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By Gary Seidman
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Toyota
Calamity: Toyota's Recall of 2010
Tiger Woods' adulterous peccadillos last year were certainly embarrassing for his sponsors and the brands he endorsed, but are unlikely to leave lasting scars.
Toyota's recall of more than 8 million cars around the world due to unintended acceleration problems is, of course, far more serious. Government safety regulators said they had received complaints alleging that the malfunction had caused 34 deaths. Toyota has had to come up with a mechanical remedy and dole out billions of dollars for the recall. The cost of restoring its reputation will also, undoubtedly, be high. And then there are the lawsuits.
Toyota may take some solace from history, however. The record of corporate debacles stretches far back and offers plenty of lessons about corporate responsibility -- and irresponsibility -- applicable to today.
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U.S. Consumer Product Safety Commission
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Department of the Navy
Disaster: The Exxon Valdez Oil Spill
On March 24, 1989, the supertanker Exxon Valdez ran aground on Bligh Reef, spilling 11 million gallons of crude oil into Alaska's Prince William Sound. It was hardly the biggest oil spill ever, but the environmental damage it caused and the circumstances surrounding the incident -- a captain accused of being drunk, protracted lawsuits and irreparable damage to the fishing industry and native populations -- have made the Valdez episode an iconic environmental tragedy.
The spill polluted 1,000 miles of shoreline and killed tens of thousands of animals. High winds and rough seas delayed and hindered cleanup efforts.
In 1994, a federal court ordered Exxon to pay $5 billion in punitive damages. In 2006 that amount was cut in half, and in June 2008 the Supreme Court ruled that the damages should be reduced again, to about $500 million.
How Exxon Weathered the Debacle: In 2008, ExxonMobile was the world's most profitable public company with earnings exceeding $45 billion, though profits fell 57 percent in 2009 when the price of oil plummeted. Still, whenever anyone mentions an environmental disaster, the words "Exxon Valdez" always come to mind.
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Mike Lich
Embarrassment: New Coke
In April 1995, to celebrate the 10th anniversary of the introduction of New Coke -- a marketing blunder of monumental proportions -- Coca-Cola's CEO Roberto Goizueta was in unusually good spirits. "Today we are in the best shape as a company in many decades, and our stock price and our earnings are at an all-time high," he said, peppering the occasion with self-deprecating humor and late night schtick.
A decade earlier, Goizueta, in an effort to maintain market share against hard charging Pepsi, had replaced Coke's 99 year-old formula. Millions of consumers revolted and 77 days later Coke made an embarrassing but judicious decision to bring back "Classic Coke."
How Coke Weathered the Debacle: Coke's management misstep became so ingrained in popular culture that it is a standard reference for late night comedians and was lampooned in a "Simpsons" episode. Nevertheless, in hindsight, Coke's management team is praised for reacting prudently to a misstep.
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Joseph Williams
Fiasco: JetBlue's Stranded Passengers
During the snowy winter of 2010, JetBlue was taking no chances. Though airlines lose a bundle of money when they cancel flights, JetBlue was in no mood for a repeat of Valentine's Day weekend 2007. Back then a crippling ice storm paralyzed travel and stranded nine JetBlue planes full of passengers on the tarmac for more than six hours each.
“We love our customers and we’re horrified by this,” CEO David Neeleman told The New York Times. The budget airline, which had gotten top marks in customer satisfaction polls, promised to refund tickets to all passengers who were stranded for three hours or more. The refunds cost the company tens of millions of dollars.
How JetBlue Weathered the Debacle: A few months later JetBlue ousted Neeleman. The airline was lambasted by the press and became the go-to joke whenever airline delays are mentioned.
Prompted by the JetBlue fiasco, the government announced in late 2009 that it would impose harsh penalties on airlines that stranded passengers, including fines of as much as $27,500 per passenger if the carrier did not provide food and water after two hours or an opportunity to deplane after three hours.
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FAA - Air Traffic Control System Command Center
AOL
Fiasco: Time Warner/AOL
A decade ago, Wall Street and the media world were agog by news that upstart AOL was acquiring Time Warner for $165 billion -- the richest merger to this day.
“A company that isn't old enough to buy beer," The Wall Street Journal wrote, "has essentially swallowed an ancient regime media conglomerate that took most of a century to construct." Within two years, the merger began to unravel. The dot-com bubble had burst, the merged company's execs were at each others' throats and $200 billion of shareholder value had "virtually" vaporized. The company and its employees endured huge layoffs and depleted retirement accounts. Shareholders were left with a company worth a fraction of its market value in 2000.
How Time Warner and AOL Weathered the Debacle: In December 2009, the two companies parted ways when Time Warner completed its spin off. The original deal is referred to as the most disastrous merger of all time and is taught as a cautionary tale in business schools.
