Lessons From Peter Drucker

Why "Doing the Right Thing" is the Key to Winning Customers

William Cohen, Ph.D.
Posted: 01/03/2012

Integrity can mean a lot of different things to different people, but Drucker simplified it to a single sentence --- it means adhering to a code of ethics and doing the right thing by sticking to that code. He was very clear the personal integrity was a part of business integrity, and doing the right thing in business and professional life was immensely powerful for the individual and the corporation.

In the 1980’s, someone in Chicago laced a popular over-the-counter pain killer medication with cyanide. Seven customers who bought the poisoned product died resulting in nation-wide panic. One hospital received 700 queries from people suspecting they had been poisoned with the tainted product. People in cities across the country were admitted to hospitals on suspicion of cyanide poisoning. The Food and Drug Administration (FDA) investigated 270 incidents of suspected product tampering. While some of the product had been tampered with, although not poisoned, in most cases this was pure hysteria with no basis at all in fact. However, as panic set in, some state health departments banned all forms of the company’s branded products, others only serial numbers associated with the poisonings. It didn’t make much difference. The product’s brand name and reputation were virtually ruined by the poisoning scare and sales would have been reduced to almost nothing had it not been for a response that is seen all too infrequently by corporations when things go wrong.

Unlike many organizations’ actions in time of tragedy, responsible or not, the company responsible for the product, Johnson & Johnson, took an immediate action which surprised everyone. It assumed full responsibility even before the cause of the poising or who was to blame was known. I suspect that this was absolutely counter to the advice given by corporate lawyers who invariably caution clients not to admit to anything or do anything which would indicate acceptance of responsibility less this come back to haunt the corporation later, guilty or innocent, in subsequent legal action. But executives at Johnson & Johnson plunged ahead anyway and took a variety of public actions only days after the initial poising was discovered. The corporation issued a nationwide alert to the public, doctors and distributors of the drug and issued a massive recall of 31 million bottles of product. That immediately set the company back almost $125 million. Then the company established a crisis hotline, so that consumers could obtain the latest information direct from Johnson & Johnson on what was going on. At the same time it launched an open investigation of the factories where the tainted bottles were produced to see if cyanide had somehow entered or was intentionally put into the capsules during production. It spent hundreds of thousands of dollars advertising and de-marketing the product urging its customers not to buy or use the product under any circumstances until Johnson & Johnson could guarantee the product’s safety.

First the media, then the population in general, began to support the company without reservation, and Johnson & Johnson received kudos for its forthright actions in the public’s interest. Still, every marketing expert queried about the potential future of the product predicted its inevitable demise. According to them it could never return to the marketplace despite the company’s acts and the product’s previously high standing and whatever measures for safety would be initiated by Johnson & Johnson. One well-known advertising guru was quoted in the New York Timesas saying: "I don't think they can ever sell another product under that name . . . There may be an advertising person who thinks he can solve this and if they find him, I want to hire him, because then I want him to turn our water cooler into a wine cooler."

An article in the Wall Street Journal commented sadly, that the product was dead and could not be resurrected; any other notion was a marketer’s pipedream. A survey of "the-man-in-the-street" found almost no one that would buy the product despite high regard for the company and regardless of what the company did to guarantee the product’s safety or promote its sale even though all admitted that the famous brand had become tainted through no fault of the product itself or its manufacturer.

Despite this advice, Johnson & Johnson retained the product and kept its brand name. Other organizations faced with similar dilemmas tried to avoid responsibility at all costs. It invariably ended in disaster. However, this company took responsibility, and as a result of the integrity of its actions, sales of this product, once dismissed by every advertising and marketing expert queried, began a steady climb only a few months after the product’s return to the marketplace. The product, which is of course Tylenol, returned to become the number one analgesic controlling 35% of a two billion dollar market.

Unfortunately, as if to emphasize the lesson of the 1980’s, in 2010 the Tylenol brand went into denial regarding something that was making customers nauseous. In 1982, it had taken six days to issue a total recall. In 2010 it took 20 months and pressure from the Food and Drug Administration which called the recall "long overdue." This cost the company millions of dollars in real cash and a lot of goodwill even though no deaths were involved. As an article in the Christian Science Monitor on the situation concluded, "Still, no matter what the economic environment, the best time to face up to your problems is immediately." In other words, practicing integrity is always recommended regardless of circumstances and the sooner the better.

Drucker believed that the moral code linked to the integrity of any manager should incorporate:

  • The ethics of personal responsibility from the physician Hippocrates: "Primum Non Nocere." Which in English means, above all (or first) do no harm.

  • The mirror test: What kind of person do I want to see when I look into the mirror every morning?

Personal integrity had to be linked to this code and this adherence was required under all conditions and regardless even whether anyone else was aware of a deviation from it. Moreover it is critical because as Drucker said, "the spirit of an organization is created by the people at the top." The proof is uncompromising integrity of character. This will permeate through the organization and it is certain to resonate with an organization’s customers as well.

How Integrity Saved an Entire Company

1n 1979, the Chrysler Corporation was in danger of bankruptcy. The President of Chrysler, Lee Iacocca, is rightfully given the overall credit for saving the corporation. He was the man in charge. He was helped in this accomplishment by his straight-from-the-shoulder ads in print and TV as well as his public interviews and testimony which won over the man in the street, and eventually Congress to guaranteeing the loans for Chrysler which saved the day. He spoke with absolute integrity. He told it like it was. He was supported by the ad campaign developed by advertising risk taker Leo-Arthur Kelmenson, a decorated ex-Marine who had to convince Iacocca to be the company’s spokesperson and to both run and participate as spokesperson in these ads. Iacocca was under a lot of pressure already and being the spokesperson in these ads was not his original intention at all. Kelmenson approached him and was soundly rejected. He risked Iacocca’s wrath and his own dismissal by his persistence. Kelmenson had already risked his company by abandoning Ford Motor Company to take the Chrysler account. However, Kelmenson had a history of doing what he believed to be right regardless of consequences. According to the Los Angeles Times, it was Kelmenson’s ads combined with Iacocca’s straight forward delivery both conceived in the context of "integrity first" which gained the support of the public and brought about the government’s guaranteeing a loan which saved the company. And though it was Iacocca’s integrity that the public saw, it was Kelmenson behind the scenes who convinced Iacocca to let everyone see the real Iacocca, with warts and all, and the combination saved the company just as surely as Johnson & Johnson had saved the Tylenol product and brand.

Drucker’s View of Integrity in Business

  • You can make many mistakes which will be forgiven by others inside and customers and the government outside of your organization --- but not a lack of integrity
  • Maintaining your integrity may cost you money in the immediacy of the situation, but it is worth it
  • Be true to yourself and to your values and beliefs. AsShakespeare wrote: "This above all: to thine own self be true, And it must follow, as the night the day, Thou canst not then be false to any man."

Adapted from Drucker on Marketing by William A. Cohen, to be published by McGraw-Hill in 2012.

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William Cohen, Ph.D.
Posted: 01/03/2012

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