J&J Scandals Bring Down CEO

J&J Scandals Bring Down CEO

February 22nd, 2012 // 1:24 pm @

Source: Pharmalot

After more than two years of controversy over manufacturing gaffes and product recalls, Bill Weldon is retiring as Johnson & Johnson ceo in April, ending a 10-year reign at the top of one of the most venerable, but now tarnished names, in corporate America. The 63-year-old Weldon will be replaced by Alex Gorsky, 51, who currently oversees the medical device and diagnostics business, according to an SEC filing (see here).

The move comes after repeated calls for Weldon, who will remain for chairman for awhile, to step down following a consent decree; highly publicized congressional hearings; government investigations; hundreds of job losses; the closure of a key plant; a reorganization of its consumer health unit; eroded consumer confidence; numerous lawsuits, and hundreds of millions of dollars in lost sales.

In fact, the most recent corporate reputation poll from Harris Interactive was recently released and Johnson & Johnson ranked 7th on the closely watched list. This was the first time that the health care giant did not rank in first or second place; last year, J&J notched second on the list (read here).

alex-gorskyJ&J portrayed the change as the result of a carefully planned succession process and ignored mention of the ongoing turmoil. “This succession decision involved a rigorous, thorough and formal multi-year process, which included consideration of two superbly qualified internal candidates, as well as outside candidates,” Weldon says in a statement (read here).

In late 2010, the J&J board promoted Gorsky (pictured at right) and Sheri McCoy, the worldwide chair of the pharma group, to vice chairs of the executive committee. Gorsky, who will get a raise to $1.2 million, according to the SEC filing, has spent the last four years at J&J, having arrived from Novartis, where he was head of the US pharma biz. He had previously worked at J&J, though.

The lengthy and embarrasing list of problems at J&J largely began when the health care giant attempted a ‘phantom recall’ of various over-the-counter items, such as Tylenol and Motrin, in order to circumvent detection by the FDA and consumers. The episode triggered an ongoing series of product withdrawals due to bottles with musty smells and foreign particles.

Since then, a wide array of products have been recalled – contact lenses, hip replacements, syringes and prescription drugs – indicating system problems with quality control in manufacturing operations across the diversified company. There were also shortages of Tampons and certain shampoos, adding to the gaping holes on store shelves that have been filled by rivals.

To cope, Weldon attempted an old-fashioned media response by holding select interviews and touting a reorganization of the McNeil Consumer Healthcare unit, although the executive who oversaw its operations at the time, Peter Luther, was shifted to a new role as president of US Consumer Healthcare, suggesting Weldon was unwilling to clean house.

At the same time, hundreds of employees at the McNeil plant in Fort Washington, Pennsylvania – where McNeil maintained its primary offices and numerous production gaffes occurred – lost their jobs because the plant was closed for a massive retooling operation that is not expected to be completed until later this year or some time next year.

Meanwhile, J&J suffered other recent embarrassments. The health care giant is embroiled in litigation over the safety of hip replacements sold by its DePuy unit and recent reports indicated marketing continued in Europe and other countries even after the FDA rejected the product for the US market. J&J recently took a $3 billion charge for recalling the hip replacements.

And last month, the health care giant marched into a court in Austin, Texas, to defend a lawsuit brought by state officials, who charged J&J had orchestrated a controversial program that was designed to boost the use of the Risperdal antipsychotic in the public sector throughout the country. But J&J quickly settled for $158 million after just one week of scathing and unflattering testimony (see here and here).

Just the same, investors have taken the long view and decided that J&J remains greater than the sum of its parts, especially since the health care giant has benefited from acquisitions, such as HIV meds sold by the Tibotec unit. Over the past year, in fact, J&J stock has increased 18 percent, despite the recall debacle.

Analysts, meanwhile, do not expect Gorsky to conduct an overhaul. “Hello to the new boss, same as the old boss. The old Number One hangs around as chairman of the board and his Number Two becomes Number One. Don’t expect much to change,” Erik Gordon, a professor at the Ross School of Business at the University of Michigan, who last year urged Weldon to resign.

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