The decision to change course was made at the highest levels of Dow Chemical and Corning, which formed Dow Corning nearly 50 years ago. Until now, the two parent companies had largely kept their hands off Dow Corning. But after weeks of discussion, according to sources, Dow chief executive Frank Popoff and Corning chairman James Houghton realized that the take-no-prisoners approach of Dow Corning chief executive Lawrence Reed was only creating more antagonism among the public and the Food and Drug Administration. It was also endangering the firm’s image and bottom line. They turned to a Dow Chemical executive vice president, Keith McKennon, who was named Dow Corning’s new chief executive, while Reed was bumped down to chief operating officer. The contrast spoke volumes. McKennon has a reputation as a shrewd diplomat and peacemaker-he was Dow Chemical’s point man on the Agent Orange defoliant controversy. McKennon concedes that Dow Corning, fairly or not, has come off as “relatively confrontational” but that approach was no longer working. McKennon told NEWSWEEK: “Here’s a company that built a terrific reputation in about 50 years and we’re not going to let it lose that reputation in 50 days.”
Popoff and Houghton, who both sit on Dow Corning’s board, knew that prospect was in sight, as bad news flowed relentlessly over the company in recent weeks. In December a San Francisco jury found Dow Corning guilty of fraud and awarded $7.3 million to a woman who suffered damage to her immune system when her implants ruptured. That encouraged other women, and now hundreds of other suits have been filed, raising the specter of another Dalkon Shield calamity. In addition, internal documents showed that Dow Corning employees had long ago raised safety questions about the implants, and that shockingly little, if any, long-term testing had been done before the implants were placed on the market. In January, the FDA, which had possession of most of the documents, called for a moratorium on new implants. “I can’t ensure the safety of these devices,” said FDA Commissioner David Kessler.
Finally, the two parent companies apparently decided the debacle was starting to tarnish their own carefully groomed corporate images. Dow Chemical has successfully shaken off its Agent Orange bad-guy image with a wholesale personality change and schmaltzily effective “Dow lets you do great things” campaign. In a glowing cover story last year, Business Week called Corning, the company known for its casserole dishes and Pyrex beakers and praised for innovative programs for women, a “class act.” For Corning, “having their name in the same sentence as breast implants is not what they want to see happen,” says analyst Harry Wells. A Corning spokesman said the company was “worried” about damage to its image in the short run but not in the long run.
Corning could face more than an image problem. About 25 percent of its profits last year came from Dow Corning’s operations (compared with 5 percent for Dow Chemical). While implants account for only 1 percent of Dow Corning’s $1.7 billion in revenues, the company could be hounded by up to $2 billion in liability claims. Dow Corning maintains its insurance covers potential settlements, but investors are nervous nonetheless; they drove Corning’s stock price down by 21 percent in a month. Some plaintiffs’ lawyers have also aimed legal action at the deeper pockets of both Corning and Dow Chemical. That’s an iffy legal leap, but the publicity alone can’t please either company. A Coming spokesman insisted: “We don’t think that in the long term this will have a significant impact on our future earnings performance.”
Can McKennon save the day.? He got a nasty surprise right away; Rep. Ted Weiss said he would ask the Justice Department for a criminal investigation into Dow Corning. But in a textbook display of crisis management, McKennon’s first move was to reassure: he suggested the company might begin new research on safety questions and might provide financial help for women who want to remove implants. About 1.3 million American women have Dow Corning implants, mostly for cosmetic reasons, and many report no problems. This week the focus will shift to an FDA advisory panel, which is expected to issue its recommendation. It could advise continued use of breast implants, or ask for a ban except in clinical trials. Whatever the FDA ultimately rules, McKennon still has a lot of fires to put out, Thousands of women-and their lawyers–will be watching closely.
Photos: A 50-year reputation at stake: New CEO Keith McKennon and mammograph of a silicon implant in a woman’s breast
