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Vioxx recall - strategic lessons for business leaders

A brief background first for those who have not kept up with the details. Vioxx (rofecoxib) is a prescription drug for arthritis and acute pain. Merck, the drug manufacturer, had to recall the drug after learning that there was an increased relative risk for confirmed cardiovascular events, such as heart attack and stroke, beginning after 18 months of treatment. This would not have been such a big problem if it had not hidden this piece of news for years. FDA attributes as many as 27,000 deaths to Vioxx in the US and both FDA and Merck are being accused of negligence. Merck's stock continues to slide and estimates for Merck's liability in this case are around $18 billions.



So what can business leaders learn from the Vioxx fiasco?



  1. Be honest. There is no point in hiding such an important piece of news and wishing that it will just go away. Get it out as soon as you know particularly when human lives/health are involved.
  2. Risk management does not mean doing illegal activities. Yes, some of your products may be faulty or you will found out only after years that there was a design defect that caused injuries. You must manage your risks and have the best risk management practices implemented, but it does not mean doing anything that is illegal. That is not risk management no matter what your lawyers say.
  3. Think shareholder value rather than personal gain. You are not paid to become rich or to prove yourself right or to get away with it but to create shareholder value. If all your decisions pass one simple test "Is this action going to create shareholder value", there is nothing else you need to do.
  4. Remember Murphy's Law. You can not run away too long from bad products. They will eventually malfunction and literally drive you out of business. You may also go to jail.
  5. Ethics is important. Businesses do unethical (even illegal) things every day and seem to get away with them. You will eventually be caught though and that will be end of it all.

Recommended article: Risk management frameworks