CNN BUSINESS UNUSUAL
Drug Giant Takes Center Stage in National Crisis; Two Tech CEOs Talk Shop; Unusual Beginning of a Paper Empire
Aired December 9, 2001 - 06:30 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
ANNOUNCER: Ahead on BUSINESS UNUSUAL, a drug giant takes center stage in a national crisis, two tech CEOs talk shop, and Myron Kandel with the unusual beginning of a paper empire. That's all ahead on BUSINESS UNUSUAL.
WILLOW BAY, HOST: Welcome to BUSINESS UNUSUAL. I'm Willow Bay.
Cipro: The drug became a household name as the first line of defense against the deadly germ, anthrax. The last time the Bayer Corporation had a drug with this kind of name recognition was Bayer aspirin. In the wake of the anthrax attacks on the U.S., demand for Cipro skyrocketed. As the nation's fear threatened to become panic, Bayer faced what it called a PR problem, but what looked like a budding national crisis.
I sat down with Bayer's CEO, Helge Wehmeier, at the Cipro manufacturing facility in Connecticut. Here's a look at how Wehmeier led his company through the storm.
HELGE WEHMEIER, PRES. & CEO, BAYER CORPORATION: I give here our team great credit that on the day of September 11, they started to ramp up production, even though at that time there was nothing on the horizon about anthrax.
BAY (voice-over): After the terrorist attacks of September 11, officials at Bayer Corporation, here in Connecticut, were preparing to fight a different battle.
WEHMEIER: We have the worldwide supply chain, which we activated, you know, right after September 11, we have production in Europe, which we have activated. We have ramped up our production on this side, all in response to something which we saw coming, and regretfully which did come, and that was the actual anthrax attack.
BAY: Bayer worked with the U.S. government during Desert Storm to safeguard the troops against a bioterrorist attack, and Bayer knew they could be called upon again. But despite their initial planning, the company was not prepared for what happened next.
When the American Media Corporation, NBC and Tom Daschle's office received letters containing anthrax, the demand for Cipro, the most effective defense against an unknown strain of anthrax, skyrocketed. Cipro, a powerful antibiotic, became a household name.
Consumers flocked to their local pharmacies, and quickly exhausted the supply in the pipeline. Stories of shortages spread, and the country wondered if the attack got out of control, would there be enough Cipro on hand?
At its manufacturing facility in Connecticut, Bayer was quietly producing Cipro at an unprecedented rate. But critics unleashed a barrage of charges. Bayer was slow to increase production, unable to meet the demand. With a retail price of around $5 a tablet, they were surely making a profit during a time of national crisis.
Soon, there were even calls to break Bayer's patent, which protected the company against cheaper, generic competition.
UNIDENTIFIED MALE: So today, I'm calling on the department of HHS to sign contracts directly with manufacturers to purchase the generic version of Cipro in bulk quantities at significantly reduced prices
BAY (on camera): Were you caught off guard by the criticism this company received in the early going?
WEHMEIER: To a certain amount -- yes. Because you try to do the right thing, and I think we did the right thing. And why should we be criticized for doing the right thing? Did we respond to those in a PR fashion? Absolutely not. Because we did not want to turn it into a PR passion. This is here, a situation, where America is in the crisis, and we wanted to respond to it in a very responsible way.
BAY (voice-over): Helge Wehmeier went to Washington to meet with Health and Human Services secretary, Tommy Thomson. Wehmeier says the two hammered out a deal in 10 minutes. Bayer would supply 100 million tablets of Cipro at 95 cents each, with an option for the government to buy another 100 million at 85 cents, and 100 million more at 75 cents.
(on camera): Was the deal, out of Washington, in response to a medical crisis or a political crisis? Did Tommy Thompson need to come back with enough Cipro at a reduced price?
WEHMEIER: I think that would be a good question to ask Tommy Thompson. He came in with a price, which he had in mind, and we were at one nickel apart, Willow -- one nickel. And of course, that was solved in an instant. We shook hands, and then it was just a matter of working out the contract.
BAY: Is that a price that allows you to break even? Is it a price that allows you to make some profits?
WEHMEIER: Well, it depends how you define the profit. It clearly covers a lot of variable costs. Clearly, it was to cover some other costs. What it does not cover is, to a large degree, the enormous cost for research, which we have. Let's not forget that. All of these drugs today, what we are seeing here today on this side here, is enormous research efforts. Per drug, it costs us half a billion dollars to develop a drug.
BAY: Do you regret not having stepped up right away, and said, look, here are so many million tablets for free. Take them, and we'll get the rest to you later.
WEHMEIER: Just take the premise of that we would have donated that. Then you all of a sudden talked about the option for another 200 million tablets. Then, there are nations like who else is in the fight. Great Britain is in the forefront of the fight. They will have a need to protect themselves, because there could potentially be anthrax attacks there.
Do we deny them then, you know, the same free gift? Germany, France, Italy, all of the civilized nations around the world, what do we do? All of a sudden, we become the free supplier of the entire free world -- clearly not an option.
