1893, 1907, 1929 and Today
Recently, Johnson & Johnson Chairman and CEO William Weldon told investment analysts that, due to the strength of the Company’s leadership, our broad base of business and our fiscal discipline, he remained optimistic about our ability to adjust to the current evolving economic conditions. He also mentioned that, thanks to the people at Johnson & Johnson, the Company has managed through difficult economic cycles many times throughout its history. So while the past may have little or no bearing on current or future events, I thought it would be interesting to take a look at the difficult economic cycles in 1893, 1907 and 1929, and how the Company steered through those times…by looking at the bigger picture and managing for the long term.
Old Johnson & Johnson Plaster Mill with Delaware & Raritan Canal in Foreground, 1893
The Panic of 1893
During the Panic of 1893, Johnson & Johnson had been in business for only seven years. In those seven years, Johnson & Johnson had expanded steadily, adding more products, more employees, and pioneering the first-ever First Aid kits and improvements in sterilization methods for its surgical dressings and sutures. Robert Wood Johnson the first was president of the Company, and a new product was introduced that year that would have a huge impact on our business… JOHNSON’S® Baby Powder. The Company, like the country, was doing well, and the Johnson brothers’ first-ever mass produced sterile surgical dressings were causing surgical mortality rates to drop in U.S. hospitals…because the availability of the Company’s aseptic dressings and sutures made it possible for more and more surgeons to adopt antiseptic surgery.
The 1880s had been a time of incredible economic expansion and optimism in the U.S. But over time, that expansion became driven by speculation, leading to a railroad bubble. Railroads were the hot industry of the day, and they greatly over-extended themselves, causing widespread bankruptcies, bank runs and a credit crunch. A series of railroad and bank failures rippled across the United States. It’s estimated that over 15,000 companies and 500 banks failed, leading to high unemployment at the worst of the crisis. The unemployment plus loss of savings due to failing banks left a huge chunk of the middle class unable to pay mortgages, forcing many families to walk away from their recently built homes. (Stop me if that sounds even slightly familiar.)
Robert Wood Johnson, one of the Company's three founding brothers
Fortunately for Johnson & Johnson, the medical products business was steady. From the beginning of the Company, Robert Wood Johnson the first had put in place a group of strong managers who kept Johnson & Johnson focused on its larger goals during the Panic of 1893-1896. Due to the prudence of its management and its focus on new areas of business (like Baby Powder) and constantly improving its products, the Company was able to weather the crisis. At the end of 1894, employment at Johnson & Johnson had risen (to 400 employees), and the Company had grown to occupy 14 buildings. Factory output was up sharply, with Johnson & Johnson producing 4,000 pounds of cotton and 15,000 pounds of plasters per day, and 3,500,000 yards of gauze a year.
Johnson & Johnson Employees, circa 1890s
The U.S. economy recovered in 1896, leading to ten years of growth. But in 1907, the country, and Johnson & Johnson, faced another economic downturn.
The Panic of 1907
In 1907, there was another economic crisis, this time called The Panic of 1907. (Before 1929, these crises were called “panics,” until President Herbert Hoover decided it would be less alarming to call the 1929 crisis a depression instead.) The Panic of 1907 was triggered by a failed stock-cornering scheme that led to the downfall of one of New York’s largest trusts. The New York Stock Exchange fell almost 50% from its high in 1906, leading to bank failures, business bankruptcies, and runs on banks as frightened depositors withdrew their money. The crisis would have been worse had financier J. P. Morgan and others not intervened to prop up the banking system. Johnson & Johnson was 21 years old at the time, still with Robert Wood Johnson the first as president. The Company had continued to grow steadily and in 1906 had formalized its benefits for employees into the Employee Welfare Department, which included pensions, insurance coverage, medical and social benefits, educational classes and more. Like other companies, Johnson & Johnson was affected by 1907’s financial panic, and instituted some temporary belt-tightening measures like shorter hours and lower paychecks. With its eye still on long-term goals, and because it hadn’t taken the kinds of unnecessary risks that led to trouble for other companies, Johnson & Johnson was able to continue a plant expansion and, in 1908, opened a large addition to its Cotton Mill.
