How their Mission Statement Helped Johnson & Johnson Survive the Tylenol Crisis

(excerpted from Say It and Live It)

Johnson & Johnson is one of those great American corporate classics. Started in l886 by the three Johnson brothers with fourteen employees in New Brunswick, New Jersey, Johnson & Johnson today has 82,000 employees worldwide and $14 billion in sales.

Johnson & Johnson has produced some of the world's most well-known brands, including Johnson's Baby Powder, which was introduced in l893; Band-Aids, introduced in l920, and Tylenol, in l960.

Johnson & Johnson's Our Credo is their guiding philosophy. It was written by General Robert Wood Johnson more than fifty years ago. Our Credo covers four main areas of responsibility: customers, employees, communities and shareholders.

"For its time, it was extremely forward looking and visionary," says Robert Kniffin, vice president of corporate public relations. "It was challenged by the management in the mid-'70s when the chairman decided if it was going to hang on walls and be on desks in offices that it should not just be a token or symbol, but should be an article of faith," he says. "He convened a couple of meetings with top management and challenged them with provocative questions about the conflicting tenets of the Credo. For example, an inefficient plant that you've had for many years. If you close it, what happens to the community; what about your obligation to employees? Or, what do you do with a batch of product that is fine, but the labels are on crooked? People argued with considerable emotion about such things, with the object of asking whether this document was necessary and desirable, and if so, should it be modernized or changed. Out of that came some changes. That Credo challenge process continues right up until this day, and has resulted in some further changes in the text, but remarkably few in my opinion," he says.

"We are going through a period of enormous change, facing all kinds of challenges--from customers, from competitors, from government," Chairman and Chief Executive Officer Ralph Larsen had told employees. "When you go through that kind of stressful challenge, you've got to be rooted in a set of fundamental beliefs. When we talk to our constituencies--hospitals, retailers, suppliers, government regulators, even competitors--they presume that we are going to do the right thing and act honorably," Larsen noted.

Johnson & Johnson's true test of doing the right thing occurred in l982 during the Tylenol tamperings. Kniffin, who was at the company then, tells the story: "In l982, when the poisoning occurred in Chicago, where someone put cyanide poison in the capsules, we had an unprecedented situation and had to invent ways of dealing with it. For example, that day the chairman sent me and someone from the law department to Pennsylvania where the product was made (McNeil Consumer). I spent the next ten days there dealing with the media, and we had to deal with them the best we could. Multiply that with the phone calls we got from consumers, from doctors, from hospitals and from law enforcement agencies. We didn't know what happened, whether something had happened in the plant or outside. To know beyond a shadow of a doubt took weeks. You had all these people within this company in a compressed, anxious, bordering on the hysterical, along with personal pressures on making decisions about what to do.

"I was in the president's office (at McNeil Consumer) and he had asked the vice president of finance to compute what it would cost to recall all of the capsules in the United States. This guy came back a couple of days later and said he calculated that it would be $75 million. And then he said, 'but we don't have 75 million dollars,' meaning McNeil Consumer. Then there was a pause and another guy said, 'but how can we not do this, because there might be another bottle on the shelf, and if we don't get them back, someone might die.' It was not an instance where someone said 'let's consult the Credo and think through this problem, starting with what's our responsibility to the consumer, but rather it was a way of looking at the world, at business and at the decisions. The Credo structures the way you think about things. When all was done and the dust had settled, we reached the conclusion that those hundreds of individual decisions were right decisions. They sprang from some common way of looking at the world, which in retrospect was the Credo.

At the time, Tylenol was the company's largest single money-maker. During the incident, their market share of the analgesic market dropped from 37 percent to 7 percent within weeks and the company's share price dropped 10 percent. In five months, a new tamper-proof Tylenol was back on the shelves, and it had regained 70 percent of its previous market share. Within three years its total market share was reached.

"The premise of the document was that if you order your priorities, most of the time it will work out. There are conflicts, of course. It was not in the stockholders' interest to take a $50 million after-tax write off. Nobody ever complained about that, which is interesting. It all seems clear in retrospect, but during those first few days nothing was clear. I was convinced we were going to lose that brand. The decision was made to recall the capsules altogether. As a result of that, we did find three bottles on the shelves in Chicago that were poisoned," says Kniffen.

"Companies usually don't get a test of this type to ascertain the importance of a business philosophy, but having the Credo helped Johnson & Johnson employees unconsciously take the steps necessary to do the right thing," he says.

Then Chairman James Burke was quoted at the time: "After the crisis was over we realized that no meeting had been called to make the first critical decision. Everyone of us knew what we had to do. We had the Credo to guide us."

Since that time there has been a more conscious articulation of the Credo values in business meetings, according to Kniffin. "The value of the document was actually enhanced and the reputation of the company was ironically improved by that incident," he says. "Many times in meetings on various subjects, people have eluded to the Credo, from salespeople to middle managers to executives, from personnel matters to community relations, from equity issues to consumer quality issues. There are questions of businesses we should or should not get it because, in part, of the Credo implications. It goes right to the essence of the company. The phrase, 'this is a Credo issue' you hear a lot these days."

You'll find the Credo part of the vocabulary at Johnson & Johnson, from developing 'Credo-based' leaders to 'Credo-challenge meetings' to 'Credo surveys'. "We want to develop Credo-based leaders--broad-gauged, multi-dimensional men and women with superior talents, values and the energy it takes to bring out the best in people and produce outstanding business results," Larsen told employees. Credo challenge meetings, begun in l976, continue today at J&J. About 25 people attend each session and the session deals with the results of the Credo survey, which is done on a three year cycle. The Credo survey is a series of more than a hundred questions that give each employee (anonymously) the chance to rate how well the company is living up to the tenets of the Credo.

"In meeting consumer needs, we get very high grades," says Kniffin. "In meeting community needs we get very high grades, in meeting stockholder needs, very high grades--but not employee needs, because we ask questions like 'are you paid enough?' But management tries to work on those issues," he says. People in the challenge sessions are asked to reflect on why some areas receive higher scores that others and how those scores tie into the implementation of the values outlined in the credo.

Could you work for Johnson & Johnson? You have to believe in the Credo to climb the corporate ladder. As Chairman/CEO Larsen told employees: "while it is possible to succeed in Johnson & Johnson over the short-term without a true commitment to the credo ... you will not do well over the long term. You have to believe in Our Credo and practice it to be able to finish your career with Johnson & Johnson."

Copyright © 2010 Larry Kahaner