Introduction
Johnson &
Johnson (J&J) is an American company, engaged in the research and
development, manufacture and sale of a broad range of health care products. It
is listed on the NYSE and its common stock is a part of the Dow Jones
Industrial Average.
The corporation
conducts business in 60 countries of the world focusing on the production of
the goods related to human health and well-being. With more than 250
subsidiary companies worldwide J&J Corporation employs approximately 118,000
people having the headquarters in New Jersey, United States.
Today the key
people in the life of the company are the chairman of the board, William
Weldon, and CEO, Alex Gorsky.
Founded in 1886
by the Johnson’s brothers, the company started with a production of
ready-to-use surgical dressings. In 1920s the list of the products expanded
when the company begun to manufacture skin and hair care. In 1941 a separate
division for surgical products was created, which later became known under the
title of Ethicon. In 1970s the corporation launched a line of products for
women’s health care needs and toiletries. Later the shelves of the stores all
around the world were loaded with baby care goods. And in recent years, J&J
has expanded into such areas as biopharmaceuticals, orthopedic devices, nutritionals
and internet publishing.
Difficulties Johnson
& Johnson is facing?
During a routine
inspection at production facility in USA on April 19, 2010 investigators found
a few "manufacturing deficiencies" that led to manufacturing mistakes
(New York Times, April 25, 2010).
It appeared that
some products contained "a higher concentration of active ingredients that
is specified", other contained "inactive ingredients that may not
meat internal testing requirements" (Food and drug administration FDA).
Following the line of examinations, it was decided by the board of Johnson &
Johnson to recall some of the products from the shelves in the 12 countries.
In April 2012
company officials revealed that efforts to fix the manufacturing products that
caused the recalls where taken longer than expected and some brands will not
return to the shelves until 2013. The recalls and lost market share have cost
the company $1,5bln. Also, to retool the Lordstown fabricating plant, J&J spent
about $100mln (Wall Street Journal).
In April 2011 the
company pleaded guilty in bribing European doctors and agreed to pay $70mln in
fines (Telegraph, April 2011). In April 2012 a judge in Arkanzas ordered
Johnson & Johnson to pay $1,2bln in fines for minimizing dangers associated
with Risperdal, and antipsychotic drug.
Business Aims of
Johnson & Johnson
According to
Johnson & Johnson official website "People are our greatest
assets". Attracting, developing and retaining a base of employees that
reflects the diversity of Johnson & Johnson customers is essential to the
company's success.
For a long time
the company controlled
the bigger part of health care market and produced a wide range of medical
goods.
The Company is identified
to have a tall organisational structure. It is organized into three core business
segments: Consumer, Pharmaceutical and Medical Devices and Diagnostics, each of
which has more departments in a command.
·
Consumer branch includes a broad range of products used in
the baby care, skin care, oral care, wound care and women’s health care fields,
as well as nutritional and over-the-counter pharmaceutical products and
wellness and prevention platforms. These products are marketed to the general
public and sold both to retail outlets and distributors throughout the world.
·
The Pharmaceutical segment includes products in the following
areas: anti-infective, antipsychotic, contraceptive, dermatology,
gastrointestinal, hematology, immunology, neurology, oncology, pain management
and virology. These products are distributed directly to retailers, wholesalers
and health care professionals for prescription use.
·
The Medical Devices and Diagnostics segment includes a broad
range of products distributed to wholesalers, hospitals and retailers used in
the professional fields by physicians, nurses, therapists, hospitals,
diagnostic laboratories and clinics. These products include Biosense Webster’s
electrophysiology products; Cordis’ circulatory disease management products;
DePuy’s orthopaedic joint reconstruction, spinal care, neurological and sports
medicine products; Ethicon’s surgical
care, aesthetics and women’s health products; Ethicon Endo-Surgery’s minimally
invasive surgical products and advanced sterilization products; LifeScan’s
blood glucose monitoring and insulin delivery products; Ortho-Clinical
Diagnostics’ professional diagnostic products and Vistakon’s disposable contact
lenses.
To hold a
sustainable competitive position Johnson and Johnson intends to maximize the
global power of diversity and inclusion to drive superior business. In order to
achieve the above, the company set out a list of the following steps:
·
Develop a skilled, high performing workforce that is
reflective of the diverse global marketplace
·
Forster inclusive cultures that embrace the company's differences and bring
innovation to accelerate growth;
·
Work with business leaders to identify and establish targeted
market opportunities for consumers across diverse demographic segments;
·
Cultivate external relationship with professional, patient
and civic groups to support business priorities.
