C E Os Dilemma1&2

Prof. Santosh Nair

Dr. Jeffery Wilmot, CEO of Pacetech Inc, was sipping black coffee in his private suite
attached to his office on the 7th floor of Pacetech Inc Corporate Office. His secretary, Ms.
Martha Steward transferred a call through the intercom to the suite. When the intercom
tingled Dr. Jeffery picked-up and answered the call. It was Dr. Steve Hughes. His voice
was shaky, he said, Jeff, I want to talk to you privately.

Dr. Jeffery Wilmot, who earned a degree in electrical engineering went on to do his Ph
D. in Bio-medical engineering, from Cambridge UK. He began his career in Johnson &
Johnson and has been working in his field for over 30 years now and has been
associated with Pacetech Incorporation for over 10 years. He was earlier with the
International Division as its Head for Pacetech Inc., overseeing their product
development and marketing initiatives in new markets like Asia, Eastern Europe. He
was particularly interested in Africa and Central Asia. He was promoted as President
and COO. In the month of August 2009 he was promoted as its CEO.

Pacetech Incorporation is one of the largest medical equipment manufacturing

companies. They manufacture pacemakers, heart-valve, stabilizers, brain stimulators
etc. They are well known for their pacemakers and heart-valves across the globe. Their
annual revenue in 2009 was USD 16.35 Billion. Its shares are listed on both NYSE and
London Stock Exchange. They have presence in over 50 countries and partnerships in at
least 20 other countries. They are associated with almost all the famous hospitals across
Prof. Santosh Nair | CEOs Dilemma |Kohinoor Business School, Mumbai

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the globe. They recently won a Platinum Plaque for their commitment to curing human
ailments at the recently concluded Chicago Medical Convention A global conference
of Physicians, Medical Scientists and other Research to felicitate contributors in the field
of medical science. Interestingly, they have, two Nobel Laureates as Directors on their
Board.

Council of Medical Research keeps a tab on all medical products that is sold by Pacetech
Inc to keep a tab on its incidence of malfunction. It is a critical function as their product
are mostly implantable into human body and therefore exposes the human body to
various types of threats of malfunction.US FDA reports 1.3 malfunctions per 1000
person-years. Internally, if any product has a higher malfunction of more than .01%
from the data that is collected by this center they have to categorize it as a crisis and
immediate corrective actions would have to be taken.
This Council collects data from across all the hospitals on any case of cardiac surgery
where hospitals would have used Pacetechs products. It collects the data of patients
and all pertinent details about the implanting procedure to pre-surgical and postsurgical diagnosis reports etc. With a frequency of 6 months these reports, records are
checked and verified; hospitals are contacted including the patients in some cases to
collect latest information about the product-functionality. However, from February
2009 they have been receiving some reports from hospitals in the USA, Europe and in
some parts of Asia/Africathat Pacetechs product Insta-beat was showing higher rate
of malfunction.

Insta-beat is a pacemaker that keeps a check on the heartbeats. It has an inbuilt

stabilizer that sends shockwaves to the heart if the heart beats less than the required
rate of 70. Whenever the heartbeats fall below 60, the stabilizers trigger shockwaves that
shakes-up the heart muscles. It would be like someone putting their hands inside their
heart and then just tapping it at the right place outside the heart, either the atrium or the
ventricle chambers, nudging it to beat and keep beating, except that it is done with as
Prof. Santosh Nair | CEOs Dilemma |Kohinoor Business School, Mumbai

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low as 1.5 volts of electricity. Insta-beat is powered by lithium battery,is encased

inside a titanium shell, a metal that is inert to the human body therefore it has a least
case of rejection by human-bodys immune systems, that holds the pacemaker together.

