Many large corporations are often are faced with ethical issues that determine the success of the company. Two of the most famous companies that were faced with ethical dilemmas was Johnson and Johnson and Enron. One of these companies was able to deal with their ethical dilemma correctly and it saved the company, while the other company did not properly handle its ethical issues and it resulted in the collapse of the company.
In the late 1900’s Johnson and Johnson produced a pain killer called Tylenol. Tylenol was a very successful product in the US. Tylenol was responsible for 19 percent of Johnson & Johnson’s corporate profits during the first 3 quarters of 1982. Tylenol was the major leader in the painkiller industry.
On Wednesday, September 29, 1982 a sick girl in Illinois took an Extra-Strength Tylenol and later on in the evening was sick and rushed to the hospital which pronounced her dead. This girl was one of seven Chicago residents to die after taking the Extra Strength Tylenol. The following day ( Thusday, September 30th) the executives of Tylenol where notified about the crisis. Johnson & Johnson, the maker of Tylenol, were faced with a huge ethical issue, people where dying from their product and they had no idea why, should they pull all of the Tylenol products off the shelf in stores and suffer a major lose? Or should they play it out and see what happens? On Thursday afternoon, Johnson & Johnson announced a recall to all Tylenol bottles that had the code number MC2880.
This meant that they had been manufactured at the company’s Fort Washington factory. The Fort Washington plant had distributed in to all states east of the Mississippi River. On the same day the executives of Johnson and Johnson immediately alerted consumers across the nation, thought the media, not to consume any type of Tylenol product. On Friday September 31st, one day after the recall another person was found dead from the Tylenol. This person’s Tylenol bottle had the lot number of 1801MA, this lot was not part of Tylenols original recall. Tylenol was now forced to recall all of it Extra Straight Tylenol capsules, which it did.
A major investigation was launched and it was determined that Tylenol capsules had been laced with cyanide. Johnson and Johnson further investigated into the matter and found that the Tylenol bottles hadn’t been tampered with at the factories in which they were produced. This meant a person had taken the bottles from store, and filled them with poison and then returned them to stores.
Johnson & Johnson reacted to the crisis swiftly; they launched a massive public relations campaign urging the people not to use Tylenol and pushed stored to take the bottle of the shelves. The company also ordered a national recall of 264,000 bottles of Tylenol. Unlike today in the 1982 it was highly unusual for a company to recall any of their products.
One of Johnson & Johnson’s bestselling products was now completely in shambles and many speculated that Johnson and Johnson would never be able to recover from the disaster. However Tylenol was able to recover, Tylenol made preventive measures to prevent anything like this from happening again. Tylenol created a triple seal for all their medications to prevent anyone from tampering with the contents. Tylenol also Set up a 1800 number to give the public updated information and the CEO gave personal messages explaining the problem and what Tylenol did to prevent this from happening again. Tylenol sympathized with the families who lost love one and gave them money and support, even though they ere not directly responsible for the deaths. Because of the their swift actions, sympathy and extremely ethical decision to pull the product of the shelves, within months Tylenol was back on store shelves with a new and improved new safety seal.
The recall and re-launch cost Johnson & Johnson over $100 million, but in the end, Johnson & Johnson was praised for its handling of the crisis. Within a year, Tylenol’s market share rebounded and they were successfully able to patch up their brand image in the eyes of consumers. Scholarly Journals was quoted saying “The Tylenol crisis is without a doubt the most exemplary case ever known in the history of crisis communications. Any business executive, who has ever stumbled into a public relations ambush, ought to appreciate the way Johnson & Johnson responded to the Tylenol poisonings. They have effectively demonstrated how major business has to handle a disaster.”
The Tylenol murders were never catch and brought to justice. The one positive outcome of the disaster was that it led all drug makers to develop tamper-proof seals for their products, this was something that was virtually nonexistent before the Tylenol crisis. To further show how well Johnson & Johnson recovered from their lose; In 1982, Johnson & Johnson’s stock, had been trading near a 52-week high just before the tragedy, after the tragedy the stock went into a selling frenzy but it manages to recover to its high selling points only two months later. Investors have had little to complain. If you had invested $1,000 in Johnson & Johnson shares on September 28, 1982, just before the first Tylenol episode, you would have $22,062 today, after four stock splits.
