In Recall, a Role Model Stumbles

[Guest guest]

"Mr. Greyser said he was puzzled by & ’s corporate conduct in this instance." Oh, yes, very puzzling. Now why would they try to keep things under wrap....hmmm...couldn't be money.....

Winnie

(http://www.nytimes.com/2010/01/18/business/18drug.html?th & emc=th)

January 18, 2010

News Analysis

In Recall, a Role Model Stumbles

By NATASHA SINGER

The Harvard Business School teaches future executives the gold standard in brand crisis management. The model dictates that a company should communicate clearly with the public about a crisis, cooperate with government officials, swiftly begin its own investigation of a problem and, if necessary, quickly institute a product recall.

The template is based on & ’s conduct in 1982, when several people died after taking tainted Tylenol pills. The company’s reaction to the crisis is widely regarded as exemplary.

But last week, & appeared to abandon its own template, stunning a few business school professors. Its conduct also drew harsh criticism from federal officials.

On Friday, McNeil Consumer Healthcare, a division of & , announced the recall of several hundred batches of popular over-the-counter medicines, including Benadryl, Motrin, Rolaids, Simply Sleep, St. ph Aspirin and Tylenol.

According to a federal inspection report, the response was anything but swift. The recall came 20 months after McNeil first began receiving consumer complaints about moldy-smelling bottles of Tylenol Arthritis Relief caplets, according to a warning letter sent by the Food and Drug Administration to the company on Friday. Since then, a few people have also reported temporary digestive problems like nausea, vomiting and stomach pain, the agency said.

The McNeil unit of & had recalled some batches of the arthritis drug at the end of 2009. But the company did not conduct a timely, comprehensive investigation, did not quickly identify the source of the problem, and did not notify authorities in a timely fashion, prolonging consumer exposure to the products, the warning letter said.

Analysts said the company’s seemingly slow response appeared out of character for one of the most trusted corporate brands in America, the maker of beloved household products like ’s Baby Shampoo and Band-Aids.

And the recall, they said, had the potential to encourage consumers, who may have perceived name-brand medicines as being a higher quality worth their premium prices, to switch to less expensive drugstore brands.

“The F.D.A. comments on Friday were devastating because they make the company seem to be complacent and sloppy,” said Calkins, a clinical professor of marketing at the Kellogg School of Management at Northwestern University in ton, Ill.

Deborah M. Autor, the director of the Office of Compliance at the F.D.A.’s Center for Drug Evaluation and Research, said on a conference call with journalists on Friday that the company should have acted faster.

“When something smells bad literally or figuratively,” Ms. Autor said, “companies must aggressively investigate and take all necessary actions to solve the problem.”

In response to a query from a reporter on Sunday, a spokeswoman for McNeil said that the company was working with the F.D.A. to resolve the agency’s concerns.

“We’re conscious of the fact that people expect more of us,” the spokeswoman, Bonnie s, wrote in an e-mail message. “McNeil Consumer Healthcare has applied broad criteria to identify and remove all product lots that it believes may have the potential to be affected, even if they have not been the subject of consumer complaints.”

In a statement on Friday, McNeil said the breakdown of a chemical used to treat wood pallets that transport and store product packaging was the source of the moldy smell in some products.

The company has set up a Web site, McNeilProductRecall.com, which provides the list of recalled batches, also known as lots. Consumers can also call 888-222-6036 to ask about a refund or replacement of recalled products.

Separately on Friday, the Justice Department also filed charges against & in federal court in Massachusetts, accusing the company of paying kickbacks to a nursing home pharmacy to promote several of its prescription drugs, including the antipsychotic drug Risperdal, to elderly patients. The company said on Friday that its conduct had been legal and appropriate. The company was reviewing the government’s complaint and intends to respond in court, a spokeswoman said.

Mr. Calkins said the company faces even more public scrutiny with both problems coming out on the same day.

“Now you have two stories that people are connecting,” Mr. Calkins said. “It is a bit of a compound fracture.”

He and other analysts speculated that company managers might have underestimated the extent of the chemical contamination problem or might have underestimated the public relations issue that could ensue.

This is not the first time a multinational corporation appears to have underreacted to a limited product problem that turned into a big public relations headache, said A. Greyser, a professor emeritus of marketing at the Harvard Business School. Coca-Cola, he said, was slow to respond to reports in 1999 that several hundred people in Western Europe had become sick after drinking Coke.

Mr. Greyser said he was puzzled by & ’s corporate conduct in this instance.

The F.D.A.’s charges of bad behavior have not yet been proved, he said, but they were serious enough that the company should be more forthright about what its own investigations showed.

“This is an instance where behavior is more important than communications,” said Mr. Greyser, who wrote Harvard’s original case study on Tylenol in 1982. “Communications and good public relations can be very helpful, but it can’t overcome bad behavior.”

In a climate in which Americans have come to expect perfection in consumer goods, companies are better off overreacting than underreacting when product problems arise, said Braun, an assistant professor of marketing at the M.I.T. Sloan School of Management.

Such an extreme measure as & ’s nationwide recall of Tylenol in 1982 may not have been warranted for safety reasons, he said, but it reflected well on the company.

“These kinds of actions have tremendous public relations value and that can protect a brand because it engenders trust,” he said. “They probably haven’t done that in this case.”

& ’s conduct is all the more out of step, analysts said, because the drug maker had been one of the first in the pharmaceutical industry to set up its own blog, jnjbtw.com.

In 2008, for example, in an act of transparent crisis management, the blog apologized to readers for a Motrin ad that had insulted some mothers and explained that the company had pulled the ad campaign in response.

But, as of Sunday at 6 p.m., on the issue of the current recall, the blog so far has had no comment from the company.

Copyright 2010 The New York Times Company