Beyond Compliance and Crisis Management WEC – IEF Workshop November 4, 2003 Karl F. Schmidt VP, Worldwide Process Excellence

Our Credo 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. In meeting their needs everything we do must be of high quality. We must constantly strive to reduce our costs in order to maintain reasonable prices. Customers’ orders must be serviced promptly and accurately. Our suppliers and distributors must have an opportunity to make a fair profit. We are responsible to our employees, the men and women who work with us throughout the world. Everyone must be considered as an individual. We must respect their dignity and recognize their merit. They must have a sense of security in their jobs. Compensation must be fair and adequate, and working conditions clean, orderly and safe. We must be mindful of ways to help our employees fulfill their family responsibilities. Employees must feel free to make suggestions and complaints. There must be equal opportunity for employment, development and advancement for those qualified. We must provide competent management, and their actions must be just and ethical. We are responsible to the communities in which we live and work and to the world community as well. We must be good citizens--support good works and charities and bear our fair share of taxes. We must encourage civic improvements and better health and education. We must maintain in good order the property we are privileged to use, protecting the environment and natural resources. Our final responsibility is to our stockholders. Business must make a sound profit. We must experiment with new ideas. Research must be carried on, innovative programs developed and mistakes paid for. New equipment must be purchased, new facilities provided and new products launched. Reserves must be created to provide for adverse times. When we operate according to these principles, the stockholders should realize a fair return. Johnson & Johnson Written by “the General” in 1943 Written by “the General” in 1943 A shared system of values -Worldwide A shared system of values -Worldwide The “glue that holds us together” The “glue that holds us together” 36 languages - key responsibilities to: 36 languages - key responsibilities to: Our Credo Customers Employees Employees Communities/Environment Communities/Environment Stockholders Stockholders

Why Beyond Compliance?  Protect and enhance J&J reputation  Reduce and eliminate risk  Drive Operational Excellence

Definition of Beyond Compliance  Meets all Johnson & Johnson standards and regulatory requirements  Optimizes products, processes and facilities by designing in quality, safety, engineering and environmental standards  Proactively partners with regulators and anticipates changes in regulations, standards and public expectations  Achieves Operational Excellence

Crisis Management “Lessons Learned” Tylenol Case Study Tylenol Case Study Incident Management Incident Management Public Relations Public Relations Risk Communication Risk Communication

Tylenol Tampering Incident When When  Sept. ’82 (Chicago) and Jan. ’86 (NY) What happened What happened  7 people die from Tylenol poisoning. 2 tampered capsules found in store after initial police search. Cyanide source of poisoning, with evidence pointing to tampering. Quick decision to recall all capsule product by CEO. Actions taken Actions taken  CEO chaired crisis mgmt team, daily communications  Credo based decision making  Full cooperation w/ authorities, open with media  Innovative package design, industry standard Damage Damage  Business impact – $100MM write-off, sales rebounded 70% in 4 months, 90% in 1 yr, stock price bounced back

The Story behind “THE” Case Study Starts with excellent reputation built on deep personal emotional trust and Values Starts with excellent reputation built on deep personal emotional trust and Values  buys benefit of doubt in difficult times Conduct scenario planning Conduct scenario planning Get top mgmt involved and visible fast! Get top mgmt involved and visible fast! Manage the information flow Manage the information flow Train and strengthen local expertise Train and strengthen local expertise Use “outside – in” thinking - sensitivity Use “outside – in” thinking - sensitivity

Incident Management Objectives n Bring situation under control n Emergency response n Comply with regulatory requirements n Recovery strategy

Typical Plan Components ã Emergency Response  First hour reaction to an emergency  Focus on damage assessment & control ã Incident Management  From second hour through day 2-4  Internal / External Communications Protocol: w/ employees, customers, suppliers, media, etc. ã Recovery Strategy (~70% of development effort)  From day 2 to months beyond  Actions to bring Manufacturing, Administration / Support back as quickly as possible

Incident Information Management Objectives n Information control – have the facts prior to release to the public. n Maintain public trust. n Maintain license to operate.

Public Relations Issues Protect and enhance the company’s reputation among all audiences

Communications Issues The Audiences n Customers/Suppliers n Employees, Neighbors n Elected Officials (at all levels) n NGOs, activists n News Media …. and many more!

Communications Issues News Media Sources Police, fire, ambulance crews, medical and scientific experts, local authorities, government, neighbors, current and former employees, specialist writers, trade publications, psychologists and “disaster” consultants, public records, annual reports, competitors, analysts, unions, neighbors, pressure groups, etc. etc. etc. And There’s More!

Risk Communications Principles

The Communications Environment The BAD news The public believes they are faced with greater risks today than in the past. n Product recalls n Plant closings versus corporate profits n Governance issues n Environmental damage

The Communications Environment The GOOD news The public is not looking for zero risk. n People are human, mistakes happen. n To maintain shareholder value, sometimes difficult decisions must be made. n Even with a good EHSprogram, incidents can happen.

What the Public Wants to Know to Know n What happened? n How dangerous is the situation? n What are you doing about it? n How long will it take? n Will there be any danger afterwards?

Why We Don’t Communicate n Don’t have all the facts n Want to avoid panic n Lack of a spokesperson n Legal implications n Protect the corporate image n Can’t solve the problem n Fear of revealing proprietary information

Is Silence Golden? Company says, “No Comment” Media says, “Company not forthcoming” Public says, “No smoke without fire” “They’re hiding something” “They’re guilty”

General Communications Guidelines n Point to your achievements in terms of your reputation n product safety and efficacy n environmental & safety record n proactive efforts within the community (outreach)

General Communications Guidelines n Use government or commonly accepted stds for comparison n Demonstrate that you share the public's feelings. – Share their concerns – Avoid technical jargon

General Communications Guidelines n Deal with the emotional issue before discussing fact. n Be a “person” before you’re a “spokesperson” n Employees are your best ambassadors

Control Control Clarity Clarity Concern Concern Competence Competence Confidence Confidence Crisis Management Summary Aim for the 5 “C’s”…