J&J investors fault board for ignoring 'red flags'

Some Johnson & Johnson ($JNJ) investors are fed up with recalls and government investigations. So they've resorted to court action, saying that directors and executives not only ignored "red flags" that something was rotten within J&J, but allowed the company's once-stellar reputation to be destroyed.

The legal complaint comes after a year of repeated recalls, failed FDA inspections, and criminal investigations. As reported by Bloomberg, the irate shareholders contend that J&J's board of directors were much too lax. Their "utter disregard for their fiduciary duties"--including fostering "a culture of systemic, calculated and widespread legal violations"--has destroyed J&J's image as "the gold standard for integrity and excellence," the shareholders claim.

As the investors tell it, J&J's quality control and compliance efforts didn't fall short beginning this year. Trouble has been brewing for years, and the board should have known that. There were "years of red flag warnings of systemic misconduct," the complaint states, "in the form of federal and state investigations, subpoenas, FDA warning letters," as well as repeated recalls.

When contacted by Bloomberg, J&J spokeswoman Carol Goodrich said the company is reviewing the complaint and wouldn't comment. Since the record-setting children's drug recall in May--and an extremely unflattering FDA inspection report for its Fort Washington, PA plant--J&J has been reviewing its manufacturing operations companywide. CEO Bill Weldon appointed a new executive to oversee quality control and compliance. And last week, the board chose two new vice chairs to share Weldon's chairman duties; they were specifically tasked with helping mop up any remaining quality control mess and rehabbing J&J's reputation.

- read the Bloomberg story