&J. This cost J&J $100 million. (Contrast this with when Perrier found traces of benzene in its products. It only recalled a small number from the North American market. The fallout was far greater than the original problem.)

Then J&J accepted responsibility – though it was clear that it hadn’t actually done anything wrong. J&J’s response was candid. It opted for full cooperation with the media immediately. Later the company offered to exchange Tylenol capsules – which were the contaminated product – for Tylenol tablets. Many more millions of dollars were spent in doing so.

Key to this was the behavior of J&J CEO Jim Burke. The Irish-American emerged as an honest, straight-talking, highly responsible executive. He personally toured one TV program after another to take responsibility and keep people up-to-date. J&J’s media response won plaudit after plaudit. ‘What Johnson & Johnson executives have done is communicate the message that the company is candid, contrite and compassionate, committed to solving the murders and protecting the public,’ noted the Washington Post.

Tylenol remains a bestselling over-the-counter drug. J&J invested heavily in restoring it to its previous position – it had 37 percent of the over-the-counter painkiller market. ‘It will take time, it will take money, and it will be very difficult; but we consider it a moral imperative, as well as good business, to restore Tylenol to its pre-eminent position,’ said Jim Burke. Thanks to the company’s responsible response, its sales quickly recovered.

Leading in such a crisis is clearly difficult in the extreme. It is interesting that the fact that J&J had a ‘Credo’ with clearly delineated standards of behavior made the crisis easier to handle. Burke had led a program to revisit the Credo and update it for the 1980s, making it a real and influential document which had direct a effect on people’s behavior. Over ten years, J&J had reconsidered the Credo. The Tylenol crisis brought its values into sharp relief. Instead of bringing in a contingency plan, the company carried on expressing the same principles and values. What the public saw was genuine principled leadership.

Crises as awful as Tylenol rarely happen. J&J’s decisive response met the challenge. It reacted coolly and positively to crisis. It set up a crisis management team, identified the key people who needed to be involved, and limited numbers of spokesmen and women. Most of all, Burke gave a lead. ‘Any one can hold the helm when the sea is calm,’ Pubilius Syrus noted many centuries ago. He remains right. When the going gets tough, leaders get to work by setting an example.

Konosuke Matsushita, creator of the Japanese corporate empire which bore his name, advocated business with a conscience. This was manifested in his paternalistic employment practices. During a recession early in its life the company did not make any people redundant. This cemented loyalty.

‘It’s not enough to work conscientiously. No matter what kind of job, you should think of yourself as being completely in charge of and responsible for your own work,’ he said, going on to describe how he approached his work: ‘Big things and little things are my job. Middle-level arrangements can be delegated.’ He also explained the role of the leader in more cryptic style: ‘The tail trails the head. If the head moves fast, the tail will keep up the same pace. If the head is sluggish, the tail will droop.

Behind such aphorisms lies profound leadership truth. At a soccer match we encountered a burger seller who had ‘Team Leader’ on his name badge. Emboldened by beer we asked what leadership meant to him. ‘Two words,’ he immediately replied, barely pausing for breath. ‘By example.’ We returned to our seats stunned by the brilliant power of his response. We know plenty of business leaders and thinkers in the subject who would fail to answer with such speed, confidence and authenticity.

One of the most inspiring stories of leading by ethical example is that of Aaron Feuerstein of the American company Malden Mills. In 1995 he decided to keep his business open after a major fire. He kept the workforce of 2,400 people on the payroll out of his own personal savings.

Malden Mills was already a pretty unusual company prior to 11 December 1995. In an age of diminishing loyalty and relentless downsizing, it stood for traditional corporate values. Loyal employees worked alongside trusting management. Customer retention and employee retention both registered a staggering 95 percent. The company, based in Lawrence, Massachusetts, had remained steadfastly – some said foolishly – loyal to its home base. Founded in 1906, it moved to Lawrence in 1956 rather than following its competitors and many more textile companies in their migration down south.

Malden Mills stayed stoically put. Its loyalty seemed misplaced when, in the early 1970s, it made a disastrous move into fake fur. By 1980 it was in Chapter 11. Malden Mills struck back with the development of Polartec, a lightweight fleece which proved more successful – and tasteful – than fake fur. By 1995 it had sales of $400 million.

Then a fire ripped through its factories leaving over a dozen people hospitalized and the company, it seemed, in ruins.

Malden Mills chief, Aaron Feuerstein, the grandson of the company’s founder, immediately announced that – with no production capacity and no immediate hope of producing anything – he would continue to pay the company’s 2,400 employees and pay their healthcare insurance. It was estimated that paying the company’s employees for 90 days and their healthcare for 180 days cost Feuerstein $10 million.

‘Most people would’ve been happy at their seventieth birthday to take the insurance money and go to Florida, but I don’t want to do that,’ Feuerstein said.

It appeared like bad business at the time even though it was highly moral.

In the end, Malden Mills was back to virtually full capacity within ninety days. A total of $15 million was invested in a new infrastructure. The committed and grateful workforce worked so well that productivity and quality shot up – before the fire 6 to 7 percent of the company’s production was ‘off quality’; this reduced to 2 percent after the fire. Feuerstein said the company’s employees paid him back nearly ten fold.

And the lessons from this? First, ethics come naturally or not at all. Feuerstein considered it the natural thing to do.

‘Fifty years ago it would have been considered very natural for a CEO, if his plant burned down, to rebuild it and to worry about his people,’ he lamented.

The second lesson is that (somewhat surprisingly perhaps) ethics pay. Feuerstein’s act was one of loyalty, honesty and morality. But, it brought paybacks – President Clinton was among those paying homage to Feuerstein by inviting him to Washington.

‘I always thought that perhaps in the long run [my employees] would return to me a quality product that would make Malden Mills continue to excel. But I never dreamed there would be any short-term advantage,’ he said.

The reality is that organizations live with communities and vice versa. Only Gordon Gekko would believe that companies and communities can be clinically separated.

‘One of the great lessons I learned these past few months is how fundamental our businesses are to the survival and health of our communities,’ said Feuerstein.

Leadership is driven by and for communities.