Johnson & Johnson ($JNJ) is pledging to keep a sharper eye on drug manufacturing and marketing. Specifically, its board promises to get involved in oversight, to prevent the sort of misbehavior that spawns lawsuits, recalls, and government investigations.
The oath is part of a settlement with investors, who accused directors of turning a blind eye to signs of malfeasance in the ranks. To wrap up that litigation, J&J officials will set up a board-level group to watch over its business units' compliance efforts. The group will also update risk-management policies.
J&J doesn't admit that its top officials overlooked red flags in company operations. The company "has a long commitment to compliance, quality and good corporate governance," spokesman Al Wasilewski told Bloomberg, and it "continues to deny the claims" put forth in the shareholder derivative suits.
That investors might see gaps in that commitment is understandable, however. J&J's McNeil unit has seen the most bad press about recalls and quality problems, but other units--including the DePuy device business--have pulled products, too. Meanwhile, J&J has been negotiating with the feds to wrap up a long-running investigation of its Risperdal marketing practices. Bloomberg sources have pegged that settlement at upwards of $2 billion.
Meanwhile, the company has been fighting liability and fraud lawsuits, some of which have ended in big settlements; the $158 million Texas deal comes to mind. Juries have levied fines and damages of up to $1.2 billion. Those verdicts are under appeal. And some awards have been reduced in court.
"Plaintiffs filed suit in light of the tsunami of regulatory and legal difficulties overtaking J&J," the investors' lawyers said in a statement (as quoted by Bloomberg). Its "decentralized approach to compliance and quality control resulted in a lack of accountability, a structural excuse for plausible deniability among senior management and J&J's board, and ultimately, a recipe for disaster."
According to press reports after the McNeil recalls began, the quality problems surfaced after J&J's operating units successfully fought for more autonomy, rolling back a centralized compliance program that unit leaders considered too onerous. Hindsight, as they say. We wonder whether J&J execs wish they'd kept closer tabs all along.
- read the Bloomberg story
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