The problems first surfaced in the manufacturing area, which was suffering from poor management. The fact was that both Murphy and Sterner had a bias toward science and engineering, and tended to negtlect the production side, which was staffed -- according to Norman Weldon -- with those who "had failed at engineering, rather than those who had excelled in running a manufacturing operation." Without efficient, uniform manufacturing procedures, a logjam of pacers built up that couldn't pass the company's rigid inspection standards.
Meanwhile, another problem had developed with a major supplier called CTS Corp., which manufactured circuits for Cordis's pacers. CTS had always done high-quality work, and the two companies enjoyed a good relationship. Lately, Cordis had been pushing CTS to develop new technologies that would improve the performance of the pacers. In its effort to comply, CTS had inadvertently supplied some faulty circuits. Cordis discovered the problem and immediately took steps to correct it. Nonetheless, the company soon found itself under attack by the FDA, which tried to enjoin Cordis from distributing the pacers.
"We felt very strongly that we did not warrant" the FDA's action, says Murphy, ". . . but it's like any war: No matter who wins, everybody loses. In the sense that we caused them not to close the company, we won. But in the sense that it cost us what was at that time a very strong competitive position, we lost."
Aside from a ruined bottom line, Cordis suffered the most damage in its sales force, whose members found their commission income plummeting. They were thus an easy target for Cordis's competitors, and a choice one as well: Because of the complexity of pacer technology, salespeople tend to have close relationships with the physicians they supply and thus can take their customers along when they switch companies. Cordis's competitors took advantage of the situation by offering what one employee describes as "fantastic" inducements to waivering salespeople.
As the crisis deepened, Murphy called a meeting of the company at which he spoke about the problems with the FDA. He said that he felt the FDA action was unwarranted and that the problems were not the fault of the workers, who he believed were doing an excellent job. In order to survive, however, the company was going to have to reduce expenses. He announced that exempt workers would be cut back to a four-day workweek, and that nonexempt workers would be asked to work a five-day week for four-days' pay. He gave no indication as to how long these measures would be in effect. Such was the loyalty of Cordis's work force that very few employees defected as a result of these actions.
In the months that followed, Murphy took to the road to defend his company, appearing in court to contest the FDA's action and traveling around the country to reassure the medical community. "He took the whole thing personally," says one executive, "and there were those outside the company who felt his response was even arrogant." Arrogant or not, Murphy undoubtedly viewed an attack on Cordis's integrity as an attack on his own.
Eventually, the company solved its cash-flow problems through an arrangement with CTS. The latter agreed to buy 23.6% of Cordis's stock for $5 million.Cordis retained the right to repurchase this stock in the future at higher prices. As a result of the agreement, CTS became Cordis's largest shareholder. During the next two years, CTS was wooed by several companies interested in buying it as a way of acquiring Cordis, but CTS rebuffed the suitors, and -- by 1977 -- Cordis had recovered sufficiently to buy the stock back.
In the meantime, Murphy and Sterner had addressed the manufacturing problems, bringing in Frank Fischer from General Electric Co.'s Locomotive Division. Fischer quickly took control of the operation and, among other things, managed to reduce the internal rejection rate from close to 30% to less than 2%.
So Cordis survived the crises, emerging bloodied but unbowed. For Murphy, however, there were lingering questions about his role in the company -- questions that began to surface in the late 1970s.
The issue was management. "The directors felt that the business was not run as well as it should be," says Murphy. As it happened, Sterner -- who was in his mid-60s -- had already decided to retire, and Murphy agreed that the company needed new blood. "Still, I was a little disappointed in our directors," says Murphy. "They really did not appreciate the fact that both John and I were sensitive to that need, and as eager as they were to bring someone in. But we also faced the problem of doing that in the right way. I found that even after we did it, the directors didn't understand that we did it, they didn't. . . ."
In the end, Murphy and Sterner approached Weldon, who at the time was president of CTS. According to Sterner, they had been impressed by the way Weldon had performed during the crisis. At no point had he tried to interfere in Cordis or take advantage of its vulnerability. Weldon, for his part, says that he had long wanted to get involved in a health-care company, and consequently was receptive to the offer.
As for Murphy, he was pleased with the choice. "We identified Dr. Weldon as being a good manager, as being the kind of guy we thought fully cared about the quality of the business -- I think that we need to be people of quality in every sense of the word -- and he had the one quality which both John and I considered to be an absolute, rock-bottom must, and that is honesty. I know a lot of people who get a little nervous when the chips are down, and you aren't quite sure where they're going to go. We have seen Dr. Weldon in that kind of a situation, and there's no question about his response. . . ."