Enron was an American energy, commodities, and Services Company based in Houston, Texas. Before the 21st century began Enron employed over 20,000 people. Enron made money by selling electricity, natural gas, communications, and pulp and paper. Enron claimed revenues of nearly $101 billion in the year 2000. Fortune named Enron “America’s Most Innovative Company” for six consecutive years. Enron was a publicly traded company and was highly trusted by investors.
The Enron flourished during the dotcom boom of the ’90s. In November 1999, Enron launched EnronOnline. This was the first web-based transaction system that allowed buyers and sellers to buy, sell, and trade commodity products globally. At its peak, over $6 billion worth of commodities were transacted through EnronOnline every day. This site allowed Enron to transact with participants in the global energy markets. On the books Enron looked like it was doing extremely well, and many investors sought to buy their stocks. At its peak, Enron was worth about $70 billion, its shares trading for about $90 each. Enron was considered a “blue chip stock” and therefore was considered to able very stable and trustworthy.
All that came crashing down starting in October 2001, when the company admitted that it had misstated its income and that its equity value was a couple of billion dollars less than its balance sheet. The following is the flow of events that lead to Enron’s downfall: On October 16, 2001 Enron reported earnings included unexpected after tax charge of $544M. Following that, on October 22 Enron’s stock fell by 20% to $20.65. This raised some red flags and the SEC asked for disclosure of investment partners. On November 8th, stock price at $8.41 because of media scrutiny about overstatement of net income and understatement of debt. The media kept on bashing Enron until on November 28 stock trading at just over $1.00 and finally on December 2 Enron filed for bankruptcy.
Enron had made many “partnerships” with companies it had created, and it used those partnerships to hide from the public huge debts and heavy losses on its trading businesses. At the same time, Arthur Andersen, the Accounting company that audited Enron’s books, failed to recognize the company’s problems. Some even say that Arthur Andersen was in with Enron on cooking the books, created one of the biggest frauds sandaled in history. Enron created offshore entities. These entities made Enron look more profitable than it actually was, and created a dangerous downward effect. In each quarter, corporate officers and management would have to perform more and more financial deception and hiding debts in their off shore accounts to create the illusion of billions in profits while the company was actually losing money. This practice drove up their stock price to new levels, at which point the executives began to work on insider information and trade millions of dollars worth of Enron stock. Many of the executives and insiders at Enron knew about the offshore accounts that were hiding losses for the company; however, the investors knew nothing of this.
The CFO Andrew Fastow led the team which created the off-books companies, and manipulated the deals to give himself, his family, and his friends hundreds of millions of dollars in guaranteed stock revenue, at the expense of the corporation for which he worked and its stockholders. The Board of Directors and Senior Management was also unethically aggressively promoted shares publicly while privately unloading their shares. All this was done so they could make more money at the cost of their employees and stock holders, who at the end of the day lost all their money and trust in the firm.
Kenneth Lay, the founder of Enron was also accused of selling over $70 million worth of stock in insider trading. He sold another $20 million worth of stock in the open market. Lay’s wife, Linda, was accused of selling 500,000 shares of Enron stock totaling $1.2 million on November 28, 2001. The money earned from this sale did not go to the family but rather to charitable organizations which was quite surprising. Records show that Mrs. Lay placed the sale order sometime between 10:00 and 10:20 am. News of Enron’s problems, including the millions of dollars in losses they hid went public about 10:30 that morning, and the stock price soon fell to below one dollar. This was an obvious case of unethical insider trading. Enron initially planned to retain its three domestic pipeline companies as well as most of its overseas assets. However, before emerging from bankruptcy, Enron spun off its domestic pipeline companies as CrossCountry Energy and sold other assets to Vulcan Capital Management. Enron sold its last business, Prisma Energy, in 2006, leaving it as an asset-less shell. In early 2007, it changed its name to Enron Creditors Recovery Corporation. Its goal is to pay off the old Enron’s remaining creditors.
In conclusion many large corporations are often are faced with ethical issues that determine the success of the company. Two of the most famous companies that were faced with ethical dilemmas was Johnson and Johnson and Enron. Johnson and Johnson made the right ethical decision not to hide their problem from the public but rather to deal with the problem at hand in the most ethical way, because of this the company was able to pick themselves up and recuperate their loses. Enron on the other hand hide their loses from the public, and did many extremely unethical things that put money into the hands of the CEO, CFO and management. At the end of the day because of these unethical activities Enron collapsed and went bankrupt. We can see from these two stories that if a company is faced with an ethical dilemma the best thing to do is be transparent and do the right things, if a cooperation fails to do this they are at risk of collapsing, just like Enron did in the 2001.