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Business Ethics: Dow Corning Breast Implant Scandal
Please see below the article on the breast implant scandal with Dow Corning. Describe their findings.
In Breast Implants Scandal, Where was Dow Corning`s Concern for Women?
In the annals of business ethics, the fall from grace of Dow Corning Corporation was particularly precipitous. Here was one of America`s 100 most profitable industrial companies. Its high-level Business Conduct Committee, which dated back to the 1970s, was considered an industry model: It conducted annually some 25 face-to-face audits worldwide with employee groups. More than ninety percent of Dow Corning employees considered the company "highly ethical," according to a 1988 company survey, an exceptionally high rating.
That was all before the silicone breast implants scandal.
Even though the health hazards associated with the silicone implants came to light gradually, over years, the defining moment for John E. Swanson was a June 1991 story in Business Week magazine (dated June 10, 1991). This was the first article that alleged that Dow Corning concealed documents about the product`s safety. "It was the first time the company`s ethics were questioned in a public way. To me, it was a shock," recalls Swanson, then manager of internal communications and the sole permanent member of the company`s Business Conduct Committee. After 26 years with the company, "I thought I knew where all the skeletons were."
The article alleged that silicone breast implants could deteriorate and leak, wreaking havoc upon a woman`s immune system. The company had long maintained that the implants it manufactured through Dow Corning Wright, its subsidiary company, would last a woman`s lifetime. At the time of the article, approximately 1.5 million to 2 million women had had silicone breast implants. It was the third largest form of cosmetic surgery after nose and liposuction operations. Nevertheless, Business Week charged that the industry had known for a decade of animal studies that linked implants to cancer and other illnesses.
On June 4, 1991, Swanson sent to the company`s corporate Comptroller, who was chairman of the Business Conduct Committee, a note via electronic mail about the Business Week article, which he said clearly raises ethical issues and "casts a cloud over the company" that was hurting its "hard-earned reputation" as an organization committed to integrity. Swanson said that "it was time to re-examine our position."
He reasoned that if there is a growing body of anecdotal evidence of health problems (even in the absence of the usual animal studies, epidemiological studies, etc.), should a responsible manufacturer stay in the market? Could it really countenance continuing to supply 130,000 women a year with implants? It wasn`t as if the business was making the company much money, after all. The implant business accounted for less than 1 percent of the Midland, Michigan-based company`s sales.
Swanson discussed the case for suspending sale and manufacture with the company`s Business Conduct Committee, which in addition to Swanson and the Comptroller, included Dow Corning`s Director of Sales and Marketing and its Vice President and General Manager of the company`s largest industrial business, among others. (The Committee did not include the three or four top decision makers in the company. Nonetheless, Swanson says the committee had influence within the company. "It had easy access to the CEO and to anyone in the company. It was a well-regarded committee of senior managers.")
A decision to keep manufacturing
The issue came to a head at a Corporate Board of Directors meeting on June 10, 1991. Prior to that meeting, Swanson spoke with the executive who had been assigned responsibility in the implant controversy. Swanson suggested a tactic to pre-empt discussion: A fictional press release for use at the meeting. It read in part:
"Dow Corning Wright will suspend the manufacture and sale of breast implants until research on certain bio-safety issues has been concluded. Since entering the market in 1963, Dow Corning has continuously studied the health and safety effects of these devices . . . and believes them to be safe. But it also recognizes that questions about the safety of silicone implants exist. We are placing a high priority on finding scientifically sound answers to these questions."
The board met. The breast implant controversy was discussed. Unfortunately, the board decided to stay in the business, recalls Swanson.
Why did it not react? The company had become "hypersensitive about its legal position," suggests Swanson. The company had paid $1.5 million in punitive damages in a major 1984 lawsuit in which a federal district judge had found the company`s implants inherently defective. The judge had noted that the company`s own studies "cast considerable doubt on the safety of the product," the results of which were not disclosed to patients. The judge called the company`s actions "highly reprehensible."
Following the Business Week article and the board meeting, the company apparently believed that to suspend production would be to admit the product was dangerous and would invite further legal action.
A damaged reputation
This was an "interesting perspective," comments Swanson. When the company has one to two million women with silicone breast implants and has lost a lawsuit on the issue of fraud and the concealment of information, one might think that would "serve as a wake-up call." Perhaps the company should simply have said, "To hell with the legal defense" and looked first at the health of its women users.
