Johnson & Johnson sells a diverse array of products, including baby care, first aid and surgical products, prescription drugs, and industrial products. It operates in a decentralized fashion through 190 companies in 175 countries. Each business unit has its own focused mission. Some units employ thousands of people, and others, as few as six. Each business unit is organized around a given market and a given set of customers. In 1943, General Robert Wood Johnson, who led J&J in its metamorphosis from a small family-owned business to a worldwide enterprise, articulated the company's basic philosophy in the J&J credo. It has the following basic elements:
• Our first responsibility is to our customers- doctors, nurses, patients, and mothers-to supply high-quality services and products at reasonable prices.
• We are responsible to our employees to respect their dignity and job security in a safe working environment; compensation must be fair and adequate.
• We are responsible to our communities to support education, good works, and charities and bear our fair share of taxes.
• Our final responsibility is to our stockholders.
To provide a sound profit, we must make investments in R&D, new products, and facilities.
When we operate according to these principles, the stockholders should realize a fair return.

One manager described how the credo affects J&J managers:
All of our management is geared to profit on a day-to-day basis. That's part of the business of being in business. But too often, in this and other businesses, people are inclined to think, "We'd better do this because if we don't, it's going to show up on the figures over the short term." The credo allows them to say, "Wait a minute. I don't have to do that. The management has told me that they're really interested in the long term, and they're interested in me operating under this set of principles. So I won't."

In 1982, J&J was stunned when seven people died in the Chicago area after taking Tylenol capsules that had been adulterated with cyanide. Tylenol (capsules and tablets), manufactured by McNeil Consumer Products division, was one of J&J's most profitable businesses and accounted for 8 percent of J&J's sales. Subsequent investigation determined that tampering with the capsules occurred outside of J&J's facilities. McNeil's operating managers took immediate action, withdrawing all Tylenol capsules from the United States and replacing them with tablets (not involved in the tampering). They stopped producing Tylenol capsules and began redesigning the packaging to make the capsules tamper proof. This redesign process took several months. J&J's profits fell by over $100 million and its stock dropped from over $46 at the time of the announcement of the first death to below $39.

Press coverage of the unfolding tragedy was extensive. In an interview, a McNeil executive was asked whether employees would receive any remuneration during the time it would take to redesign the packaging and reconfigure the production line. Rather than simply state that no decision had been made, he made the commitment that no employees involved in producing Tylenol would be laid off over this period. Similarly, a reporter probing the costs of this packaging redesign asked an executive how much this would increase Tylenol's price. Although the issue had not been discussed, he announced that the product price would not be increased.
1. Explain how the credo helped guide the managers in the McNeil division.
2. Most discussions of J&J's handling of this tragedy have been laudatory, yet J&J's stock price fell by more than $7. Does this mean that the stock market thinks J&J's managers reacted poorly?
3. Analyze the decision not to raise Tylenol prices.
4. Discuss the advantages and disadvantages of listing shareholders as fourth priority in J&J's credo, especially in light of the Tylenol tragedy.
5. Suppose the packaging redesign and retooling required a longer time period, extensive cost, and that all Tylenol products were affected- not just capsules. Might McNeil managers have taken a different set of actions and how might the credo have guided these decisions?
6. Despite the above indications of a strong ethical culture within the company, a number of civil and criminal actions have been instituted against J&J. In November 2013, a massive $2.2 billion settlement was made to resolve claims resulting from the promotion of unapproved or off-label uses for three drugs and alleged kickbacks to physicians and a nursing home pharmacy distributor.
a. Discuss the impact of this settlement on J&Js market value.
b. These drugs were produced and distributed by Janssen Pharmaceuticals, a J&J subsidiary. Discuss the potential implications of having the drugs labelled as produced and distributed by a business unit within J&J versus by Janssen, a subsidiary of J&J, versus Janssen with no mention of J&J.