Turning a crisis into an opportunityThe banned ingredient Cynanchum auriculatum Royal was found in Natural Endotech’s Cynanchum wilfordii products, which are used for menopause complaints, the Korea Consumer Agency announced on April 22. Shares of the company plummeted immediately.
Natural Endotech denied the claim, arguing that it did not use fake ingredients. It called into question the credibility of the agency’s report and demanded an open joint investigation by a third party. The company raised civil and criminal lawsuits against the Korea Consumer Agency and applied for an injunction to prohibit the findings from being made public. However, it had to accept the allegation when the Korea Food and Drug Administration also announced that its products contained banned substances. Its stock prices rapidly dropped, from 86,600 won ($78.07) per share to 8,610 won over 17 days.
The controversy moved on to Kooksoondang, a major manufacturer of natural beverages. As the Food and Drug Administration checked all products containing baeksuho, the ingredients for Baekseju was found to contain Cynanchum auriculatum Royal. While the actual finished Baekseju product did not contain this substance, Kooksoondang’s shares hit the daily limit. It confessed it could not completely rule out the possibility of Cynanchum auriculatum Royal having been used in its products in the past. It also announced it would voluntarily recall all Baekseju products, which made up 20 percent of Kooksoondang’s revenue last year. Its stock price, which fell to a daily low when the Food and Drug Administration report came out, bounced back the next day and returned to the previous level, rising more than 10 percent on May 28. Whether the decline in Baekseju sales will affect Kooksoondang’s stock price negatively from now on is yet to be seen.
The initial responses of the two companies when faced with a crisis show their future. Heo Nam-gwon, a value trader at Shinyoung Asset Management, diagnoses it as “a matter of trust.” When a company makes a mistake, it can build trust with investors and turn a crisis into an opportunity by promptly acknowledging the fault and correcting the mistake. In 1982, the contamination of Tylenol with poisons led to seven deaths in the United States. Johnson and Johnson, its producer, did not try to avoid responsibility. Instead, it issued a recall of all Tylenol products in the United States. The cost of this was $250 million, 5 percent of revenue at the time. But thanks to the trust earned by taking the loss, Johnson and Johnson regained the lead in the pain relief market the following year. However, Japan’s Mitsubishi Motors is still shunned by consumers after hiding the recall of more than one million cars in 2000. Businesses need to handle crises within the golden time.
*The author is a business news reporter of the JoongAng Ilbo.
JoongAng Ilbo, May 29, Page 33
by KIM CHANG-GYU