Top Story of 2010: Johnson & Johnson Melts Down
Johnson & Johnson’s (JNJ) self-defeating, self-initiated meltdown was a major OTC story of 2010 by any account. The unraveling of corporate and brand equity took place at an astonishing pace. We appreciated the unusual nature of these events early on. This sorry record gives a black eye to our industry and compromises the trust consumers have in OTC medicines. J&J appears to have bilked our trust while thumbing its nose at consumers, regulators, and common decency. What are the central reasons for the melt down, and what are its lessons?
First, in reviewing the many stories on J&J’s quality failures in 2009-2010 a pattern emerges. The evidence overwhelmingly points to systemic failures in multiple dimensions, to wit across: time, brands, categories, dose forms, plants, and at all levels of good manufacturing practice. FDA inspections produced damning observations spanning the full range of auditing practice. Many of J&J’s public reponses to the crisis in real time were cagey, guarded or defensive. Despite FDA “oversight” the failures continued like a roman candle. J&J fired its consumer division head and installed a QA czar in what looked like a lateral move. Then to insure product supply after catastrophic plant shutdowns J&J turned to third-party contract manufactures, yet quality assurance failed once again leading to further multiple recalls.
All this is bad enough. Nonetheless investors filed a lawsuit (pdf) in December against J&J in the wake of these failures alleging breach of fiduciary duty on the part of the management team and the board of directors. The complaint provides an eye-opening chronology of legal woes surrounding marketing and sales practices of prescription drugs and medical devices in addition to the OTC quality failures.
This chronology suggests a failure of corporate culture that must always emanate from senior leadership. Often these failures are symptoms of management intolerance, or worse silence, regarding good practices that might threaten profit, cost savings, ship dates and earnings. Quality assurance is often a corporate orphan and a “Doctor No”. In such a setting power often lies with marketing supported by the finance function. The consumer is only as good as her last purchase.
Another conclusion drawn from this outbreak of failure is that in big multi-national pharma companies the consumer healthcare division is often the “poor relation”. OTC products are at best seen as a cash cow, and more recently as a means to offset the portfolio volitility of higher risk drug discovery. OTC M&A activity within and between multi-nationals also suggests a strategic ambivalence as consumer divisions, or independants, are traded back and forth. It was deemed inconceivable and axiomatic that a shortfall in the consumer division could never cripple the corporation.
So what to do? Government regulation may seem like a solution but it is often inefficient and the FDA is stretched thin. The solution lies in increasing the commitment to internal corporate auditing. Companies can use third-party contractors to do frequent auditing, or face government mandates. Second, the quality function must report into the highest level of the corporation and the door must always be open to negative news. Corporations need to live by their pro bono mission statements. Lastly, criminalizing the worst offenses may set limits on corporate behavior.
Store brands may be the winners in all this as the consumer seeks better price/value in non-branded products. Perhaps Adam Smith’s invisible hand will correct the problem after all.
About the author: On Point Advisor
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Donald Kay Riker, Ph.D. is President & Founder, On Point Advisors, LLC [www.onpointadvisors.com], a consumer healthcare consultancy he founded in 2007 and Editor-in-Chief, OTC Product News [www.otcproductnews.com]. Dr. Riker was a fellow at New York’s prestigious Rockefeller University,… More
* Company: OTC Product News
