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CEO Gilmartin Will Survive Recall

Updated from Sept. 30

Disgruntled shareholders and terrified Vioxx patients may be clamoring for the head of Merck (MRK) Chairman and CEO Raymond Gilmartin, but they should be careful what they wish for.

Crisis-management experts warn that axing the beleaguered Gilmartin would be a drastic mistake that makes Merck's problem -- a voluntary recall of the arthritis drug Vioxx, which has been found to increase the risk of stroke and heart attacks in patients who take it -- into something even worse.

Firing Gilmartin would create two problems, leaving management scrambling to not only find a way to recover after the Vioxx recall but also an executive who would be willing to step into the crosshairs and lead the way back.

"People equate massive, cinematic moves with good crisis management -- but that's wrong," said Eric Dezenhall, head of Dezenhall Resources, a Washington crisis-management firm. "There's a difference between firing someone and managing the crisis. If you want to show consumers that you're taking action, a CEO sacrifice is one way to do that. But don't you want someone in command to weather the storm? Weathering storms is an underrated skill these days."

A good case can be made for Gilmartin's immediate ouster. Earnings are slumping, Merck's stock was in a slump before its 27% selloff Thursday and sales of the company's No. 1 drug and blockbuster cholesterol-fighter, Zocor, fell 8% in 2003, a trend that will grow when it comes off patent in 2006.

The pipeline to replace a leader like Zocor is weak, with four potential treatments failing clinical trials in the past year. And now, the company faces the Vioxx recall, which is likely to trigger a tsunami of class-action lawsuits while lowering 2004 earnings by 50 to 60 cents a share.

Gilmartin says he's staying put. The CEO has stressed that he will not step down from his post until his planned retirement in 2006, saying he has the full backing of the company's board of directors.

"Mr. Gilmartin does have the full support of the board and let me also tell you that -- we haven't taken a vote -- but certainly I do not favor shortening his tenure at Merck before his announced retirement," Johnnetta Cole, board member and president of Bennett College, said Friday. "Let me go further and say the kind of integrity expressed by the way Mr. Gilmartin has handled this unfortunate situation with Vioxx warrants more support from me." (Telephone calls to several other board members were not returned.)

"That is the mindset of the leader in that situation," said Harvey Nachman, principal of NachmanHaysBrownstein, a crisis-management firm based in Philadelphia. In order to reach that pinnacle, you have to have confidence in yourself throughout your entire tenure. You have to face the heat and gut it out and make an orderly transition."
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