The CSR Newsletters are a freely-available resource generated as a dynamic complement to the textbook, Strategic Corporate Social Responsibility: Sustainable Value Creation.

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Monday, September 5, 2011

Strategic CSR - J&J

The article in the url below presents a pretty damning picture of recent activity at J&J. For example:

On Aug. 26 last year, DePuy [a unit of Johnson & Johnson] announced a voluntary recall for two types of ASR hips, … but only after 93,000 had been implanted in patients worldwide, including 37,000 in the U.S. … Accusations of selling bum hips are bad enough; the lawsuits allege worse: that DePuy continued to push the hips even after it received preliminary numbers as early as 2007 indicating rising failure rates for both ASR models.

The article is based on a separate list of all the products J&J has had to recall over the past 3 years (http://www.businessweek.com/magazine/content/11_15/b4223066662101.htm). The accusation is that the firm is no longer making best practice decisions based on its stakeholder-focused Credo (http://www.jnj.com/connect/about-jnj/jnj-credo/), but is making business decisions based on projected profit and loss and in the absence of moral/ethical factors:

With $28 billion in holdings of cash and short-term securities at the end of 2010, J&J will surely weather the financial blowback from the bad hips. More troubling to customers and stakeholders, however, is that the DePuy recalls may be symptoms of a systemic quality-control problem at the 125-year-old corporation.

It is hard to put the numbers in this article in perspective without fully knowing the scale of J&J’s operations and how many products it produces and expected industry recall rates, but, at first glance, the numbers seem shocking:

The DePuy crisis is one of more than 50 voluntary product recalls that J&J has issued just since the start of 2010, covering brand names that read like an inventory of the family medicine cabinet. … In the year ended Mar. 8, 2011, J&J was involved in at least 11 major recalls, as defined by the FDA, almost twice as many as Pfizer, the world's largest health-care-products company by revenue, or Procter & Gamble, the world's largest consumer-products company. "I'm not familiar with another company that has had this many debacles in a very short period of time," says Ira Loss, an analyst at investment research firm Washington Analysis who has followed the FDA for more than three decades.

It gets worse:

Moreover, J&J's woes aren't confined to the last couple of years. During the last decade, the company has been repeatedly confronted with claims that it sold a product that was defective, or that carried risks J&J downplayed in its marketing. It has been accused of paying kickbacks and using other financial incentives to promote off-label use of drugs and devices. It has been cited by federal authorities for trying to avoid the publicity of a recall by quietly buying up tainted products. And it frustrated FDA regulators who were urging the company to strengthen quality control at the factories that produced many of the recalled over-the-counter products. J&J has steadfastly denied these claims, but its own annual report for 2010 contains eight pages detailing government criminal and civil investigations and thousands of private lawsuits covering a wide range of drugs, devices, and business practices.

The article makes a compelling case that J&J has been skirting, or just plain ignoring, best practice in its approach to researching and testing large numbers of its products. The implicit argument is that it is cost-cutting that has driven the change in business practices at the firm. What is ironic, of course, is that J&J’s 1982 Tylenol recall generated probably the most-cited CSR/ethics/crisis management case-study of how to respond to a defective product (Chapter 2: A Stakeholder Perspective, p43). The Credo and the way it shapes (or was thought to shape) behavior within J&J is presented as best-practice in prioritizing among competing stakeholder needs in a way that maximizes both economic and social value. Tellingly:

At Harvard Business School, however, faculty "became uncomfortable" teaching the popular Tylenol-poisoning case study amid all the J&J recalls, [HBS faculty Sandra] Sucher says. Last month it added another study to the curriculum: "On Weldon's Watch: Recalls at Johnson & Johnson From 2009 to 2010."

Take care
David