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Dow Corning: Harsh Lesson in Crisis Management : Corporate image: Ethicists and other observers say they are surprised that the company did not move faster to head off controversy over breast implants. : NEWS ANALYSIS

February 12, 1992|SUSAN MOFFAT | TIMES STAFF WRITER

To Dow Corning, a $1.8-billion-a-year high-tech corporation, breast implants are a tiny part of its business--a money loser. Even before the current controversy over their safety, the product was something of an embarrassment to scientists and managers who develop the space-age silicone materials for the aerospace and electronics industries that make up the bulk of the company's business.

Now, some corporate ethicists and public relations specialists say, Dow Corning's failure to move quickly to disclose--and take responsibility for--problems with the implants threatens the health of the entire company, and is causing headaches for its huge parents, Dow Chemical and Corning Inc.

These experts say they are surprised Dow Corning did not take heed of the lessons learned by other major corporations that have faced serious problems with their products or business practices.

Circumstances can vary widely, and companies must be able to adjust their public response to a crisis, depending on the nature of the problem and the potential long-term repercussions for shareholders and the public.

Still, most experts interviewed Tuesday agreed that the basic lesson usually is the same: The earlier bad news is revealed, the better. While a company will naturally want to avoid legal liability by admitting a problem with one of its products, trying to keep it secret usually doesn't work.

Consultants in crisis management say full disclosure, combined with a commitment to put things right, most often will help save a company's reputation. In addition, such a posture may lower the size of punitive damages juries are willing to award and help save a company's bottom line.

What seems to ratchet up punitive jury awards is not so much a defective product as a perception that a company was not forthcoming about a problem, experts say. "The smartest thing is to come out as quickly as possible with the information," said Henry Cheeseman, clinical professor of business law at the USC Graduate School of Management. "It's a circle: Once you haven't disclosed the problem for a while, then by human nature you won't disclose it until you have to. But if it comes out in a trial you knew something and did not warn people, then you're in big trouble."

Dow Corning was badly hurt by its release of documents Monday showing that it has known for 20 years that some silicone gel would seep out of the implants' envelopes, but officials did not believe that the leakage would cause health problems.

But the company's replacement of its chief executive with Keith R. McKennon, who was widely praised for his handling of Dow Chemical's problems with Agent Orange, the defoliant associated with serious health problems in Vietnam veterans, reassured many observers.

McKennon on Tuesday set a new empathetic tone by saying that his "overriding responsibility is to the women using silicone" implants. He added that his chief concern is not "damage control" for the company.

Ian Mitroff, director of the Center for Crisis Management at the USC business school, said managing a corporate crisis like that surrounding breast implants must go beyond damage control. It is essential to instill standards of ethical behavior and guidelines for responding to the discovery of damaging information long before a crisis, he said.

"Signal detection--how you get the earliest signals possible that something is wrong (up to senior management)--must be developed," Mitroff said. Lack of this kind of communication is what led to the blowup of the Challenger space shuttle, as well as many corporate disasters, Mitroff said.

Broad-based "issue management"--including everything from crisis control to ethics training to environmental management--will have to take a place beside accounting, finance and marketing as a basic business function, Mitroff argued.

In the past, some companies have failed in their attempts at crisis control.

When Union Carbide appeared to downplay its responsibility for the chemical disaster that killed thousands in India, when Exxon's chief executive did not fly up to the site of his company's vast Alaska oil spill, when A. H. Robins, maker of an IUD that caused medical problems in thousands of women, tried to deny culpability, the public responded with harsh criticism. In the case of A. H. Robins, lawsuits sent the company into bankruptcy court.

On the other hand, when Johnson & Johnson moved quickly to disclose information on Tylenol tampering that caused a number of deaths, when Procter & Gamble took action to inform women of the danger of toxic shock from its Rely tampon, and when Perrier pulled its potentially benzene-contaminated water from the shelves, the public responded by coming back to buy the company's products.

Dow Corning is jointly owned by two companies widely regarded as well-managed and innovative. The venture was formed by Dow Chemical and Corning Glass in 1943 to develop silicone, a material derived from quartz.

To Dow Chemical, a $20-billion global powerhouse, revenues from breast implants were just a minor product of one of its many subsidiaries. "And yet Dow is finding itself called guilty by association. Dow is such a strong name. That shouldn't happen," said Mitroff.

Corning, a $3-billion maker of optical fiber, high-tech glass products and dishware, has been even harder hit. Dow Corning contributes about a third to a quarter of Corning's earnings, according to Martin Ressinger, analyst with Duff & Phelps.

Some analysts express concern that, if successful lawsuits over implants proliferate, Dow Corning could meet the fate of A. H. Robins.

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