The result of Dow Corning`s decision not to suspend manufacture was to exacerbate a situation that eventually was to result in approximately 12,000 lawsuits by early 1994 and a proposed $4.25 billion global settlement. (The mass settlement included other silicone implant manufacturers as well as suppliers and doctors.)
The company`s reputation suffered grievously. By March 1992, the common view of the company in the public mind was that its devices were not safe, that it had covered up evidence about their safety, that it was insensitive, and that its actions amounted to a 30-year medical experiment on women who were uninformed as to the risks.
The company`s CEO was demoted as a result of the affair. In March 1992, the company commenced getting out of the silicone breast implant business. Dow Chemical Chairman Frank Popoff (Dow Corning is a joint venture between Dow Chemical Co. and Corning, Inc.) declared in April 1992 that CEO Lawrence Reed was "not emotionally equipped" to deal with the crisis. Dow Corning lost more than $287 million in 1993.
How could it happen?
How could a well-regarded company reach such a pass? There were several reasons, in Swanson`s view. He speaks of an "insulated organizational syndrome." The company had only two shareholders, after all, Dow Chemical and Corning, Inc., and as a result it had operated independent of the scrutiny to which most large public companies are subject. There was an "attitude of invincibility" within the company. In the area of silicone technology the company was regarded as a world leader and some of its managers may have felt they could do no wrong in this area.
There was management`s inability to gauge the public`s perceptions, too. Dow Corning`s position was and is that all the scientific evidence was still not in regarding the safety of silicone breast implants. Technically, this is correct. But meanwhile the company was "losing the battle in public opinion." It was seen as a callous corporation, indifferent to the plight of its product`s end users.
There was a lack of crisis-management leadership too. If one criterion for selection of a new CEO back in 1984 had been how well the chief executive understood the company`s various constituencies, including its ultimate customers and government regulators, then Lawrence Reed probably would not have made the final cut, in Swanson`s view. "Reed was inexperienced" in many of these stakeholder matters, including crisis management.
Where was the Business Conduct Committee?
Still, for so-called business ethics practitioners, a further question has to be: What happened to Dow Corning`s vaunted Business Conduct Committee? Could it not influence the outcome in a case that clearly had ethical implications? And if not, does that not call into question the efficacy of not only this committee but of business conduct committees in general? Are such committees, in fact, nothing more than fig leaves on the secular corporate body?
"In a very broad sense, if you have a wonderful process, and good communications, and also have few major problems, then the program will look very good, and that was the case for a long time," says Swanson.
For a company with sales in the $2 billion range, Dow Corning had a relatively small employee base: less than 9,000 employees. This enabled the company to "put together a business ethics program that had the potential of touching all the company`s people in the world at some time."
Swanson estimates that from the 1970s, Dow Corning conducted some 500 ethics audits with employee groups, half in locations outside the U.S. and as far afield as Europe and South America. It was a "great way to educate employees" in business conduct issues. Many sessions were conducted by senior officers. Swanson conducted hundreds himself.
His final judgment is harsh, however: "I`d categorize the process as good time ethics." When it came to the real test, Dow Corning failed.
A failure of leadership
"What Dow Corning needed was a leader with a sixth sense that told him: `This company has values that insist that we stand up for the women who have used our products.`" Until they knew for sure the health repercussions, they should have taken the devices off the market.
Moreover, if the company had stood up and admitted its mistakes and said, "We have to make them right," it is Swanson`s view that "the media would have lacked the incentive to keep digging unrelentingly into the company`s past." The company`s stonewalling in the affair only encouraged further media scrutiny.
"The finest and most elaborate ethics programs are no more effective than the company`s leadership permits them to be."
Nor does Swanson think that the company only needed to do something in the early 1990s when the controversy reached public light. Dow Corning could have "stepped up" to the issue decades earlier when it was known that women who were users of the product weren`t getting all the information needed to make informed judgments. Why did the company think that it was sufficient to provide information only to the plastic surgeons who inserted the devices? What assurance did the company have that women were getting information from the plastic surgeons?
That the whole affair took a toll on employee morale is not surprising. As mentioned, the company conducted an employee survey in 1988 before the breast implant controversy arose that found that over 90 percent of its domestic employees considered Dow Corning a "highly ethical company." In 1992, while the controversy was in full swing, the company did another survey. Not surprisingly, its ethics rating dropped. It did not drop precipitously, however. Seventy-seven percent of employees still said Dow Corning was a "highly ethical company." This seems noteworthy. Many companies that have avoided major scandals would probably be pleased if as many as 50 percent of employees viewed them as "highly ethical."