However, after a line of scandals burst
in the last two years the aims of the company has changed radically. In April 2012, in one of the interviews of New
York Times Mr Gorsky, CEO of the Johnson and Johnson, stated that the company
"needs to rethink the ways it brings drugs to market, expand its reach
into global markets and rebuilt the consumer confidence by returning recalled
brands to pharmacies shelves".
New Corporate Governance
Structure and its advantages
Setting up a new
governance structure, Johnson &Johnson intends to change negative attitude
of consumers, investors and shareholders towards the company, by portraying
itself as willing to make extensive changes, while simultaneously reassuring
consumers that its existing products are safe. With the same stabilize and
consolidate its position on market.
Making changes to the
existing structure of corporate governance, Johnson & Johnson will prove
the public that the company conducted not only the external changes in a form
of improvement of manufacturing conditions, but also internal changes in the
form of management process and its regulations.
Johnson & Johnson
might consider such step as recruiting new specialists in the area of
production monitoring. Thus the company will ensure the public there is no more
need for a concern with regard to the fraud issues.
The new Corporate
Governance Structure will benefit the company in the following:
·
Bring corporate success and economic growth;
·
Return investors confidence as a result of which company can
raise capital efficiently and effectively;
·
Lower the capital costs;
·
Bring positive impact on the share price;
·
Minimize wastages, corruption, risks and mismanagement.
New Corporate
Governance:
At this stage the
corporate governance of Johnson & Johnson adopted the guiding principles:
·
Maintain a well-designed system of internal accounting
control;
·
Encourage strong and effective corporate governance from the
board of directors;
·
Continuously review the business results and strategic
choices;
·
Focus on financial stewardships.
Board
Composition and its responsibilities
1. The number of
Directors must not be less than twelve (including the Chief Executive Officer).
Normally at least one third of the Board should be Executive Directors employed,
full time by the Society in key senior management positions.
2. The Board should
include at least two third of Non-Executive Directors (including the Chairman),
where at least two of which must have the requisite personal skills for the
office of Chairman.
These skills should
include:
sufficient experience,
stature and reputation in financial services, commerce, industry, public sector
or professional life to command respect as Chairman of a major financial
institution;
- professional and/or
business management skills, preferably gained in a large commercial, industrial
or public sector organisation;
- experience of
relationships at Board level in one or more major companies or bodies;
- intellectual
strength, integrity and an ability to consider and discuss issues laterally and
strategically;
- awareness of
political, regulatory, market and consumerist issues together with an
understanding about mutuality;
- interpersonal skills
and an ability to make good judgements of people;
- a willingness and
availability to serve as Chairman and sufficient time to devote to those duties
for a minimum of 5 years;
3. A Director elected
by the Board to the office of Chairman should expect to serve between 3 and 6
years in such office.
4. In order to appoint
a new Chairman, the Nomination Committee should prepare a job specification,
including an assessment of the time commitment expected, recognising the need
for availability in the event of crises. A Chairman's other significant
commitments should be disclosed to the Board before appointment and included in
the annual report. Changes to such commitments should be reported to the Board
as they arise, and stated in the next annual report.
5. Non-Executive
Directors should be persons with similar skills (although not necessarily to
the same extent or level) as are required for the office of Chairman, combined
with relevant skills and knowledge with regard to the age and experience. These
must be appropriate to:
- direct the general
business activities of the Society (and its subsidiaries) and,
- be able to constitute
specialist Committees from amongst its own members (i.e. finance, distribution,
marketing, retailing, etc).
6. Non-Executive Directors
should serve more than 9 years, unless a serving Chairman seeks election as a
Director for a third time.
7. Individual Directors
must be free of any conflict of interest and are required to disclose their
business interests to the Board and Committees of the Board on regular basis.
8. Non-Executive
Directors should be prepared to review their effectiveness (e.g. with the
Chairman) and (if appropriate) to undertake any training and development that
would help to enhance their contribution to the quality of direction by the
Board.
9. The Chairman should address
the weaknesses of the Board and, where appropriate, propose new members to be
appointed to the Board. He also may seek the resignation of Directors (if such
act is in the interests of the company only).
