What's Ailing J&J -- and Why Isn't Its Rep Hurting?

Recent Recalls Dovetail With Growing List of Probes, Management Departures and Soft Sales in Consumer Biz

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BATAVIA, Ohio (AdAge.com) -- It's in the midst of its fourth product recall in a year and is the subject of 19 active federal or state investigations or lawsuits regarding its sales, marketing pricing or billing practices -- more than three times the number of Pfizer.

Children's Tylenol, as well as a number of other over-the-counter products, have been recalled in the past nine moenths.
Children's Tylenol, as well as a number of other over-the-counter products, have been recalled in the past nine moenths.
Yet a shiny corporate halo clings to Johnson & Johnson, established with its legendary handling of the 1982 Tylenol poisonings that has kept the company atop "most-admired" lists ever since. J&J ranked No. 4 on Fortune's list of most-admired companies in March and, in a new survey by the Reputation Institute last month, was cited as the most-reputable company in the U.S.

How then, to reconcile a growing list of damaging news headlines with the legendary marketer that's sworn to live by the credo of founder Robert Wood Johnson to "put the caring and well-being of people we serve first"? Among recent events:

  • A third major recall of Tylenol -- including children's varieties -- and a host of other over-the-counter products over the last nine months.
  • A claim by the Food and Drug Administration that J&J delayed addressing reports of foul smells from other products for more than a year prior to its previous January recall.
  • Some 19 active federal or state investigations or lawsuits across many of its prescription and medical-device brands and businesses cited in J&J's most recent 10-K report. The companies deny wrongdoing in all the cases; the tally is triple that of similarly sized Pfizer.
  • A federal investigation into allegations that J&J improperly marketed drugs for uses not approved by the FDA along with allegations of kickbacks to nursing-home operators and the long-since-dispatched government of Sadaam Hussein in Iraq's Oil for Food program via the United Nations, among other things.
  • Decentralized structure
    The interplay of federal probes and recalls has become so common that they're merging together in a soup of unsavory news coverage for J&J. On CafePharma, an online community frequented mainly by pharmaceutical sales reps and where few have much good to say about their companies, J&J management regularly gets particularly scathing reviews. One of the most popular threads on the J&J message board is titled "The Credo Is Dead," referring to former chairman Mr. Johnson's formal commitment to customers, quality, employees and community.

    Observers credit its seemingly unsinkable reputation in part to J&J's decentralized structure in which its executives generally stay mum and below the radar, working for operating companies with little obvious connection to the corporate brand in the eyes of many consumers and casual observers. J&J's communications strategy also helps keep much of the company largely invisible to casual observers.

    "Deep down I do believe that J&J is keeping its stellar reputation partially due to the fact that it is siloed into many different operating units," said John Mack, editor and publisher of Pharma Marketing News and the Pharma Marketing Blog, in an e-mail. "It does seem to go out of its way to link the J&J brand to baby products and mom rather than Rx drugs, some of which have nasty side effects and even nastier marketing practices. That's why Marc Monseau [ director of corporate media relations and operator of the JNJBTW blog] always -- I mean always -- prefaces his public statements saying that J&J is not a pharmaceutical company, it's a health company. Imagine a bizarro Oz where the wizard behind the curtain is actually an evil wizard who appears to be doing good things. Of course, I'm not saying that J&J is evil; it's just another drug company."

    Mr. Monseau declined to comment on his own behalf, that of the company, or on Chairman-CEO Bill Weldon for this story. But in an open letter to consumers, Mr. Weldon said, "The recent recalls of some over-the-counter medicines from our McNeil Consumer Healthcare operating company are a matter of great concern. They are a disappointment to me, and to the employees of the Johnson & Johnson Family of Companies. You can be confident that we will make whatever changes are needed at McNeil to fully restore the quality of its manufacturing statement." It ends, "We will work hard to earn back your confidence."

    There seems to be unrest internally, too -- J&J broadly and its consumer business specifically have seen some key management departures over the past year. Five senior executives of J&J business units have left the company, four announced publicly since January and three of them from the consumer business. And some internal stars once seen as promising are none too happy either, according to people familiar with the company. One recruiter describes the atmosphere within J&J as "toxic."

    It's not clear any of the departed senior executives were caught up in last November's round of 7,000 job cuts, which followed a prior round of 4,400 job cuts for a company with employment now around 114,000. But people close to the company peg management departures from the consumer business largely on executives eager to get away from Colleen Goggins, worldwide chair of J&J's consumer and personal-care businesses. Mr. Monseau declined to comment on her behalf.

    Talent shortages
    As the company slashes jobs or sees executives depart, it appears to face talent shortages in some areas. Late last year, J&J hired Procter & Gamble executive Jeff Strong to become its global customer officer, the top sales executive in its global consumer business. The implication of bringing such a relatively junior P&G executive to such a senior J&J role, said one recruiter, is that J&J doesn't have much internal talent or capability to draw upon in sales or trade marketing.

    In another defection, Bridgette Heller left to lead Merck's consumer-products business earlier this year; the baby business has been run largely by regional execs since Ms. Heller left, said people familiar with the matter, leaving Ms. Goggins largely in charge of global coordination.

    Then J&J last week put up for review the global creative and digital advertising accounts for its baby business. Though the baby business' sales make up less than 4%, or around $2.1 billion of J&J's $62.5 billion in annual sales, it remains the core piece of the corporate brand. The incumbent is Lowe, and the review represents the second potential major loss of J&J business for the Interpublic Group of Cos.' agency since its merger with Deutsch, which lost the Tylenol and Motrin accounts to sibling Martin, Richmond, Va., last year.

    Still, the cumulative effect of all its public troubles could be wearing on J&J. Sales in baby care were up 1.2% in the last quarter, but its overall consumer business -- expected to act as stabilizer against declines in prescription sales due to patent expirations -- has surprisingly turned into a drag on J&J's recent sales. The company's saving grace has been a medical-device business with sales up more than 8% organically last quarter.

    In the U.S., sales overall were down 5% and OTC sales in the U.S. took a 25% hit last quarter due to the recalls. Even outside OTC, organic sales for J&J's consumer business was still flat, well below almost all its major global competitors.

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