How Did Johnson and Johnson's Corporate Responsibility Policy Pay Off in 1982?

BY INVESTOPEDIA - UPDATED JUNE 13, 2020

Johnson & Johnson is one of the largest and most successful companies in the world, and Tylenol is one of its most popular brands of medicine. In late September 1982, Johnson & Johnson recalled all of its Tylenol products after seven people in the Chicago area died after taking Extra-Strength Tylenol capsules. The company's chairman at the time, James E. Burke, abided by corporate responsibility and made the difficult and expensive decision torecall30 million Tylenol products voluntarily. This cost the company over $100 million.

How did Johnson and Johnson's commitment to corporate social responsibility remedy the situation and place the company in a positive light, even after suffering a financial loss by their swift actions to fix the problem?

Corporate Social Responsibility

Corporate social responsibilityis part of a company's business model. It focuses on a company taking accountability for all of the decisions it makes as well as the impact that all of its goods and services have. It concentrates on a business being socially accountable to itself, the public, and allstakeholders.

A strong corporate social responsibility policy is good for a company'sbrand. If the company takes responsibility for all of its actions that impact all areas of society as a whole, including economic, environmental, and social, it can be seen in a positive light that individuals are happy and comfortable doing business with. In the long term, this helps the growth of the company.

Corporate social responsibility does not only need to include the day-to-day operations of a business but can also include any volunteer work the company does orphilanthropyprojects it is a part of.

Johnson & Johnson's Product Recall

Johnson & Johnson was not deemed responsible for the contamination of its product. The pills were tampered with after the products had reached the market shelves. The perpetrator(s) introduced enough potassium cyanide in each altered capsule to kill thousands of people. This crime caused nationwide panic, copycat crimes, and even the suspicion that Halloween candy might be poisoned as well. No one was ever found guilty of adding the poison into the capsules. Time magazine lists this as one of its top unsolved crimes.

The company's actions epitomized the true meaning of corporate social responsibility. Even though Tylenol products were generating approximately 17% of Johnson & Johnson's annual income, the company acted quickly and decisively to remedy the situation. It removed the products from shelves, offering refunds and safer tablets as replacements, free of charge.

Chairman Burke adhered to the company'scredothat outlines its ideal of corporate social responsibility. The first sentence of this, written by former chairman Robert Wood Johnson, states, "We believe our first responsibility is to the doctors, nurses, and patients, to mothers and fathers, and all others who use our products and services."

The end result of these incidents was that Johnson & Johnson became the first manufacturer to begin using tamper-proof packaging. When Tylenol products were reintroduced into the market two months later, they included seals around and beneath a child-proof cap. The company also launched an extensivemarketing campaigntouting the new packaging.

Many believed these events would deal a devastating blow to Johnson & Johnson, but the company's quick, honest, and responsible handling of the incident was viewed extremely positively by both the general public and investors. As a result, the company quickly recovered from the financial losses incurred, and regained the trust of consumers.

The Bottom Line

Corporate social responsibility is when a company takes ownership of the impact it has on the larger public and all of its stakeholders. It includes social, economic, and environmental issues that a company attempts to have a positive effect on.

Johnson & Johnson taking ownership of the situation that arose with its Extra-Strength Tylenol product is one of the best examples of corporate social responsibility, where a company takes ownership of its own product, even if the issue was not caused by the company, and demonstrates leadership in rectifying the situation.

Though in the short run, fixing the situation as Johnson & Johnson did, can be financially devastating to a company, in the long run, it createsgoodwillwith the public and stakeholders, painting the company in a positive light, that inadvertently sets it up for financial success.

1. Do corporations have a role in changing social values? Why or why not?
2. What can the example of Johnson and Johnson teach us?
3. What are some of the pitfalls of companies who attempt to show corporate social responsibility without "walking the talk?"