The fact that many employees stood by the company might serve as some consolation in the whole tale. "Over a period of time, from 1976 on, pride in ethical conduct was very important to the company," recalls Swanson. Dow Corning is fortunate to have an employee base "that has hung in with them through all the bad publicity." Evidence introduced in implant trials and many of Dow Corning`s long-suppressed safety studies when released had "not put the company in a good light." The fact that employees remained "amazingly loyal" might be attributed in part to the attention paid to business ethics through the years. That, at least, is one way of salvaging something of value.
A new CEO
Keith R. McKennon was brought in from Dow Chemical Company to take over running the company after Reed was demoted in 1992. He was probably the "best guy" for the task, in Swanson`s view. A veteran of Dow`s Chemical`s Agent Orange controversy, McKennon was skilled in dealing with the media. The company`s new "theme" became its concern for women with implants. McKennon gave more than 100 interviews in his first month on the job, including an hour on the Larry King show.
"He became visible and displayed more sensitivity." McKennon announced a $10 million research program to find answers to some of the health and scientific questions that had been raised in the affair. McKennon admitted that Dow Corning had made errors, the first time the company had publicly confessed to this.
In early 1993, Swanson spoke with McKennon`s successor, Richard Hazleton, about the Business Conduct Committee. "What we arrived at was a new process for changing the role of the Business Conduct Committee from a leadership body to a facilitating role." They discussed ways to integrate the committee`s former responsibilities into those of Dow Corning`s line management.
The Business Conduct Committee now represents all geographic areas, not just the U.S., as was the case earlier. The new structures should move the process toward a "day to day activity rather than an event-linked" process.
Not `inherently bad`
Swanson insists that the company did and does have an ethical culture. "It is not an inherently bad company with evil intentions." On the contrary, Dow Corning has "good people," and if one looks at its 50-year history, "it is a very good one, with only one black mark." During that 40 to 50 year period, however, the company operated in an unusual environment, shielded by its two shareholders and led by managers who were chemists or chemical engineers and weren`t called upon to concern themselves with crisis management. According to Swanson they were a "bright group of linear problem solvers," highly analytic managers whose biggest challenge was traditionally deciding which of the company`s promising technologies to commercialize.
When the crisis surfaced, Dow Corning was "shocked and didn`t know how to handle it."
Out of the loop
The controversy resulted in Swanson`s leaving the company. In September 1991, "I approached top management. I told them that I had an ethical conflict of interest with the company`s breast implant position." He also related that at some time after leaving the company he wanted to do further work in business ethics and "could not espouse the Dow Corning role" in this affair.
After making this decision, "I thought there was a reasonable chance that the company might try to move me out, but they didn`t do that. So I removed myself from communications activities relating to implants and concentrated more on business conduct activities."
He let his staff know his views. They were not to give him any information on breast implants. Essentially he took himself out of the loop where breast implants were concerned and remained so for the next two years. He remained on the Business Conduct Committee.
Swanson recognized that taking issue with the company on such a major matter was obviously "not a career builder." He left the company in August 1993 after things had become increasingly uncomfortable. "It became clear to me that the company was committed to one position and I believed in a very different one."
He moved from Michigan to Indiana where he now conducts his own consulting business, Applied Business Ethics. He may eventually write a book on the breast implant controversy.
Did he feel personally betrayed? After all, Swanson spent 26 years of his life with the company, significant parts of it spent traveling to places like Brazil to propound the business ethics theme. Arguably, all that work was over-shadowed by the breast implant controversy.
"If it had happened in a major part of the business, I would have been very demoralized by the failure." But it is one of the ironies of the affair that it occurred in the smallest of Dow Corning`s businesses, the health care area, a business that accounted for a minor percentage of the company`s sales.
"I can see how the business conduct process missed it." Breast implants simply didn`t receive the management attention that other parts of the business—industrial sealants, say—received.
But that does not change the fact that it wasn`t until 1993 that Dow Corning finally changed its patient implant book to say that it had "no definitive data on the life expectancy of the implants," and that they may not last beyond 10 years. Until that time the company had insisted that the implants would last a woman`s lifetime.
Asks Swanson: How many women would have elected to have silicone breast implants if they had known that they might have to have a major operation to replace them every seven to ten years?
"The ethics process worked while the company had no problems," says Swanson. "But when the company`s feet were put to the fire, the process failed."
Andrew Singer is Co-Editor-in-Chief of ethikos.
Reprinted from the May/June 1994 issue of ethikos.
© 2004 Ethikos, Inc. All rights reserved.