Making Tough Decisions

Almost every senior leader in his or her career will face a tough decision. Some may be “bet the company” type of decisions.

Probably the most familiar case which comes to mind was Johnson and Johnson’s recall of Tylenol in 1982. At the time, Tylenol accounted for 17 percent of the company’s net income and the cost of the recall was estimated to be more than $ 100 million dollars. The company’s stock plummeted from its record highs when the recall was announced. Tylenol’s market share in the analgesics market dropped from 37 percent to 7%. At the time J & J management decided to make the recall, the only deaths were in the Chicago area and there was no evidence of a nationwide problem or that the problem was in manufacturing and distribution.

Yet, led by J & J chairman James Burke, the company made the recall decision. Marketing experts predicted that Tylenol would never recover its market share and analysts predicted that the company would never recover. Well the experts were wrong. Within two months of the recall, the stock price had recovered and a $ 1000 investment in J & J the day the recall was announced would be worth over $ 22000 today. Market share increased back to 30 percent in the same two month period.

Recently, I read about a similar, but less publicized incident involving Medtronics, the world’s largest medical device maker. Two months after becoming CEO, Bill Hawkins was confronted with data that suggested the latest model of a implanted heart defibrillator could be experiencing a higher rate of failure of lead wires. Statistical analysis of the data suggested that the difference was not “statistically significant”. The FDA which reviewed the data did not think a recall was necessary based on the information available.

Yet, Hawkins was concerned that the trend suggested a problem. As a new CEO he faced a tough decision. If he took the product off the market, he faced huge financial loss and loss of market share. If he did not make the decision, the later information confirmed the suspicion that there was a problem, then the company’s reputation would be permanently damaged.

On October 14, 2007, Medtronic publicly announced that they were pulling the product off the market. Predictably the company’s stock dropped immediately and market share took a hit. Also, a number of lawsuits have been filed. After two years, the stock price has fully recovered and market share has stabilized. It will take years before all of the lawsuits work their way through the courts. Design changes to the defibrillator now include an audible alarm to alert the patient of a wire malfunction.

As I look at these two cases, and I’m sure there are others as well, several common threads come through that led these companies to make a tough, but absolutely right decision. The first is the that the leaders understood that there mission and purpose was beyond just making money. In both cases it probably would have been “cheaper” in the short term not to recall and take the consequences. Yet these leaders understood that the reason they were in business was to improve people’s lives. Integrity and company reputation trumped any short term financial impact even as large as it was. Organizations that are truly values-driven make the tough decisions regardless of the financial consequences.

The second common thread in these two examples is that there was decisive action. I’m sure that the key leader in each situation got a lot of input, but ultimately it came down to acting quickly once the facts were known. In both cases, more time could have been taken to gather more data and facts. In my leadership development engagements when we talk about decision making, I always ask the question , “When is the best time to make a decision?” Some may say right away while others may say after you have all the facts. My answer is you make the decision when it needs to be made.

Both Johnson & Johnson and Medtronics were prepared for this event. They had plans in place to deal with government regulators and the media. They both used their company’s positive reputation to their advantage in making media contacts. They had information kits available with all the information that the media would need. They made contacts with key stakeholders prior to the public announcement.

The day of the announcement they were prepared to meet with Wall Street analysts. In both cases, the entire company was engaged in damage control through proactive involvement with all stakeholders-customers, suppliers, employees, regulators, press, analysts, community leaders and so on. They had a well orchestrated plan to turn a potentially devastating decision into one that in the long term would be a positive one for the company.

Hopefully, you will never be faced with having to make a decision as tough as these. But there will be tough decisions. When faced with a tough decision:

1. Let your values and conscious be the guide, not dollars and sense. That is true leadership.

 

2. Act decisively. Delaying a tough decision doesn’t make it easier, and the negative consequences of delaying doing the right thing may be worse than the original decision.

 

3. Have a plan in place to deal with key stakeholders in the event of a tough decision that impacts them. Maintain positive relationships with media, regulatory agencies, and community leaders that you can use in the event they are needed.

 

4. Expect all leaders in the company to be involved in damage control. Get information flowing throughout the organization. In the absence of information, people will create their own.