10. There should be a sufficient
contact between the board members and Society members so to understand the
issues and concerns and keep in touch with member opinion. Such communication
should be in most practical and efficient ways (i.e. AGM, visits to the
factories and plants, etc).
11. The board of
direction should have 40% representatives of a female sex as a compulsory
condition.
12. At least one
representative originating from an overseas market should be included to the
list of board members (i.e. Asian, European, African, etc).
Executive
remuneration
According to European Corporate Governance
Institute: "the financial institution should adopt an overall remuneration
policy that is in line with its business strategy and risk tolerance,
objectives, values and long-term interests" (ecgi.org). In order to
attract skilled individuals, the control functions should be rewarded.
Based on the new Corporate Governance Structure,
Executive Remuneration policy should be as follows:
·
Excessive risk-taking
should not be encouraged;
·
The
aim of any policy should be thus so to align personal and company objectives,
including the overall business strategy, company values (compliance culture,
ethics, etc).
·
The
company should not approve actions where individuals take risks in excess of
the business's risk tolerance. It is in the interests of the company at all
times give due considerations to the longer term.
·
Control
functions (i.e. Internal Audit, Risk Control and Compliance) should be
adequately compensated in accordance with their own objectives;
·
The remuneration policy
should be transparent internally and adequately disclosed externally for a
public consideration;
·
All
executives should have an access to the remuneration policy. They should know the
criteria used to determine remuneration;
·
The appraisal process should be properly
documented and transparent to the executives involved;
·
The
company should be able clearly provide its remuneration policy to its authority
upon request (This may include, for example, a remuneration policy statement
which is subjected to regular review).
·
The
board of directors should approve the principles of the overall remuneration policy of the
company. The implementation of the remuneration policy should be subject to
central and independent review.
·
Remuneration should be
based on a combination of individual and collective performance (where defining
individual performance should involve identifying: skills acquired, personal
development, commitment to the business strategies, compliance with the
company's controls and systems and contribution to the performance of the team) ;
·
Bonuses
should be calculated based on a measure of performance which is adjusted for
risks and the cost of capital;
·
The
remuneration of non-executive directors should not be linked to the financial short
term results of the company. Other factors, such as the time invested and their
respective responsibilities should be considered;
·
The
relation between bonus and base pay should be of reasonable proportion;
·
Base
pay may be represented in a form of cash pay award;
·
Bonus
payments of significant size should be represented in the following form only:
company shares, options or other funds held in a trust or similar account;
·
Big
bonuses should not be awarded purely in up-front cash (Up-front bonus payment
will be considered as fraudulent activities)
Evaluation
of Board and Management
(i)
Board
Evaluation of the board
performance is beneficial as it determines and approves board practices and
procedures. There are two ways of doing so:
·
Self-evaluation (process carried out by the board of the
company itself
·
Involvement of an independent body that will perform
evaluation process (i.e. Institute of directors in Ireland - company,
providing a board performance evaluation
service)
Self evaluation should
be performed as follows:
- reports completion and interviews conduction
should be performed by an independent body (i.e. member of audit, non-executive
director from another institution, etc);
- All directors should
be briefed where general questions are addressed (opinions and view, with
regard to other members of the board);
- Questionnaires,
addressing the key areas of the business should be completed by each member of
the board. The key areas should include: strategy, business principles, risk
management and internal control, performance and measurement, stakeholder
management and board practice;
- Assessment and
evaluation of performance of every member of the board should be carried out.
This should involve review of contributions made throughout a whole year,
decisions made, risks taken and problem solving.
- Report on each member
of the board should be completed and filed into one final report;
- The whole board
should be involved in reviewing the final report in order to identify strengths
and weaknesses of the board;
- As a result of such
reviewing, the board should develop a plan on addressing the weaknesses of the
board members so to improve productivity of the board as a whole.
(ii) Management
Process of management
evaluation should be conducted by the members of board as follows:
- gather information on
every manager from other managers, customers and employees;
- collect documentation
with regard to performance, disciplinary actions and achievements of the
managers;
- question the
managers;
- request a
self-evaluation from all managers;
- compile a report on
each manager and file into one final report;
- review the report and
identify weaknesses and strengths of the management;
- develop a plan on how
to resolve the weaknesses and improve the management productivity.
Related articles:
JOHNSON & JOHNSON 1
JOHNSON & JOHNSON II.HR
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