Damage Control (Revised & Updated). Eric Dezenhall
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by our European consumers. The Coca-Cola Company’s highest priority is the quality of our products. For 113 years our success has been based on the trust that consumers have in that quality. That trust is sacred to us.
“Yeah, but,” Europeans said, “if that trust were so sacred, what were you doing bolting from the Continent on your Gulfstream when the crisis went down?”
Belgium allowed Coca-Cola products back into the country about one week later, after no tangible evidence of tainted products was found, but business analysts fell all over themselves to pillory Coke for the company’s mismanagement. Just five months after the scare, Ivester was fired. The European situation was widely perceived as a contributing factor in the management shake-up.
Conventional wisdom would attribute Coca-Cola’s mistake to its slowness to recall its products, given that the post-Tylenol cliché is that one must immediately recall a product if there’s a perceived problem with it. This always-recall aphorism may seem like a tidy policy in a PowerPoint presentation, but the reality is that if it were followed, big companies would be doing nothing but recalling their products.
Where Ivester and Coca-Cola went wrong was turning a deaf ear to the political sentiment in Europe, one of brewing anti-Americanism and suspicion of the food industry. The company, which is politically savvy in most regions of the world, failed to appreciate the degree to which resentment can trigger a witch hunt. The mightiest institutions ironically become the most vulnerable under such conditions. When outrage takes over, there is no emotion more powerful than the urge to place blame, and Coke found itself the beneficiary of an entire continent’s wrath for a nonlethal problem.
Under calmer social conditions, the company might, on a purely odds-making level, have been correct not to regard the initial reports as a potential crisis. However, given the preexisting level of anxiety about food issues and the anti-American sentiment, the company’s response was inadequate. Coke didn’t realize that Europeans had reason to vilify them.
Everybody should love the pharmaceutical industry. After all, it’s in the business of curing us and helping us live longer and better.
But the industry has been on the receiving end of a consumer and government insurrection. While the new millennium has awarded drug companies record profits, the cost to their reputations has been severe. According to some surveys, they are more hated than the tobacco and oil industries, an ironic position since many of the same people who loathe Big Pharma don’t dispute that the industry does a lot of good.
Since in one corner there are sick people suffering, while a corporation is making profits while curing them in another, there’s an easy victim and a villain: The pharmaceutical industry is seen as a rapacious, immoral juggernaut that ends up hurting its fellow man.
More than anything else, consumers don’t want to pay high prices for drugs. Outrage is especially intense among people on fixed incomes who argue that in some cases, they are being forced to choose between medicine and food. The drug companies’ record profits are bitterly resented against this backdrop. Some people are offended that drug companies have enough money to advertise. Shouldn’t all of the money being spent on direct-to-consumer advertisements be used for research and development?
After being saturated with promises of the perfect lives medicines can render, consumers are disappointed that their wildest curative dreams sometimes fail to materialize, and that they’re still suffering. Hostility toward drug companies is especially intense when patients come face-to-face with risk—risk that the drug will have dangerous side effects or that it just might not work—a nonnegotiable no-no in contemporary life. Still others fume that health is an entitlement, not a luxury item to be dispensed on an à la carte basis.
In early 2004, this entitlement clashed with reality when the Food and Drug Administration found evidence that the psychoactive drugs Paxil (from GlaxoSmithKline) and Effexor (from Wyeth) may raise the risk of suicide in young patients. In June, New York state attorney general Eliot Spitzer sued GSK claiming that the drug maker withheld negative clinical trial data about its increased suicide risk. In August, GSK reached a settlement with Spitzer, which was followed shortly thereafter by congressional hearings about the potential hazards of antidepressants in children. If these drugs hadn’t been adequately tested, many reasoned, what else were they hiding from us?
In September 2004, the resentments against drug companies were validated when pharmaceutical giant Merck pulled its blockbuster arthritis drug Vioxx from the marketplace, citing risks to patients of heart attack and stroke. The drug, which was used by millions, was prescribed so widely because it was both effective and spared patients the gastrointestinal discomfort associated with arthritis drugs. Merck’s stock was hit hard by an unforgiving marketplace, its stock plunging 26 percent on the news.
With institutional crises, visceral outrage is always followed by the emergence of telltale what-did-they-know-and-whendid-they-know-it documents. Merck was to be no exception: Documents soon surfaced suggesting that Merck leadership rejected plans to conduct a study of heart risks as early as 1997. Business coverage immediately speculated on the job security of CEO Raymond Gilmartin, the strong implication being that Merck would be well served by a high-level purge.
Merck’s fourth-quarter 2004 earnings dropped 21 percent, and losses for that time period were estimated at $750 million. Merrill Lynch estimated that the company’s losses associated with the Vioxx recall would run between $4 billion and $18 billion.
Adding insult to injury, one public opinion poll indicated that only 9 percent of the public felt that drug companies could be trusted. In the months following the Vioxx recall, a whistleblower from within the Food and Drug Administration, Dr. David Graham, associate director for science and medicine in the Office of Drug Safety, testified before a Senate committee about the broader context:
It is important that this committee and the American people understand that what happened with Vioxx is really a symptom of something far more dangerous to the safety of the American people.
Graham named five additional products he believed deserved the scrutiny and punishment that befell Vioxx, including weight-loss drug Meridia, the statin Crestor, the acne drug Accutane, Serevent for asthma, and the painkiller Bextra. Shortly after AstraZeneca’s Crestor was pilloried in the press, a scientific study showed that it was the first statin to actually show a regression in arterial plaque.
In January 2006, Consumer Reports ran a scathing article about drug safety subtitled “FDA: From Watchdog to Lapdog.” This hemorrhage of ill will manifested itself in the form of 2,300 product liability lawsuits against Merck from 4,600 plaintiff groups. CEO Gilmartin stepped down.
The first major Vioxx trial reflected the bad publicity that surrounded it. In July 2005, a Texas jury found Merck negligent in the death of fifty-nine-year-old Robert Ernst, who had died in 2001, six months after first taking Vioxx. His widow was awarded $253 million.
Merck enjoyed a different outcome several months later when a jury absolved the company of any role in the death of a sixty-year-old Idaho man. The jury decided that Merck had properly warned the patient, who had multiple signs of cardiovascular disease, of the risks of Vioxx. In February 2006, a federal jury declared that Merck was not responsible for the fatal heart attack of a man who had taken Vioxx for less than a month.
There is a valuable lesson in these victories: The same search for balance that wrought antipharmaceutical sentiment may put a halt to abusive lawsuits if the spotlight can be shone on plaintiffs’ attorneys. Juries see themselves as cultural messengers, not arbiters of small-scale, case-by-case justice. The proverbial drug company that harms innocent people may be ripe for punishment, but a patient who takes a calculated risk in search of a better life may not be uniquely deserving of vast riches.
Many corporate damage-control campaigns are doomed from the beginning because of the marketing template the architects use for planning. The main flaw of the marketing template is that it assumes that the company can control the crisis as it controls the life cycle of the product: design, manufacture, launch, distribution, and advertising. In a category