September 29 in business history: 777 points in a single session, 31 million bottles, and a 32-month countdown
Three September 29s — the House vote that sent the Dow down 777 points in 2008, the Tylenol poisonings that triggered a national recall in 1982, and the shuttle launch that ended a 32-month grounding in 1988 — show what a decision costs when its deadline belongs to somebody else.
Three September 29s, and one question asked three ways: who set the clock?
In 2008 the United States House of Representatives voted down a $700 billion rescue for the financial system, and the Dow Jones Industrial Average lost 777.68 points before the closing bell. In 1982 seven people around Chicago died after taking Tylenol capsules laced with cyanide, and the company that made them pulled every bottle off the shelf. In 1988 the space shuttle flew again, thirty-two months after Challenger, on a booster joint that had been rebuilt to earn back its clearance.
Three decisions, each taken against a clock set by somebody else. In each case the bill arrived as a number produced by someone outside the room.
A vote counted in a single session
The House of Representatives rejected the $700 billion financial rescue on Monday, September 29, 2008, by 228 votes to 205 1. Republicans voted against it by more than two to one, while a majority of Democrats voted for it 1.
The market answered inside that one session. The Dow fell 777.68 points, or 6.98%, to 10,365.45 — at the time the largest one-day point decline in the index's history, and its steepest percentage drop since October 1987. The S&P 500 lost 8.79% to close at 1,106.42, its worst day in 21 years, and the Nasdaq Composite fell 9.14% to 1,983.73, its worst since April 2000. The CBOE volatility index, the options market's gauge of expected swings, rose 39% to 48.40, a near six-year high, and about 2.03 billion shares changed hands on the New York Stock Exchange against a daily average near 1.90 billion the year before 1. The same day, Wachovia agreed to sell its banking operations to Citigroup in a deal brokered by the Federal Deposit Insurance Corporation, and European governments were moving money into banks of their own 1.
Four days later the same chamber reversed itself, passing the revised bill 263 votes to 171. Fifty-eight members switched sides — 26 more Republicans and 32 more Democrats than on the Monday — after the Senate added tax breaks and other provisions to the package 2. President George W. Bush signed it the same day 2, and the new law temporarily raised the FDIC's basic deposit-insurance limit to $250,000 per depositor from $100,000 3.
Decision mirror: The rating agencies kept a clock of their own. On Friday, August 5, 2011, Standard & Poor's cut the United States credit rating to AA-plus from AAA, days after Congress ended a standoff over the debt ceiling; on the following Monday the Dow fell 634.76 points, or 5.55%, to 10,809.85, its biggest point and percentage drop since December 1, 2008, and the S&P 500 fell 6.66% 4. The 2008 rescue took four days to pass and 777.68 points to get there. The downgrade cost 634.76 points in a session that had nothing else on the calendar.
A recall decided before the cause was known
Mary Kellerman, 12, of Elk Grove Village, Illinois, took one Extra-Strength Tylenol capsule early on September 29, 1982, for a sore throat and a runny nose, and she was dead by seven that morning 5. Six more people swallowed capsules from tainted bottles during the day: Adam Janus, 27, his brother Stanley, 25, and Stanley's wife Theresa, 19, who each took pills from one bottle, along with Mary McFarland, 31, Paula Prince, 35, and Mary Reiner, 27. All seven died 6.
The cyanide turned up in bottles bought at different stores and in capsules made in two different states, which showed the poison had gone in after the bottles left the factory 6. Johnson & Johnson recalled the affected lot, then every bottle of extra-strength capsules sold around Chicago, and on October 5, 1982 withdrew Tylenol capsules nationwide — about 31 million bottles carrying a retail value above $100 million 6.
The company put the expense at $100 million and charged the whole of it against the quarter that ended on September 30, 1982. Net income for that quarter fell 25.7% to $96.5 million, or 61 cents a share, from $129.9 million, or 69 cents, a year earlier, even as sales rose to $1.48 billion from $1.34 billion 7.
Tylenol's share of the analgesic market had fallen to 7% from 37%; within a year it was back near 30% 8. The capsules returned that November in a package sealed three ways, with heavy price promotion behind them, and a second, smaller tampering in 1986 brought another recall and relaunch 68. The shelf changed too: on November 5, 1982 the Food and Drug Administration published a rule requiring tamper-resistant packaging for over-the-counter drugs, the regulation now carried at 21 CFR 211.132 9.
Decision mirror: Samsung pulled a product for the same reason and paid a different price. More than 2.5 million Galaxy Note 7 phones were recalled in 2016 after their batteries overheated and caught fire, and the model was discontinued less than two months after its August launch; Samsung put the cost of that decision at about $3 billion, taking the recall to at least $5.3 billion 10. Operating profit at its mobile division fell about 98% from a year earlier, to roughly 100 billion won, or about $88 million 11. The Tylenol capsules were sound and a new seal was the fix; the Note 7's replacement units also burned, so the product itself had to be rebuilt before the franchise could come back.
A launch that took 32 months to earn back
Challenger broke apart 73 seconds into its flight on January 28, 1986, killing its seven-person crew and stopping American human spaceflight 12. It restarted on the morning of Thursday, September 29, 1988, when Discovery lifted off from launch pad 39B on mission STS-26 at 11:37 a.m. Eastern with five astronauts and a NASA communications satellite aboard, and landed at Edwards Air Force Base in California on October 3 1213.
The redesign carried a price tag early. On March 11, 1986 the acting NASA administrator, William Graham, told a congressional committee that the solid rocket motor's joint and its seals would have to be redesigned, and put the work at $350 million 12. By the time Discovery flew, more than $1 billion had been spent on changes to the shuttle 14.
Two programs ended with it. The Shuttle Centaur upper stage, on which more than $700 million had already been spent, was terminated on June 19, 1986, and the plan to launch shuttles into polar orbit from Vandenberg Air Force Base ended with the complex there mothballed 12. On August 15, 1986 President Ronald Reagan announced that the shuttle would stop carrying commercial communications satellites except where national security, foreign policy or other overriding reasons applied; eleven of the first 24 shuttle missions had carried at least one 12.
Decision mirror: Boeing ran the same sequence at larger scale. Two 737 MAX crashes, Lion Air in October 2018 and Ethiopian Airlines in March 2019, killed 346 people, and the Federal Aviation Administration grounded the aircraft before lifting the order on November 18, 2020, ending a 20-month grounding, the longest ever for an American airliner 15. Boeing's direct costs are put at about $20 billion, with indirect losses above $60 billion including 1,200 cancelled orders 16. Recertification is the expensive part of a failure: the shuttle needed 32 months and more than $1 billion to fly again, and the MAX needed 20 months and roughly $20 billion.
Three questions for the week
- What does your plan assume about the calendars of the people who must approve it? The 2008 rescue lost by 23 votes on a Monday and passed on the Friday, with 58 members switching sides; in the session between, the Dow gave up 777.68 points and the S&P 500 8.79% 12.
- What is the recall worth against the brand? Johnson & Johnson spent $100 million and took a 25.7% cut in quarterly net income, then held about 30% of the analgesic market a year later 78.
- When the product fails, where does the fault sit? A tampering attack is external and a new seal answers it; a battery design is internal, which is why the Note 7 was discontinued two months after launch at a cost of at least $5.3 billion and the shuttle needed more than $1 billion before it flew again 1014.
References
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- 6Wikipedia, "Chicago Tylenol murders"
en.wikipedia.org
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- 13NASA, "STS-26" mission page
nasa.gov
- 14National Academies, "Upgrading the Space Shuttle" (1999)
nationalacademies.org
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