J&J CEO Weldon Should Go... Now: Gordon Explains

The embarassing mess that has become Johnson & Johnson has taken a severe toll on a once-storied corporate name as hundreds of millions of products have been recalled - from Tylenol, Rolaids and Benadryl tocontact lenses and hip replacement devices. There was even a shortage of Tampons for awhile. The manufacturing flubs and corporate missteps have yielded government probes, a shuttered factory, layoffs, bonus cuts for some employees and, significantly, a tattered reputation ( see this) for the way the healthcare giant has responded (back story here and here). We spoke with Erik Gordon, a professor at the Ross School of Business at the University of Michigan, who believes the situation is so far gone that J&J ceo Bill Weldon should be shown the door right away...

Pharmalot: J&J comes off as ‘The Gang That Couldn’t Shoot Straight,’ but of course, it’s not a joke. Gordon: No, it’s not, and I think it’s a disaster for what was a premier corporate brand name. I think what should happen is that Bill Weldon should retire and somebody from the outside should be brought in as ceo who is not part of J&J management, not from the Bill Weldon J&J culture, and can try to bring J&J back to its traditions and credo. You’ve got to start at the top. This is not one mistake by one low-level person. And the response to the mistakes, including by Weldon, paints a pretty clear picture that the J&J most of us have known and loved is not Weldon’s J&J.

Pharmalot: When do you believe that move should occur? Gordon: I would announce his retirement Monday morning. It might not take place for a few months until a replacement can be found. But what seems to be going on there is wrong. He’s a career guy and the board is, essentially, condoning what is going on by allowing him to remain in place. Their approach seems to be to let him leave with dignity, but that sends the wrong signal to the outside world and inside J&J. It’s a signal that what he’s done is okay. But this is not acceptable conduct at J&J, as opposed to the kind of conduct that gets you a big bonus.

From what I see, Weldon has not wanted it to be easy for there to be a successor. He’s resisted the internal process. The one move they made - the tippy-toed thing to appoint two other people into the office of ceo – he did not appear in favor of that.

Pharmalot: What about the board, though? Are the directors not culpable somehow? Gordon: Yes, I think the board has shirked its responsibility. I don’t think it’s displayed exemplary conduct and set an example of how a board should act. For all the talk over the past decade of how boards should act, you’ve got too many old, retired guys on the board who are happy to have the directorship and pick up their money and not rock the boat. It turns out the president of my university is on the board. I don’t know they should all resign. It’s possible some have been pushing for change. But obviously, a majority are not pushing or it would have happened. I think a majority of the board should be changed. Look at Hewlett-Packard. There was just a big shake - four board members left at once – because they thought the old board was dysfunctional. So I think you need to see something like that at J&J – a new ceo and pretty substantial turnover on the board.

Pharmalot: Meanwhile, J&J employees have lost jobs and will see bonuses cut… Gordon: Yes, the rank and file gets hurt. I read that a (J&J) spokeperson commented about the bonus cuts that you can be sure when board considers bonuses for the big shots, (the problems) will be taken into account. That’s typical of leadership. And there hasn’t been any. Look at Weldon’s testimony in front of Congress last year. It was laughable. A leader would get up and say we’re sorry for what we did and we’ve formed a task force and they have carte blanche to take every step necessary to correct this. But what he did was say this episode was not a model of how I’d like to see J&J companies approach problems with defective products when they arrive. This was carefully put together by a group from a pr firm. It was filled with very skilled in rhetorical devices. He called it an episode, but it was a course of conduct that persisted over a great period of time. That’s not a model of leadership. He distanced himself from the problem instead of taking any responsibility.

This is a weasel disguised as a ceo. If I were on the board, I would’ve called a meeting of the board after that testimony and said I want this guy fired for this testmony alone. He disqualified himself. I wouldn’t have this guy lead a rowboat across the Potomac, much less what was one of America’s great companies. That night, I would have been on the phone with other board members. All he hid behind some pr fluffery.

Pharmalot: One backdrop are the increasing calls for individual execs to be held accountable for misdeeds when laws are broken. To what extent might this apply here? Gordon: With Sarbanes –Oxley, the ceo and cfo are going to certify certain things are correct and they can be held personally accountable for misconduct with respect to certain financial transactions to which they have certified. The only thing that scares these guys is doing the perp walk, which is why you see it on TV. I think the FDA should be given the power, with certain kinds of misrepresentations, to go after people who do it and who authorized it. If financial misrepresentations that involves money is harmful enough that we hold execs personally responsible, why isn’t the safety and health of consumers important enough to hold execs personally responsible?

I need think you two different kinds of law reform with respect to pharma companies. One is personal responsibility for knowing misrepresentations. The other is protection of pharma companies against damages for totally innocent things. For example, a drug went through a lengthy approval process, but data was not withheld and there was no hanky panky, but it turns out there are side effects. I think drug companies should be protected against that. For what should people be held responsible? I think we have it wrong. They shouldn’t be held responsible for innocent mistakes.

Pharmalot: Reputation is hard to measure, and consumers view this differently than investors, who this see differently than doctors, too. So how long might it take for J&J to restore its reputation? Gordon: The company isn’t going to go down, but one of the things that always made J&J attractive is the stability that the huge consumer business has given them. So when something in the pipeline fails, the consumer business is seen as steady and not as risky. But if that business now changes. Well, consider that they’ve lost shelf space at Walgreen and CVS, and it’s a given it’ll be expensive to get it back, because those retailers would rather sell their own brands. Consumers have always unthinkingly brought the J&J brands because they trust them and will pay a buck more. Now, those consumers have bought the house brand and found it works just fine. Will they go in the next time and pay a buck more and switch back (to J&J) when the other stuff works fine? Who believes J&J when they say they have much higher quality as a justification for switching back? The investor story about the stability of the consumer products division given you year in and year out is now a different story. It’s a smaller division and more expensive – they’ll have to put on some big promotions to get consumers to come back to their brands.