J & J Implosion as Board Members Sue Company Officials – Is Better Oversight Ahead?

Johnson & Johnson is the world’s largest consumer health company with perhaps the world’s largest public relations problem.

Shareholders would like to know what’s gone wrong with the company and they’ve filed a corruption lawsuit to find out. Ten company board members and several executives have been named including new CEO Alex Gorsky and former CEO Bill Weldon.

After 40 recalls in 2010 including contaminated children’s cough medications, three closed manufacturing plants, defective metal hips, dangerous synthetic vaginal mesh, kickbacks to doctors to speed up sales, and charges of illegally promoting drugs off-label, shareholders have had enough.

In a preliminary proposal, shareholders want the company to establish a committee of independent board members to ensure quality control and legal reviews. Senior executives will be in charge of determining what is going on inside their division and the company will have to establish new goals to ensure quality and regulation compliance.

Until now, the company has run in a decentralized manner with pharmaceuticals and medical device divisions essentially doing their own thing. Janssen, DePuy, Ethicon, and Gynecare are some of the divisions of J & J that have overseen dangerous and defective product recalls.

J & J may be on the hook for $2 billion to settle charges that tens of millions of dollars changed hands so the company could sell the antipsychotic, Risperdal, to elderly patients in nursing homes, even though it was linked to increased fatalities among those with dementia.

The year 2010 also marked the time DePuy Orthopedics recalled the ASR metal hip replacement. In June of this year, Ethicon’s Gynecare division announced it would stop selling four synthetic transvaginal meshes. The company faces thousands of lawsuits by women injured by the mesh placements to treat incontinence and prolapsed and more lawsuits are filed every day. Those cases won’t even begin to be heard until next year.

Shareholders are also asking for $10 million to pay attorneys and $450,000 in trial expenses. The proposed settlement should be approved August 6, by a U.S. District Court in Trenton, New Jersey, with a review to follow in the fall.  It can only help a company that desperately needs to begin acting like a good corporate citizen to regain consumer and shareholder confidence.