BAY (voice-over): Wehmeier was puzzled by the bad press. He believed Bayer was doing all it could. The factory was running 24 hours a day, seven days a week. It had tripled production, churning out 60 million tablets a month. So Wehmeier went on a public relations offensive, courting the press, even inviting CNN into the sterile, highly secure Cipro factory.
Wehmeier was clear. Bayer could produce all of the Cipro the U.S. government and the American people needed.
(on camera): Has this crisis, then, changed the nature of your -- the Bayer Company, but also you and the pharmaceutical industry's relationship with the government? Has it -- is it in the process of evolving from a regulator and regulated to partner to customer?
WEHMEIER: I think partner is the right word, because clearly, in our discussions with Secretary Thompson and developing mutual trust here, we clearly realized and have a friend that we are in this together. We are in this together.
BAY: By now, the pipeline is once again fully stocked, and Bayer will fill the government's order by the end of the year. But could Bayer, publicly at least, have handled this better? We'll ask an expert in crisis management when BUSINESS UNUSUAL returns.
BAY: Crisis management: It has been elevated to an art form in corporate America. And it happens to be Michael Sitrick's specialty. Sitrick is the author of "Spin: How to Turn the Power of the Press to Your Advantage." He is known in the business world as a spin doctor, and his firm helps both Fortune 500 businesses and high-profile individuals save face in the wake of controversy.
So, what's his take on the Bayer crisis? Michael Sitrick, founder of Sitrick & Company, joins us now to explain -- Michael, welcome. MICHAEL SITRICK, SITRICK & COMPANY: Thank you.
BAY: Before we get to the specifics of Bayer, is there a standard formula that you apply when you manage a crisis?
SITRICK: I wish there were. I could patent it, or I could package it and just turn it out. But the fact is that every situation requires a specific response, and those people who try to take a standard response and apply it to various situations end up in trouble. So you have to first identify what the issues are. And then once you determine the issues, and what can be done to address the issues, the problem, or what can be done to address the problem, you then develop a solution, and you develop a plan to meet that need.
BAY: What, if anything, did the Bayer Corporation do wrong here?
SITRICK: I think their silence in the beginning was deafening. And while they were -- you know, the government was saying there isn't enough, and people were looking to Bayer, and they were criticizing Bayer for the high prices and the fact that they didn't have enough production, Bayer should have said, look, we're trying to sort out what the needs are. We're talking to government officials, both in the United States and elsewhere. We're going to work out a plan to make sure that either, through our direct sources or through other means, we will do whatever we can to address the problem, because human needs come first. But instead, they just sort of waited it out.
BAY: Now, the Bayer Corporation told us that they were doing what, in their minds they really should have been doing, which is focusing all of their efforts on ramping up their production to, in fact, ensure that there was an adequate supply of Cipro available. But should they have not just being doing about it, but talking about it?
SITRICK: Well, the problem is when you don't define what you're doing, you allow other people to define yourself -- to define you. And that's what Bayer -- that's what happened. The silence, the void was filled by people who were opining on what Bayer's silence meant. And so, instead of Bayer saying, look, we're doing everything we can, human needs come first, we will do whatever it takes. They just did it, you know, they just went about their business and were silent.
BAY: Should they have given some of the drug away for free right away, as did some other companies manufacturing other kinds of drugs?
SITRICK: Well, I'm not sure -- you know, again, I don't know that that's what really was the basis of their criticism. I think the basis of their criticism was that, you know, their prices were -- they were keeping their prices high, that there wasn't going to be enough. They were just doing this to protect their position in the market and their patent. And I don't believe that was the case at all. I believe Bayer's interests were, in fact, the interest of serving humankind.
But they weren't saying anything. And so, again, other people were using their silence, quite frankly, to their advantage. BAY: So silence was the wrong move. At a certain point in the process, Bayer did go on a PR offensive. They invited "The New York Times," for example, CNN, for example, into the manufacturing facility to lay it all out right before the cameras, print and television, look at the supply that we have on hand, look at our production facility operating 24/7. How much good did they do with a move like that?
SITRICK: Well, it helps. I mean, you know, the best public relations is doing what's in the public good. And so, they were saying, look, we're doing everything we can. We're going to make this available. I don't ever believe -- I read -- and I can't remember if they said anything about the pricing. But the real question was: Is there going to be enough? If there was a massive crisis, would there be enough?
Now, fortunately for everyone, all of us and Bayer, the crisis didn't materialize, so you didn't have this need for the product. And so, that helped make this whole thing go away. But had the need been there, the question is: How would that have played? And you can't make that determination.
BAY: Have you ever seen a crisis like this before? I don't mean the crisis at Bayer, but I mean, the national crisis that we are facing, and then the spotlight turning on various companies at various times.
SITRICK: Well, this is, of course, a very unique situation, because of September 11 and the threat to everyone. Everyone feels vulnerable now. It isn't just one segment of society.
BAY: Does that mean business has to act a little bit differently publicly?
SITRICK: I think business has to be sensitive. I think one of the mistakes that is made in a crisis situation is misreading public perception, not understanding the reaction to whatever action you take. And this a lot of -- public relations is a business of subtleties. It's a business of understanding the nuances. How you say something, your tone of voice, your body language, is -- makes all of the difference in the world. And being able to read it and react properly, I think is more critical now than ever.
