Harry Kraemer's Moment of Truth

As far as anyone knows, the first few deaths occurred in Madrid starting on August 15, 2001.

The Spanish patients, two men and two women, were elderly and very ill. All four had undergone routine dialysis at the Hospital de la Princesa. Soon after, they began sweating and vomiting, some of them in excruciating pain. They died within a few hours of receiving treatment.

Nothing seemed exceptional about the deaths of those old, sick patients on dialysis, even though four deaths had occurred in four days at the same place. Hospital officials notified the manufacturers of the equipment involved, as dictated by protocol. But no one paid the incident much attention - until the following week, when people started dying in Valencia.

As in Madrid, the six patients who died after dialysis at the clinic Virgen del Consuelo were mostly old and sick. But they had one more thing in common. It was inconclusive evidence, but regional health officials told the media anyway: The dialysis filters used in all of the cases had come from a single lot - the same lot as the filters used in Madrid. They had been manufactured by Althin Medical AB, which had been acquired in March 2000 by the American company Baxter International Inc.

The U.S. business press didn't report much on the situation. News of the deaths was soon eclipsed, first by the profound tragedy of September 11 and then by the opening bars of Enron's opera of greed and deceit. Over the next few weeks, though, a total of 53 deaths in the United States and six other countries would be linked circumstantially to Baxter's filters. It wasn't clear until later that the filters were to blame. To this day, it isn't clear exactly what went wrong.

But what was certain was this: Baxter and its CEO, Harry M. Jansen Kraemer Jr., faced a moment of truth. How Baxter responded would leave a lasting imprint on the company's relationships with patients and doctors, with employees, and, of course, with investors. The episode would, for better or worse, open a window onto Baxter's corporate soul.

What did Harry Kraemer do? He did something that feels unusual - subversive, almost - in light of the air of mistrust and criminality that pervades big business. "When in the past nine months have you ever heard a corporate executive apologize?" marvels William W. George, the recently retired CEO of medical-instrument maker Medtronic Inc. The answer: almost never.

Baxter's response to its filter crisis wasn't perfect. But Baxter's CEO owned up to the situation. He told the truth. He took responsibility when it would have been easy not to. His company took a $189 million hit, and he recommended that the board reduce his bonus. In other words, Kraemer did the right thing.

"There Was Too Much There to Be a Coincidence"
Baxter International is a $7.7 billion company with 48,000 employees. Founded in 1931 by Dr. Don Baxter to manufacture and distribute intravenous solutions, it still sells IV bags as well as biopharmaceuticals and drug-delivery systems. Its products treat millions of patients a year who suffer from hemophilia, infectious diseases, and cancer.

The thing about selling all of those drugs, devices, and solutions is that a lot can go wrong. Nearly every product that Baxter delivers is a matter of life and death. But when the outcome is death, it can be incredibly difficult to determine a treatment's effectiveness. Was the death normal and predictable? Or did the treatment somehow fail? The answers aren't always obvious. If medical-products companies pulled their wares every time someone died, there would be no medical products.

That is the reason why, even as Baxter quickly recalled the lot of filters associated with the patient deaths in Spain, it did not at first accept responsibility. The recall was a sensible precaution, no more. And on October 9, Baxter announced the results of a set of internal analyses, plus another set commissioned of an independent consultant. There was, in fact, no evidence that the dialysis filters in Spain had malfunctioned in any way. Nor had the clinics' water supplies been contaminated. Basically, the deaths remained unexplained.

But that Saturday morning, October 13, Alan Heller checked his voice mail from his hotel in San Francisco, where he was attending a conference. Heller had joined Baxter less than a year before to serve as president of its $1.9 billion renal division. The Althin operation, acquired to complement Baxter's existing dialysis products, was part of his business.

The phone message was shocking. Newspapers and television in Croatia were reporting that 23 dialysis patients had died during the previous week at clinics across the country. The government was blaming Baxter.