Johnson & Johnson Shareholders Want Its Directors to Pay Up

Johnson & Johnson Tylenol
Johnson & Johnson Tylenol

A group of Johnson & Johnson (JNJ) shareholders has filed a complaint against the company, Bloomberg reported. They accuse directors of ignoring warnings signs pertaining to J&J's massive product recalls and government probes of manufacturing defects and marketing practices. Shareholders want the directors to pay damages to the company.

In an amended derivative lawsuit filed Dec. 17 in federal court in Trenton, N.J., shareholders asked a judge to find that directors and top executives mismanaged J&J. They also want J&J to "improve its corporate governance and internal procedures."

"Years of Red Flag Warnings"

While J&J once set "the gold standard for integrity and excellence," the directors' "utter disregard for their fiduciary duties, including permitting and fostering a culture of systemic, calculated and widespread legal violations has destroyed J&J's hard-earned reputation," Bloomberg quotes the shareholders' claim.

The board received "years of red flag warnings of systemic misconduct," according to the complaint, including regulatory investigations, subpoenas, U.S. Food and Drug Administration warning letters, news articles and, of course, the recalls itself.

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The world's biggest maker of health care products recalled more than 135 million bottles of over 40 different over-the-counter medicines in late April because of manufacturing deficiencies at its plant in Fort Washington, Pa., and suspended its operations since then. The FDA investigated and sent the company warning letters and lacking-inspection reports.

J&J issuedmanyotherrecalls after the April actions, prompting two Senate investigations. The Oversight Committee hearings revealed cover-ups and phantom recalls. Not only did the recalls tarnish J&J's reputation but they also hurt its financial results: Sales in its consumer health care unit declined a whopping 25% in the last quarter.

J&J also faces government investigations into kickback payments and off-label marketing -- the practice of marketing pharmaceuticals for unapproved uses by the FDA. Bloomberg says the company had no comment while it reviews the complaint.

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