The issue really made the big time in 2010 when the New York Times published a front page article in its Sunday Business section about whether university presidents who also were corporate directors were part of an "academic-industrial complex."
University of Michigan President Mary Sue Coleman as a Director of Johnson and Johnson
One such director we discussed this year is Mary Sue Coleman, President of the University of Michigan, and hence leader of a prestigious medical school and academic medical center, who is also Director of the large health care conglomerate, Johnson and Johnson. This relationship became locally controversial when President Coleman supported a smoking ban on campus, and critics pointed out that Johnson and Johnson is a prominent maker of smoking cessation products.
Now President Coleman's role on the Johnson and Johnson board made it into the national media, as the topic of an editorial in the Detroit News:
Should public officials moonlight as corporate operatives? This is a question being raised at the University of Michigan in the wake of the administration's decision to ban smoking on campus.(Not to toot my own horn, but I thank the editorial writer for quoting me as a "high-profile" ethicist.)
While some students have criticized the ban, many take issue with the priorities of the administrators who backed it: Specifically, U-M President Mary Sue Coleman, whose decision-making may have been influenced by her membership on the board of Johnson & Johnson, a private company. The right thing for Coleman to do would be to resign from her corporate position, or, at the very least, refuse to accept payment.
The issue in this editorial, and in the earlier discussion of President Coleman's responsibilities for Johnson and Johnson, was whether the latter could influence specific decisions made in the former role.
However, events since our original posts on this case should create a new set of concerns.
Johnson and Johnson's Recall of Over-the-Counter Childrens' Medications
Johnson and Johnson has been dealing with a series of crises generated by revelations of problems in how it manufactures many of its marquee drugs and devices.
We posted here about problems in the manufacture of well known over-the-counter childrens' medications, such as childrens' Tylenol (acetaminophen) and Motrin (ibuprofen), by Johnson and Johnson's McNeil Consumer Healthcare subsidiary. Medications were found to be contaminated, and the plant making them was shut down.
Stringent Cost Cutting, Merger Mania, and Executives Who Don't Understand their Company's Business
Since then, investigative reporting by Fortune suggested that quality control problems were the result of that tactic popular among corporate executives to boost profits and hence their own over-stuffed pay checks, stringent cost cutting:
McNeil's quality-control department thrived for a few years. Then, not long after Larsen retired in 2002, it began to slowly weaken. The culprit was a familiar one -- cost cutting -- but in a subtler form. There were no wholesale layoffs in quality control. Instead experienced staffers were repeatedly laid off and replaced with newbies who mostly lacked technical pharmaceutical experience. By 2008 the analytical laboratory, formerly staffed almost entirely by full-time scientists, was half-full of contract workers, according to a former manager there.
Once stricter than a schoolmarm, the department grew lax. The team that tested the production lines was dubbed the 'EZ Pass system,' according to a former quality-control employee.
Quality problems also appeared to be products of another familiar tactic that "brilliant" CEOs use to quickly boost the bottom line, mergers and acquisitions:
At the end of 2006, J&J, on the hunt for growth amid slowing sales and profits, completed the $16.6 billion acquisition of Pfizer's (PFE, Fortune 500) consumer health care division....
The merger dramatically altered McNeil's position. It had previously been part of the pharma unit, but after the deal it was folded, along with the Pfizer group, into J&J's consumer sector, headed by Colleen Goggins. According to former executives, the difference between divisions was both cultural and financial. 'The people who ran pharma understood the requirements associated with [regulatory] compliance and the investments required to keep that up,' says a former executive. Consumer relied more on marketing, or 'smoke and mirrors,' as an ex-McNeil director scoffs. Perhaps the most striking difference was in profit margins. Companies in the consumer group typically had margins around 10%; McNeil generated more than twice that.
So,
Their new consumer bosses were now in charge of reducing McNeil's spending so that the company could meet the merger targets. Goggins looked to squeeze every cost, former employees say, and her team leaned heavily on McNeil, with its juicy margins, to absorb the cutbacks. 'I was given savings goals that were mind-boggling, unheard-of,' says one former executive.
And the merger brought out another common feature of contemporary management, executives with plenty of power, but almost no knowledge about or experience in the sort of work done by their subordinates:
Because the consumer executives lacked pharmaceutical experience, former McNeil employees say, they demanded ill-advised operational reductions. One VP remembers arguing with one of Goggins's
A Growing List of Recalls and Mistakes
While we learned about how Johnson and Johnson executives pursued all the currently fashionable management techniques to make more money, but likely to the detriment of the quality and safety of their products, we also learned that the problems at the company were not limited to a single factory, the specific products listed above, or a single unit of the company.
The company also recalled some contact lenses made by Johnson and Johnson Vision Care, as reported by the Associated Press,
Health giant Johnson & Johnson has issued its ninth recall of a consumer health product in a year, this time covering millions of 1 Day Acuvue contact lenses sold in Japan and two dozen other countries in Asia and Europe.
The affected contact lenses were mostly sold in Japan and none were sold in the U.S. or Canada, the company said.
Johnson & Johnson said Monday it had received a limited number of complaints from customers in Japan that they experienced an unusual stinging or pain when inserting the Acuvue TruEye Brand contact lenses.