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SwitchYard Media
Calamity: Merck's Vioxx Recall
The pain medication Vioxx was one of the most widely used drugs to ever be taken off the market for safety concerns.
When it was introduced in 1999, Merck promoted it as a miracle drug that relieved arthritis pain without the gastrointestinal problems associated with other pain medications. It wasn't long, however, when concerns about Vioxx's effect on the heart surfaced. A clinical trial in 2000 suggested that an older pain medication, Aleve, was safer for patients at risk of heart attack or stroke. Following another clinical trial, Merck withdrew Vioxx in 2004. But it was the revelation that Merck scientists had raised concerns about Vioxx years before that prompted a torrent of lawsuits and prompted some to speculate the company would not survive.
In late 2007, Merck announced that it would settle 27,000 lawsuits filed by people and families claiming injury or death due to Vioxx. The company set up a $4.85 billion settlement fund.
How Merck Weathered the Debacle: In 2009, Merck acquired rival Schering-Plough for $41 billion.
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John Lloyd
Fiasco: Ford's Edsel
"Only Edsel has the sleek, clean line design that sets it apart from the look alike cars." That's how Ford introduced the Edsel in its first TV ad for the car.
The Edsel was unveiled to the public on Sept. 4, 1957, or what Ford dubbed "E-Day." All the stops were pulled out to promote the car. Ford put on "The Edsel Show," a television special hosted by Bing Crosby and Frank Sinatra, and the company envisioned an entire Edsel division with independent dealers catering to long lines of buyers.
Instead, the public panned the car, scoffing at its uninspired design and mocking the grille in particular, which they said looked like a toilet bowl. By late 1959, when it pulled the plug on the model, Ford was estimated to have lost $250-$300 million -- well over $1 billion in 2010 dollars.
How Ford Weathered the Debacle: The only enduring legacy of the Edsel is that its name has since been synonymous with spectacular product failures.
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David Graham
Disaster: Union Carbide in Bhopal
At about midnight on Dec. 2, 1984, water entered a methyl isocyanate storage tank at Union Carbide's pesticide plant in Bhopal, India, triggering a chemical reaction that spewed poisonous gas over the nearby slums. Within days, more than 3,000 people had choked to death. Official estimates say another 15,000 to 20,000 died in subsequent years and that more than a half million survivors, as well as their children, continue to suffer from immune disorders, blindness, breathing problems and gynecological issues as a result of the leak.
Union Carbide had insisted that the leak was a result of sabotage. Advocates for the victims say that Union Carbide's poor maintenance and inadequate safety procedures were responsible, and that the company should compensate victims and clean up the site, which remains extremely polluted.
The company paid $470 million to settle claims, but only a fraction of that was ever distributed to victims. Lawsuits against the company continue in Manhattan and Bhopal, and India issued an arrest warrant for Warren Anderson, who was Union Carbide's CEO at the time of the leak.
How Union Carbide Weathered the Debacle: Bhopal has come to represent the worst industrial disaster in history. In 2001, Dow Chemical purchased Union Carbide.
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Rekha Murth
Fiasco: Cartoon Network's Ads
Cartoon Network's ill-conceived guerrilla marketing campaign in 2007 to promote the late-night Adult Swim cartoon "Aqua Teen Hunger Force" went horribly wrong when 38 surreptitiously installed light screens triggered fears that bombs had been planted around Boston.
The small, battery-powered screens -- some depicting cartoon characters making obscene gestures -- were placed on bridges, roadways and in front of Fenway Park. Officials deployed bomb squads and shut down highways and subway lines, disrupting the city for hours.
"We really deeply regret that it was horribly misinterpreted to be a public danger," the chairman of parent company Turner Broadcasting Inc. said.
"I just think this is outrageous," Boston Mayor Thomas Menino said. "It's all about corporate greed."
How Cartoon Network Weathered the Debacle: The head of Cartoon Network resigned within days and Turner agreed to pay Boston $2 million to cover costs. Two local men who were hired to install the devices were arrested and charged with placing hoax devices that cause panic.
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Bridgestone
Disaster: Bridgestone's Recall
In 2001, following a National Highway Traffic Safety Administration order, Bridgestone recalled 6.5 million tires that were tied to 271 automobile accident deaths. Most of the accidents involved Ford Explorer SUVs that were equipped with the Japanese tire maker's Firestone brand. Treads on the tires would reportedly separate and peel, causing drivers to lose control.
In testimony on Capitol Hill, executives from Ford and Bridgestone were upbraided by Congress and the two companies had a very public falling out over who was more responsible. Consumer advocates and others accused the companies of having prior knowledge of the safety issues and not reporting it.
In 2004, after more than 10 million tires had been recalled, a court approved a $149 million settlement resolving dozens of class-action suits filed against Bridgestone by tire owners.
How Bridgestone Weathered the Debacle: Within a couple of years, Bridgestone recaptured much of the market that it had lost due to the recalls and returned to profitability.
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