Thursday, August 19, 2010

Not Getting The Cart Before The Horse

Johnson & Johnson, the giant health care company, known for Tylenol, Motrin, St. Joseph Aspirin and Band-Aids, appears to be headed in the right direction with its low-key appointment of Vice President Ajit Shetty to a newly created job overseeing company wide quality, manufacturing and compliance issues.

J & J is apparently also appointing chief quality officers for all three of its major business units, pharmaceuticals, consumer products and medical devices.

In the past year, J & J has had eight recalls, involving millions of bottles of Tylenol, Motrin, aspirin, Benadryl, Rolaids and Simply Sleep pills.

The recalls were triggered by bacterial contamination, a terrible smell on containers, and fears that some of their liquid medicines might contain metal shavings.

So often, when a big company faces a business crisis, one of the first reactions is to throw a public relations campaign at consumers.

We, at the Institute for Crisis Management, usually counsel a client to explain what went wrong and to communicate how sorry they are that they let their customers and investors down. Then, set out to "fix" the problem or problems, before launching a communication strategy to explain what they are doing about it.

J & J seems to be going about "the fix" in the right order. Correct the problems and talk about it after you have something to talk about.

A plant in Washington, PA and another in Las Piedras, Puerto Rico were sources of some of the problems that led to the recalls. The Pennsylvania plant was shut down in April and it has been reported it will not reopen until it is cleaned up and improved.

When Associated Press reporter Tom Murphy ask J & J for details, company spokesman Bill Price simply said the appointment of the quality control officers is part of a "more comprehensive remediation plan."

I would expect (and hope) that in the near future, the company will begin to communicate with key audiences -- including employees, investors and customers -- more details about the actions that have been and will be taken to improve quality and reassure those key stakeholders that J & J can be trusted to provide a good place to work, quality health care products for families, and a good investment for shareholders.

Tuesday, August 10, 2010

What Kind of Severance Package Do You Have?

Normally I get paid to provide answers and counsel, but I have to admit, in all my 50 years of communication work, I still don’t have a good answer to why a company will fire a low level employee for stealing paper clips but give the CEO $28-million in cash and stock for filing “inaccurate” expense reports – particularly when he’s a multi-millionaire -- which raises another question, why does he need an expense account for taking anyone to lunch or dinner?

As MSNBC contributor Eve Tahmincioglu observed, “ . . . senior executives like (HP CEO Mark) Hurd play be a different set of rules, often hammered out years earlier by expensive lawyers.”

Now, here’s where my experience does come into play.

Companies of all sizes will pay big bucks and make concessions to hire someone they believe will make their company better and more successful. That is defensible.

However, what is not defensible, is giving away the store to that same leader, later, to the embarrassment of the rest of management, employees, stockholders and other key stakeholders.

Within hours after H-P confirmed CEO Hurd was leaving, Hewlett-Packard stock fell 8-percent in heavy trading.

That’s nothing compared to days of publicity linking Hurd to a former B-movie actress and “hostess” his company had hired to meet and greet guests to company hospitality rooms. It also resurrected stories about how Hurd had “revived” H-P by buying competitors and slashing payroll.

As Drucker Institute Executive Director Rick Wartzman concluded, “. . . there’s something wrong with laying people off and walking away with a princely sum like that.”

If you’ve heard me speak or attended any of our training, you know that our research shows two-thirds of all crises are preventable, and management denial is one of the contributing factors to corporate crises. Companies approve these outlandish severance deals without ever considering that this rising corporate star could turn out to be a “falling star” some day.

I didn’t stay in a Holiday Inn last night, so I’m not qualified to give legal advice, today, but I’ve worked with lawyers – many good ones – for years and I suspect you could create a single sentence, or at least a page of solid reasons why a company would not have to pay any severance compensation, let alone an outlandish pay package in certain circumstances.

Hurd and H-P are not alone, and in almost every case, the offending company suffered terribly negative publicity as a result.

Robert Nardelli was forced out at Home Depot and left with a package worth $210-million. Merrill Lynch’s bottom line was headed for the toilet when Stan O’Neal was ousted with a $160-million cash, stock, options and retirement package.

And poor BP CEO Tony Hayward will probably end up on food stamps. He only received about $1.6-million in severance pay, plus a pension worth an estimated $16.8-million. But wait, BP gave him another high paying job, with another salary, on top of all that. Forget the food stamps.

Thursday, August 5, 2010

Lesson from BP and Transocean

BP and Transocean Drilling Company continue to be among the all-time greatest examples of what the Institute for Crisis Management has been teaching and preaching for nearly 25 years.

Most crises are predictable and preventable.

In the just published New York Times article “Gulf Oil Rig’s Owner Had Safety Issue at 3 Other Wells” Transocean’s own review of safety issues and practices revealed there had been an earlier problem with the Deepwater Horizon’s ballast system in
2008, and more than 70 workers were evacuated when the ballast system flooded and the rig began to list to its side.

There were apparently other warnings and signs of potential disaster, including reports that concluded there were “. . . critical equipment items that may lead to loss of life, serious injury or environmental damage as a result of inadequate use and/or failure of equipment.”

All of those things happened as a result of an explosion on the Deepwater Horizon April 20.

At least two-thirds of all business and organizational crises are what we call “smoldering” crises. They start out small and are almost always the kinds of problems that someone should spot and fix or report to someone who can fix it.

In the case of BP and Transocean, there is growing evidence that company employees “spotted” problems and told someone who could take action. But, so far, there is no evidence the reported deficiencies were fixed.

The cost to both companies is mounting into the billions of dollars, and the lawsuits and criminal and civil cases are still months from getting to a courtroom and the cost of defending those will certainly be astronomical.

Please, please, learn from other’s mistakes. Pay attention to the little things in your organization. If someone alerts you to a possible problem, deal with it immediately. You can save your company or organization hundreds, thousands, millions or possibly billions of dollars and its reputation.

If you’re big, like BP or Exxon, maybe you can afford that kind of loss. If you’re a small company or organization you may not be able to survive even a loss of hundreds or thousands of dollars. You don’t have to if you are constantly looking for the little problems and dealing with them as they pop up.