Dr. Jeffery requested Dr. Hughes to come to his private suite. Ms. Martha conducted Dr.
Hughes inside the suite. It was well appointed with leather bound chairs and opposite
to it was a huge table made of mahogany and a teak-wood wall-unit to its right that
housed extensive collection of books on bio-medical engineering, chemistry, medical
sciences, medical journals and research papers and latest magazines on medical
sciences. As Dr. Hughes entered the suite, he found Dr. Jeffery sitting behind his
mahogany desk, engrossed on a latest report on a new product that was at a very
nascent stage opposite to the leather bound chairs.As soon as he saw Dr. Hughes come
in he asked, what is it Steve? Is there a cause to worry? Dr. Steve responded rather
hesitantly, I am afraid it is. Dr. Hughes explained to the CEO that in the past 6
months they had been receiving reports from various hospitals about Insta-beats
probable malfunctioning; I am afraid if the results that we are collecting and
processing indicates a higher percentage of it, than our internal controls, we might be
compelled to take a decision of recalling them. Dr. Jeffery knew very well that recalling
a product like Insta-beat is no mean task. It is, as they say, a crisis and requires a deft
handling of it. It would mean marshalling huge amount of time, man-hours, papers,
reports, press conferences, visits to various hospitals, Office of US FDA, governing
bodies, various medical councils in USA, Europe and elsewhere. All these efforts
notwithstanding, the end result would be known only at the end of it all.

Insta-beat share in the overall revenue is close to 20% and if anything gets into the
press about its potential problems it was still being investigated the company could
face potential legal suits, markets would react bringing its share prices down; investors
might demand an explanation; regulatory agencies might have to be informed at every
stage; consumers might switch to competitor products that could unleash a prolonged
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loss of revenue from its major revenue driver; the product would be subjected to
stringent laboratory and clinical trials before it is re-launched. The problem Dr. Hughes
explained were: one, the lead that is supposed to collect information about the heart
beats were reported to be breaking leading to a case of under-sensing, a case, when the
heart-beat goes below 60 the pacemaker failed to send signals to the chip that activates
the programme to send trigger shock-waves to the heart to jostle it up. Second, there
were at least 5 accidents among the 25 reported cases, when the pacemaker sent
shockwaves when the heart-conditions were quite normal. This could only mean there
were problems in the sensors too which cannot be rectified easily as in re-writing the
programme. Even though Pacetech followed stringent quality controls it was difficult to
have the lead not break or prevent it from malfunction 100 %. What was alarming was
that the incidents of patients dying of this products malfunctioning had increased and
there were 25 cases in all: 11 from Europe, 5 from Asia/Africa and 9 from USA.25 case
by itself is not alarming but all of them had occurred in a short-span of 6 months is not
just alarming but a clear case of crisis and such crisis requires deft managing of them
lest it should spin out of hand and make Pacetechs case of that of corporate failure.

Prof. Santosh Nair

Assistant Professor Economics & Finance | Kohinoor Business School, Kurla, Mumbai

Prof. Santosh Nair | CEOs Dilemma |Kohinoor Business School, Mumbai

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Questions for discussion:

1. You are Dr. Jeffery Wilmot. What would be your course of action after knowing
the problem? Delineate them.
2. If you were the advisor to Dr. Jeffery Wilmot what would be your advice to him?
3. Discuss the ethical dilemmas companies face in similar situations
4. Should companies focus on profitability or profitability coupled with long-term
wealth-maximization of stakeholders?

Disclaimer:
1.

This is a fictitious case-let and all the information contained herein is fictional in nature. Any
resemblance to anything or anybody outside of this scenario is purely coincidental. The Author
or anybody else associated with him, are not responsible for such cosmic-coincidence.

2.

Adaptation of a story in BNET titled: Bill Hawkins: How I Made the Toughest Call of My
Career | BNET: Appeared on September 2009
Source: http://www.bnet.com/5263-130930.html?numPageResults=20&tag=header;tools&isPageUser=true&authId=GESNx6/oScyojBbDS2
9qF4WMCWtUGhpuq0XkOIWwFlYBelMYU+52K3UZiZ0Xjlkvw

Prof. Santosh Nair | CEOs Dilemma |Kohinoor Business School, Mumbai

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