Leadership, litigation, and real-world damage control at Penn State

Eric Dezenhall CEO, Dezenhall Resources
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The news whipsawed across the airwaves from Penn State this week: First there was former coach Joe Paterno’s lung cancer diagnosis, then came the university’s appointment of former FBI chief Louis Freeh to investigate the Sandusky catastrophe.

In the pundit class, where everybody has an honorary degree in crisis management, speculation was rife about what these events might mean for Penn State’s “image.”

For the best clue, let’s dispense with the esoteric platitudes about restoring trust and look at the most important figure in Penn State’s recovery and his real-world crisis management track record.

The man to watch is Trustee Chairman Kenneth Frazier, who is also the CEO of drug giant Merck. He happens to be one of the most effective corporate crisis managers in recent memory. Frazier, who was Merck’s general counsel before taking the helm, was the author of the company’s Vioxx litigation strategy.

The essential points are these:

In 2004, Merck pulled its blockbuster arthritis drug Vioxx from the marketplace, citing heart attack and stroke risks. Merck’s stock lost a quarter of its value on the announcement.

The facts that followed were bad. The usual telltale documents surfaced suggesting that the company knew about the drug’s health risks and didn’t act on them. Then there was a Food and Drug Administration whistle-blower who echoed this view. Some analyst estimates put the company’s potential liability in the $50 billion range. That’s billion, with a “B.”

Merck was hit with more than 2,300 product liability lawsuits from 4,600 plaintiffs’ lawyers. The company’s CEO resigned in the uproar.

When the conventional wisdom pointed to an eleventh-hour settlement, Frazier did something that stunned many in the corporate litigation universe: He decided to fight every case.

Merck lost initial suits, but Frazier was playing a longer game. In 2006, a federal jury found that the company was not responsible for the death of a man who had a prior heart ailment. Other victories for Merck followed. In 2007, a settlement for less than $5 billion was reached, plaintiffs’ lawyers having rethought their tobacco-sized jackpot prospects.

In the years that followed, Merck’s stock hit an all-time high, dipped again, and is again recovering, albeit in a broadly shaky climate.

Can this really be declared a damage-control success? After all, Merck had to pull Vioxx from the market and settle for billions.

Here’s the thing: In real-world crisis management (versus fanciful pundit blather), one cannot mistake the damage for the damage control.

Perhaps Merck shouldn’t have introduced Vioxx in the first place. But Frazier took over after it already had. Thanks to his handling of the situation, his company, once considered by many experts to be dead-on-arrival, survived and even prospered.

This is an imperfect and fluid outcome, but crisis management is by definition imperfect and fluid. There is no end state that can make the original sin “un-happen.”

Which brings us to Penn State, where the comparisons to Vioxx are uneven but instructive.

Just as Merck failed to prevent Vioxx from coming to market, Penn State failed to deal with Sandusky a dozen years ago, when the allegations of sexual misconduct first surfaced. At the moment, however, we are beyond the original sin and are firmly in damage-control mode, where the objective is to make an existing problem less bad. And therein lies Frazier’s strength: Knowing that crisis management is a process, not a singular deft maneuver, where redemption lies in knowing when and where to fight and when and where to settle.

Frazier is both a litigator and a leader, neither a fantasist nor an academic. This is what is called for at Penn State, where some more ugliness is sure to follow.

Frazier is wise enough to appreciate that “image” is not a useful concept in crisis management because reputation is a long-term byproduct of tangible actions. Put differently, abstract concepts such as “image” and “strategy” are functions of what you actually decide to do.

We don’t know yet what this process will yield, but we do know it will require leadership, a reckoning with the true victims of this horror, and the passage of time.

In Frazier, Penn State now has a crisis team leader, which is a good place for its next chapter of damage control to begin.

Eric Dezenhall is the CEO of Dezenhall Resources, Ltd., a crisis management firm. He is the author of eight books including Damage Control: The Essential Lessons of Crisis Management and the historical novel The Devil Himself, which is about the U.S. Navy’s collaboration with organized crime syndicates during World War II.

Eric Dezenhall