A group of Johnson & Johnson (J&J) shareholders are seeking legal retribution for what they see as managerial oversights and ignorance of "red flags" that may have provided notice of the recent federal investigations of the company’s "manufacturing defects" and potentially illegal "marketing practices." The multiple investigations began earlier this year when the company froze operations at a Pennsylvania manufacturing facility following a recall of children’s Tylenol. J & J is the world’s largest manufacturer of health care products, but in the past year it recalled over 40 different medicines because of incorrect or sloppy labeling and/or contamination of the products. The government investigations, and some of the recalls, involved, among others, Motrin and children’s Tylenol.
The shareholders seek damages to be paid by the company’s directors and officers back to the company, as well as improved "corporate governance and internal procedures." The complaint alleges that the board received "years of red flag warnings of systemic misconduct," and that "these red flags came in the form of federal and state regulatory investigations, subpoenas and requests for documents, FDA warning letters, news articles and the recall of products accounting for hundreds of millions of dollars in corporate losses." In a year where the Standard & Poor’s 500 Health-Care Index of 52 stocks rose 1.1%, J&J’s stock dipped 3.2%.
In response to the shareholders’ demand that the company "investigate a variety of alleged issues," the board voted and appointed a special committee of four independent directors to do so, with former Citigroup, Inc. chief executive officer Charles O. Prince named chairman of the investigative panel.
It seems, at a minimum, that J&J has gotten sloppy, bloated, and perhaps overconfident in light of its lofty position as a huge corporate monster. Further, it seems that the government’s ability to oversee the quality and safety of necessary medicine and medical devices, while improving, still is lacking. Given impending budget constraints, it may be difficult for the FDA to effectively police this industry, in which case the legal system offers the last line of defense for the public. DePuy Orthopedics, which manufactured the recently recalled ASR hip replacement systems, is a J&J company, which may say even more about J&J.
Regardless, it seems as if the J&J shareholders have something legitimate to complain about, not to mention many consumers of J&J and DePuy products.