As J&J Faces Crisis, Questions Arise About Board's Role

This has been a year to forget for Johnson & Johnson (NYSE: JNJ).  Unfortunately for shareholders, the company’s board appears ill-equipped to handle two serious problems that may tarnish the company’s reputation.

In January, the U.S.  Department of Justice accused J&J of paying millions of dollars in kickbacks to Omnicare  Inc., the largest U.S. pharmacy for nursing home patients,  in exchange for pushing prescriptions for its products including the antipsychotic drug Risperdal.  That same month, the company’s McNeill Consumer Products business expanded its recall of Tylenol to  include such other popular over-the-counter brands as Benadryl, Motrin, and Rolaids after consumers complained of a musty smell.

Not surprisingly, the New Brunswick, New Jersey company is fighting the accusations.  It asked a federal judge to throw out the Omnicare case.  Last month, J&J recalled even more lots of Tylenol and other over-the-counter medicines as a precautionary measure.  Shareholders are concerned enough about the accusations to have sent the company’s shares down 8 percent this year.  So the question emerges about whether the company has the right leadership to weather these two serious problems.  The make-up of the board should give shareholders cause for concern.

The first red flag is the presence of academics.  As the New York Times recently noted, companies like having  them on boards of directors for public relations purposes and not for their skills in overseeing a Fortune 500 company.  J&J’s board has University of Michigan President Mary Sue Coleman and Emery University Chancellor Michael M.E. Johns.  There are researchers such as Susan L. Lindquist, Professor of Biology at the Massachusetts Institute of Technology and David Satcher of the Morehouse School of Medicine who posses scientific acumen but probably have little guidance to offer on managing a crisis.

The problems do not end there.  Chuck Prince, whose financial supermarket strategy created a disaster for Citigroup Inc. (C), is a member.  What good could he be doing for J&J?  Many members, Prince included, serve on other boards.  Prince has been on the Xerox Inc. (NYSE: XRX) board since 2008. Former Xerox CEO Ann Mulchahy, who is on the board, left the company in 2009. CEO William Weldon is on the board of JPMorgan Chase & Co. (NYSE: JPM) Board member James G. Cullen,  a retired telecommunications executive, sits on  four boards including J&J. He is presiding director of the board, Chairman of the Audit Committee and a member of the Nominating & Corporate Governance Committee.  Where does he find the time?

J&J  needs to get serious about addressing the myriad of problems its facing. A good place to start is at the boardroom.

Jon Berr