1907 Addition to Cotton Mill. For those familiar with New Brunswick, NJ, the dirt road in front of the building is George Street.
After the economic recovery, Johnson & Johnson continued to grow and expand, adding new products and more manufacturing capacity. The extraordinary demands for dressings during World War I led to the purchase of the Chicopee Manufacturing Company in 1916. In 1919, the Company opened its first international affiliate in Canada. Five years later, due to a well-researched worldwide fact-finding trip by the future General Robert Wood Johnson and his brother (as the sons of Robert Wood Johnson the first, they represented the younger generation of management), the Company opened its first overseas affiliate in the U.K. in 1924, thus starting our decentralized global expansion.
Seward Johnson (L) and the younger Robert Wood Johnson (R) in Egypt during their 1923 fact-finding trip
The Great Depression
On February 1, 1927, 33-year-old Robert Wood Johnson (son of Company founder Robert Wood Johnson the first) was elected to the Company’s Board of Control, the forerunner of today’s Executive Committee. The mood in the United States was optimistic (it was the height of the Roaring Twenties), more and more people were investing in the stock market and, on the surface, everything seemed good. But Johnson became concerned during the summer of 1928 because U.S. industrial production and consumer spending were starting to lag, and he urged management to curtail all major spending.
On Thursday, October 29, 1929 – Black Thursday – the stock market collapsed…and the nation was officially in the grips of the Great Depression, which worsened over the next few years into a worldwide crisis. Massive bank failures caused runs on banks, and many small and large businesses failed. U.S. unemployment reached a high of 25 percent – one in every four working Americans was without a job – and soup kitchens and bread lines became a common sight.
Robert Wood Johnson
On February 4, 1930, in the middle of this mess, Robert Wood Johnson was promoted to vice president and general manager of Johnson & Johnson, with his uncle James still as company president. Faced by growing threats to the business, Johnson adjusted: he shortened work shifts, eliminated Saturday work (it was common back then for working hours to extend to Saturdays – the elimination of Saturday work was one of the changes caused by the Great Depression) and he asked production employees to take three-day weekends twice a month, among other belt-tightening measures. Those actions were mild compared to what was happening at other companies, and they reflected well on the Company’s policy of focusing on the long-term, bigger picture, the crucial nature of the business it was in, and on the reserves it had built up. Due to the Company’s smaller size, the unique situation at the time and the measures it was able to take, no jobs were lost at Johnson & Johnson during the Depression. In 1932, Robert Wood Johnson succeeded his 76-year-old uncle James as president of Johnson & Johnson. In 1933, six weeks before Franklin Delano Roosevelt was inaugurated, the new president of Johnson & Johnson sent Roosevelt a letter outlining his ideas for a plan for the nation’s economic recovery. In the letter, Robert Wood Johnson suggested a federal law to increase wages and reduce working hours for American workers. This proposal was contrary to what most industrialists of the time were saying and, needless to say, it received widespread attention in the newspapers of the day.
During the years of the Depression, both sales and growth had slowed at Johnson & Johnson. But Robert Wood Johnson and his management continued to look for opportunities…including opportunities to continue the careful and judicious global expansion when the business was large enough in a given region, leading to operating companies in Mexico, South Africa, Australia and Europe during this time period. Seeing another opportunity in decentralization, in 1934 the Company opened a large manufacturing plant in Chicago, the first major domestic facility outside of New Brunswick.
Now that Robert Wood Johnson had reached the top position in the Company, he would put into practice many of his ideas about running a business, which helped get Johnson & Johnson through the Great Depression, and would greatly expand the business in the future and lead to the writing of Our Credo. To find out what some of his ideas were, stay tuned for my next post.