Johnson & Johnson FDA & Recall Scrutiny (JNJ)

The US Food and Drug Administration and Johnson & Johnson (NYSE: JNJ) have agreed to a consent decree under which the agency will monitor manufacturing processes at three plants operated by J&J’s McNeil Consumer Healthcare division.  The FDA’s investigation has been going for more than a year, and during that time J&J closed one of the three plants and will now be forced to manufacture products at the other two under federal oversight. The wonder is, why hasn’t any manager at J&J or McNeil lost his job over this sorry display of leadership?

The quality problems at McNeil included child dosages of popular J&J products like Tylenol, Motrin, Zyrtec, and Benadryl. In a warning letter to McNeil in January 2010, the FDA reviewed the company’s handling of a complaint about a variety of Tylenol that gave off a “musty, mildew-type odor” that the company had traced to pesticide and flame retardant used to treat wooden pallets. The first complaint about the odor came to McNeil in 2008, and more followed in 2009.

The FDA stated its conclusion bluntly: “It appears that when J&J became aware of FDA’s concerns about the thoroughness and timeliness of McNeil’s investigation, whether all potentially affected products had been identified, and whether the recall was adequate in scope, J&J did not take appropriate actions to resolve these issues. Corporate management has the responsibility to ensure the quality, safety, and integrity of its products. Neither upper management at J&J nor at McNeil Consumer Healthcare assured timely investigation and resolution of the issues.”

In 2009, J&J’s CEO William Weldon earned total compensation of $30.8 million, according to a report in The Wall Street Journal.  In 2010, his performance bonus was cut from $3.6 million in 2009 to $1.98 million and his base salary rose by 1.3% to $1.9 million. The rest of his compensation package includes changes to pension value and other items.

And J&J’s problems at McNeil weren’t the whole sordid story in 2010. The company was forced to recall hip-replacement parts and contact lenses, as well.

Mr. Weldon apparently wears Teflon clothing, as do other executives at J&J and its operating companies. There’s not a single news report that any executive has been fired. In fact, the only reported management change came when Weldon appointed a “long-time company executive to oversee a new system of company-wide quality control that involves a single framework for quality across all of the operating units and a new reporting system.”  Circle the wagons men!

A well-functioning board of directors should have been asking Weldon and other J&J executives some tough questions all along. That didn’t happen, and now the company has to pay the price. Maybe the board will finally get a little steel in its spine and start to act in shareholders best interests. Which don’t include paying huge premiums for self-satisfied, ineffective executives.

Paul Ausick