|Top Story of 2010: J&J Melts Down|
|Written by Donald Riker, PhD|
|Tuesday, 11 January 2011 11:16|
J&J's self-defeating, self-initiated meltdown was the top OTC story of 2010 by any account. The unraveling of corporate and brand equity took place at an astonishing pace. OTC Product News appreciated the unusual nature of story early on and was always one step ahead of the news cycle. 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 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.
Storebrands 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.
Prior stories on J&J in 2010:
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- Bausch Buy Will Speed Drug Firm's Reshuffling, Wall Street Journal
- What's on Lafley's List This Time Around at P&G, Ad Age
- Those J&J Recalls Keep On Coming: Tylenol Bottles Yanked From Brazil, Pharmalot
- P&G Alumni Meet in Geneva, OTC Product News
- Bob McDonald Steps Down As P&G CEO, Ad Age
- J&J Faces Criminal Charges In South Korea Over Tylenol Production, Pharmalot