Johnson & Johnson has reached a tentative settlement with its shareholders who filed a lawsuit against the company’s management for allowing serious problems to persist for years with little attempt to fix them.
The settlement calls for sweeping changes at the pharmaceutical giant aimed at protecting both investors and patients using Johnson & Johnson products. These changes include appointing a committee of independent board members who will get reports about legal and quality problems directly from key executives so that the problems can be addressed quickly and efficiently.
The plaintiffs claim Johnson & Johnson’s decentralized management gave top executives and board members “plausible deniability” as problems became worse. These problems included paying kickbacks to doctors and pharmacists to boost product sales, marketing drugs for uses that were not approved by the Food and Drug Administration, and allowing manufacturing deficiencies that were so severe they resulted in numerous recalls.
Johnson & Johnson denies any wrongdoing but said it was entering into the settlement to “undertake the changes in corporate governance to benefit J&J and its shareholders, and to eliminate the burden, distraction, and expense of further litigation.”
Named in the lawsuit are Johnson & Johnson CEO Alex Gorsky and his predecessor Bill Weldon. Ten other people who were members of the board in 2010 when the lawsuit was filed are also named.
The proposed settlement requires the full board to adopt new quality and compliance goals, and requires all of Johnson & Johnson’s 120,000 employees worldwide, up to senior management, be evaluated and have their compensations decided according to how well they follow the new guidelines.
The plaintiffs also seek compensation of up to $10 million for attorney’s fees, plus $450,000 for expenses.