Johnson & Johnson Attempts to Restore Its Standards: Shareholders Sue Management

By Rheingold Giuffra Ruffo & Plotkin LLP

Institutional and individual investors of Johnson & Johnson are suing the company’s management branch for its continuous neglect in fixing numerous management and marketing problems for years. The management group has over 10 members of the J&J board, including the current CEO Alex Gorsky and predecessor Bill Weldon. The plaintiffs claim that the decentralized management hierarchy of the company gave both top executives and board members “plausible deniability.” The neglected problems that the plaintiffs have stated include kickback payments to doctors and pharmacists to boost product sales, dozens of product recalls due to manufacturing deficiencies and inadequate packing that have left glass and metal shards in liquid medications; some of these problems that the defendants claim to have been “unaware” of date all the way back to the late 1990s. This lawsuit is much more than a mere monetary settlement issue between the two parties; in fact, the proposed settlement calls for several changes that will attempt to save the once-stellar company’s reputation. One is the creation of the Regulatory, Compliance and Government Affairs Committee that will be independent of the board–this committee will receive direct reports from top executives and hold the responsibility of reporting back to shareholders each year regarding all significant compliance and quality issues. Another is the full adoption of new quality and compliance goals that the company must follow in operating and delivering high-quality products. All of the company’s 120,000 employees, including top senior management members, will undergo evaluations regarding their adherence to the new quality and compliance goals. The plaintiffs seek up to $10.5 million in monetary compensation as the tentative settlement is under review by U.S. District Judge Freda Wolfson in Trenton, NJ. The J&J company stated that it “continues to deny the claims in the plaintiff’s lawsuit.”

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