A Tale Of Three Breakdowns

May 16, 2013

Corporate Responsibility Magazine

Today we see too many leadership failures, too many leadership breakdowns and scandals. We need leadership that can build excellent, ethical, and enduring organizations. We need triple crown leadership.

Personal leadership is necessary but not sufficient in avoiding organizational breakdowns. In today’s volatile global environment, such organizational breakdowns are fairly common. Sometimes a breakdown is a quiet affair with an orderly dissolution of assets. Other times it is a seismic crash with embarrassing headlines, prison sentences, and painful ripple effects. Sometimes an organization rises to the top of its industry and then slowly falls back in the field.

In 1982, Johnson & Johnson set the gold standard for crisis management. Someone had laced Tylenol bottles in the Chicago area with poison, causing the death of seven people. The company, under the leadership of then-CEO Jim Burke, quickly instituted a recall, not just in the greater Chicago area or even the Midwest, but nationwide, encompassing all 31 million Tylenol bottles in the marketplace. The recall cost $100 million but established J&J as a trustworthy and ethical business.

J&J’s actions were based on its 1943 credo—written by Chairman Robert Wood Johnson, a member of the company’s founding family. The credo outlines J&J’s responsibilities in order of importance: first to customers (doctors, nurses, patients, mothers, and fathers), next to employees, then to the communities in which they live and work (including the world community), and finally to their stockholders.

Dr. Dan Sweeney, director of the Institute for Enterprise Excellence at the University of Denver, told us: “My suspicion is the credo culture didn’t get moved across new generations of executives.” It appears that J&J leaders put revenue growth and earnings ahead of doing the right thing, and they failed to find a sustainable balance between short-term performance pressures and long-term ethics, reputation, and investment considerations. Based on their public statements, some company leaders seem to be in denial about that imbalance.

The lesson of J&J’s breakdown is that when one of the three Es (in this case, “excellent”) dominates, the odds of a fall increase dramatically, regardless of prior reputation or performance.