Then it recalled prosthetic hips made by its DePuy orthopedic unit, as reported by Medscape,
An orthopaedic unit of Johnson & Johnson (J&J) is voluntarily withdrawing 2 implant systems for hip replacement after learning that roughly 1 of 8 patients in England and Wales who received the implants needed a second hip replacement operation.
The 2 devices under recall are the ASR XL Acetabular System, a metal cup fitted into the pelvis and the corresponding metal ball that replaces the femoral head, and the ASR Hip Resurfacing System, which is similar except that a metal cap is fastened to the femoral head. Both devices are manufactured by DePuy Orthopaedics of J&J.
Then the US Food and Drug Administration (FDA) warned Johson and Johnson's DePuy unit about its marketing of some different joint replacement products, as reported by the Wall Street Journal,
A Johnson & Johnson (JNJ) unit is marketing joint-replacement products without the required approval from federal regulators, the U.S. Food and Drug Administration said in a warning letter recently made public.
In the letter, the FDA said J&J unit DePuy Orthopaedics Inc. is illegally marketing its TruMatch Personalized Solutions system because it hasn't received appropriate clearance to sell the product. Additionally, the FDA found that DePuy is promoting another system--its Corail Hip System--for uses that haven't yet been approved.
'A review of our records reveals that you have not obtained marketing approval or clearance before you began offering the TruMatch Personalized Solutions System for sale, which is a violation of the law,' the FDA said in the letter.
The FDA added that the Corail Hip System has been misbranded and asked DePuy to immediately stop marketing the Corail system for unapproved uses.
And a few days ago, the now embattled head of the Johnson and Johnson consumer products unit, which was central to some of the earlier recalls, but not to some of the later problems, announced her resignation, as reported by Natasha Singer and Reed Abelson writing for the New York Times,
A longtime senior executive at Johnson & Johnson in charge of the consumer products division is leaving the company early next year, signaling a shake-up after a troubling series of recalls, including of children’s Tylenol, tarnished the company’s reputation in the last year.
The company said Thursday that the executive, Colleen A. Goggins, who testified this spring before a Congressional committee investigating the recalls, would retire in March. Ms. Goggins, 56, has worked at Johnson & Johnson since 1981 and was a member of the company’s senior leadership.
Who Will Be Accountable for a Company in Disarray?
Johnson and Johnson was one of the most trusted names in health care for a long time, perhaps partially because of its forthright response to the apparently external contamination of its Tylenol products in the 1980s. Now it appears to be a company in disarray, battered by numerous recalls of apparently contaminated, adulterated, or defective products, both drugs and devices, allegations that its conventional management wisdom lead to these quality and safety problems, and now with at least one key senior manager leaving.
All that went wrong is not exactly clear yet. Clearly, however, top managers, and the board of directors to whom they report ought to be accountable.
Here is where we return to the case of University of Michigan President Mary Sue Coleman. She is, after all, well-paid to be a director of Johnson and Johnson. Therefore, she ought to be accountable for the type of people hired as top managers, and the general direction of their management. She ought to be accountable for letting Johnson and Johnson CEO William Weldon and consumer products head Colleen Goggins continue in office, and receive outsized compensation, ($19,847,026 and $5,345,737 total compensation respectively last year, see here). She also ought to be accountable for the general thrust of their management, including excess cost-cutting, seeking mergers without clear plans for assimilating them, and putting people who did not understand pharmaceuticals in charge of pharmaceutical production.
The original controversy about President Coleman's role on the Johnson and Johnson board focused on whether her decision to promote a smoke free campus resulted from her conflict of interest. Then, one defense mounted by President Coleman's spokesperson was:
'It's essential that U-M have a voice and interact with the business world,' said Rick Fitzgerald, a U-M spokesman. 'She thinks it's her duty to understand what the commercial world is doing.'
Now President Coleman has had a chance to have a voice and interact with Johnson and Johnson, and understand what it is doing by assuming a position that gives her ultimate responsibility for the company's top leadership and the direction they took. Now it appears the leadership may have been faulty, and their direction ill-advised.
Will President Coleman take responsibility for that? Maybe some enterprising student journalists at the university should ask her.
Meanwhile, this case now illustrates another important facet of the problems created when leaders of academic medicine serve on boards of directors of health care corporations. The mission of the University of Michigan's medical school and academic medical center includes taking the best possible care of individual patients. Taking the best possible care of individual patients cannot be done when the drugs physicians recommend or prescribe in good faith turn out to be adulterated, or when the devices they employ in good faith turn out to be faulty.
President Coleman's primary interests and entrusted responsibilities include upholding the best possible care for individual patients. Presiding over a company whose sloppy and ill-informed leadership, and misplaced priorities lead to the production of adulterated medicines and defective devices seems to conflict with this primary interest and entrusted responsibility.
Maybe all those academic leaders who accepted apparently cushy jobs on corporate boards will reconsider their decisions when they start being held responsible for their companies' poor leadership and poor decisions leading to poor health care outcomes of the use of their companies' products. They may really start to reconsider when journalists learn that academic leaders are more accessible than the current and ex-CEOs who also populate corporate boards.
Meanwhile, academic medicine ought to really rethink whether continuing to defend the "new species of conflicts of interest" will soon become counter-productive.
