Last week, an Oklahoma court ordered Johnson & Johnson to pay $571 million for involvement in “false, misleading, and dangerous marketing campaigns” that contributed to the opioid addiction crisis in the state. This case is interesting for a couple of reasons: 1) It’s the first ruling in the US to hold a drug manufacturer accountable for its role in a national public health disaster and 2) J&J shares not only rallied but also gained 3% post-verdict, signaling that the company could grow by $6B in market cap.
The Dow may care little for corporate ethics, but let’s not forget that J&J’s crown jewels are its line of baby care, first aid products, and household remedies, and unlike Wall Street, mothers don’t as easily forgive or forget.
Once upon a time, Johnson & Johnson was the embodiment of a customer-obsessed company. Back in the pre-social media days — September of 1982 — eight people died after taking cyanide-laced capsules of Extra-Strength Tylenol, the company’s top-selling pain reliever. McNeil Consumer Healthcare, a subsidiary of Johnson & Johnson, manufactured Tylenol. The FBI and the FDA, convinced that the arsenic tamperings were murders disguised as accidents, pressured the company not to pull products from the shelves, but James E. Burke, the company’s CEO, knew the brand — and more importantly, lives — were at risk. Even if the tampering was purposeful and the deaths limited to eight people, Burke made the decision that customers were more important than the criminal investigation, and so he pulled them . . . every single bottle.
With Burke at the helm, the company took an active role with the media in issuing mass warning communications and immediately called for a massive recall of the more than 31 million bottles of Tylenol in circulation. Like a doctors’ Hippocratic Oath, “do no harm” was the guiding principle. Johnson & Johnson followed that up with production and quality assurance changes and gave an ironclad assurance that the new compliance regime wouldn’t fail in the future. In 1983, Congress passed “the Tylenol bill,” making it a federal offense to tamper with consumer products. In 1989, the FDA established federal guidelines for manufacturers to make all such products tamper-proof. Mr. Burke went on to receive the Presidential Medal of Freedom and was named one of the top 10 CEOs in history.
And the rewards for putting customers before profits? Within a year of the recall, and after an investment of more than $100 million, Tylenol’s sales rebounded to pre-crisis market share and, once again, became the nation’s favorite over-the-counter pain reliever. But more than that, Johnson & Johnson’s line of products, from Band-Aids and baby powder to Benadryl, won the trust of households across the country.
So where are J&J’s values now? It’s possible the multinational conglomerate just got too big and fractioned to self-govern, or perhaps integrity was merely an illusion. Instead of taking the fine and immediately going after the arduous task of rebuilding a brand that, at one time, was associated with caution and care for its patients and customers, it is now guilty of fueling an opioid epidemic and turning a blind eye to the suffering.
And fuel they did. In the 1980s, when the company needed a reliable supply of opium for its Tylenol (with codeine) product, Johnson & Johnson acquired a business that grows and processes opium poppies in Tasmania. By 2015, at the height of the opioid epidemic, Johnson & Johnson was the leading supplier for the raw ingredients in painkillers in the United States. The business even developed a special strain of poppy, called Norman, that produced a core painkilling agent used in OxyContin, which would become Purdue Pharma’s blockbuster drug. This double-dipping invalidates Johnson & Johnson’s theory that it was only responsible for 1% of the opioid sales in Oklahoma.
Time will tell if corrections in the financial markets will continue to reward Johnson & Johnson and whether the company will be successful in containing the current damage and possibly rebuilding the brand to what was represented during the days of James E. Burke. Regardless of which path Johnson & Johnson moves forward on, reflection is in order to understand how corporate greed undermined corporate governance, ethics, and risk management to become a classic textbook example of a brand that lost touch with its brand promise, “A Commitment to Caring,” and prioritized profits over patients. Alla Valente