J&J board blames woes on middle managers, staff cuts

Johnson & Johnson's quality control problems were caused by mismanagement at McNeil Consumer Healthcare, a board committee investigation found. The report places the blame for a rash of recalls--not only the massive withdrawals of McNeil products, but also substandard prescription drugs, devices and contact lenses--squarely on lower-level execs, letting senior executives off the hook, Bloomberg reports.

McNeil quality-control staff and production folks didn't play well together, and the division suffered from "an emphasis on production volume" rather than on compliance, the panel's report states. J&J's consumer division leadership should have watched McNeil more closely, especially as it worked to integrate Pfizer's consumer health division, the committee said. "[S]ome McNeil employees may have lost focus and commitment to maintain quality standards," Bloomberg quotes.

True, integrating the Pfizer operation was a big job, with thousands of new products to handle. New manufacturing lines were put in at Fort Washington, PA, and Las Piedras, Puerto Rico--both factories that would end up on the FDA's hit list for quality lapses. And McNeil's management suite had a revolving door at the time, the report notes, so company leaders didn't know what was happening at the plant level.

The board committee praised J&J execs for acting quickly once they discovered the manufacturing issues. It also denied any red flags or "systemic failure" overlooked by top management--two allegations raised by shareholder lawsuits attempting to hold executives and board members accountable.

But the report also fingers restructuring at J&J for making the problem worse: Quality and compliance staff were cut by 35%, and the corporate types lost the authority to show up unexpectedly to audit subsidiaries' operations. Plus, a "virtual hiring freeze" hampered McNeil's ability to hire quality-review staff. Someone in J&J's senior management obviously signed off on those decisions. And while top management may not have known the depth of McNeil's problems, one might argue that they should have known. Absolving J&J's leadership of responsibility for the widespread problems may help dispose of shareholder claims, but it won't force them to do the tough soul-searching required to make a company better.

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