BAY: Michael Sitrick, some challenging times ahead in your line of work -- we thank you for sharing your thoughts with us today.
SITRICK: Thanks for having me.
BAY: Still to come on BUSINESS UNUSUAL, on the inside track, we will listen in as two CEO's talk shop. CEO on CEO after the break -- stay with us.
BAY: EDS, Electronic Data Services: A Fortune 500 company with more than $19 billion in revenues last year. It is a powerhouse in technology management and services. The Texas technology giant has watched revenues rise 11 percent so far this year. Many say that's the work of CEO, Dick Brown, a telecom veteran and former head of H&R Block.
Brown met up with former Terra Lycos CEO, and now a partner at Highland Capital, Bob Davis, at a recent CEO conference. They let us listen in as they talked business.
BOB DAVIS, PARTNER, HIGHLAND CAPITAL PARTNERS: How do you stay in tough with 140,000 employees, especially during these troubled times that we're living in today?
DICK BROWN, CHAIRMAN AND CEO, EDS: Well, it's not an easy task, but I e-mail with our people twice a month. I send an e-mail out and always -- usually it prompts responses of hundreds, if not thousands, who want to ask more about it, want their own issue addressed.
So I get a lot of help nowadays with many other executives at EDS answering employee communications. So there's this interactivity in open and free flowing, fast, filterless, frequent communication among all of us at EDS, which is a healthy cultural change.
Also, half of our people now reside outside of the United States. So my travel schedule has got to incorporate visits to our major business locations and with customers outside of America. So it keeps me on the road, you know, quite a bit. So town halls and webcasting, we employ a lot of technology, but you cannot over communicate in this day and age and run a big business.
DAVIS: Your background is one at H&R Block a lot of years, so helping us all get those tax returns in on time on April 15, and in a way, you're helping us in that regard to sort of manage our personal plans. And so now at EDS, you're helping us manage our businesses. What's that transformation like?
BROWN: Well, H&R Block -- and I was there, not a long time, but they have a great franchise, and they were moving, transitioning towards electronic tax filing. And so, they pioneered that kind of process early on.
Now, at EDS, it's much more global. H&R Block is predominantly in the United States. EDS is in 60 nations around the world and half of our people outside the country. And so, we deploy technology. We are solutions architects, who would then bring in the technology that fits the answer for a business. So we employ software from 2,500 software vendors and hardware from anybody you can think of. But we're hardware and software agnostic. We just use it for the right answer to a business problem. So opportunity is great.
And one of the other trends we've seen is more and more now governments are saying, how do I get more efficient with my systems? How do I keep up with an enormous demand by my citizens and taxpayers without spending the kind of money that I otherwise would spend in an analog world? So everybody is now realizing the benefits, I think, of harnessing more effectively information technology. DAVIS: OK. The last three-plus years at EDS, you have done what most can't do in a lifetime. Congratulations.
BROWN: Oh, you're kind. Thank you.
DAVIS: Thank you.
BAY: Just ahead on BUSINESS UNUSUAL, uncovering the roots of a paper empire -- the unusual beginnings of the Mead Corporation, when we return.
BAY: And finally, we're supposed to live in a paperless society. Not in my office, or in my house for that matter. And where would all of those schoolchildren be without those black and white Mead notebooks crammed into their backpacks?
The Mead Corporation has been a leader in paper products for more than a century. But it hasn't always been at the head of the class. Myron Kandel has a look back at the roots of Mead.
MYRON KANDEL, CNN CORRESPONDENT (on camera): In 1846, Colonel Daniel Mead, of the Ohio Regiment, helped form Ellis, Chaflin & Company, a paper manufacturer in Dayton, Ohio.
(voice-over): The growing demand for the written word in the form of books, magazines and leaflets created a booming business opportunity for mass-produced paper at that time. Mead, a shrewd businessman, bought out his partners in 1881 to become the sole owner of the paper mill in Dayton, and gave it his name, The Mead Paper Company.
Daniel's grandson, George Mead, revamped the business after his grandfather's death and took it public in 1906. It spent much of the 20th century enlarging its paper production business and branching into other areas.
The acquisition of the Data Corporation in 1968 lead to the development of the popular research-gathering service, Lexis-Nexis. The Mead Corporation, best known for its school supplies, introduced products featuring innovative designs and popular cartoon characters in the late 1970s. Names, such as the Trapper Keeper and the Five Star notebook, became a back-to-school staple for countless school-age generation X-ers, and continues to be popular today.
(on camera): So, 155 years after its humble beginnings, The Mead Corporation now operates in 32 countries worldwide, selling a myriad of products in addition to its old staple: paper. And talking of paper, you see a lot of that right here. I'm Myron Kandel, CNN Financial News, New York.
BAY: And that's BUSINESS UNUSUAL. If you missed any of today's program, you can catch it on the Web. Just go to CNNMoney.com/BusinessUnusual.
I'm Willow Bay. Thanks for joining us. Goodbye from Los Angeles.
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