Broken Business

STEP 6 – RESHAPE THE CULTURE

Culture, more than rule books, determines how an organization behaves. Thanks for your help on this. Berkshire's reputation is in your hands.

—Berkshire Hathaway CEO Warren Buffett, in a 2006 memo to all of its managers

One day in 1979 the chief executive of Johnson & Johnson (J&J), James Burke, called a meeting of his senior employees to discuss a document that had hung on the company's walls since 1943. Called ‘Our Credo’, it outlined the company's list of principles. In Burke's view, J&J had strayed from its commitment. He said: ‘If we're not going to live by it, let's tear it off the wall.’ In this way, he sparked a debate among his people about the moral duties of the business, and it resulted in them renewing their commitment to the document.

Three years later, the company faced a serious crisis when it was discovered that bottles of Tylenol capsules were being poisoned in Chicago-area stores. J&J's response is now considered a gold standard for handling a corporate crisis. The company moved quickly to pull every bottle in the country off the shelves, warned the public not to take the product, and took a $100 million loss.

In a 2016 article in The Atlantic magazine, Jerry Useem tells this story, and argues that these difficult decisions ‘weren't really decisions. They flowed more or less automatically from the signal sent three years earlier (Useem 2016)’. Indeed, the response has been widely regarded as bold and brave, but for a company ...