How J&J Allowed Its Tylenol Factory to Rage "Out of Control"

Why would Rep. Darrell Issa, R-Calif., write that McNeil Consumer Health, the Johnson & Johnson (JNJ) unit responsible for the Tylenol recall, is "out of control"? One theory is that J&J is literally not in control of its operating companies because the company's global quality and compliance department had its wings clipped in 2006, leaving corporate headquarters with less oversight and information about what was going on at McNeil.

The trend in management over the last few years has been to give lower-level executives more control over their fiefdoms in the belief that they will "own" their businesses and behave like entrepreneurs. The J&J experience, however, demonstrates the flipside of that system: It can concentrate power in the hands of managers who may wander off the reservation.

In his letter, Issa urges the Congressional committee to postpone the date on which it calls J&J CEO William Weldon to testify because Weldon is facing back surgery and can't make it. (J&J has offered to send worldwide consumer group chairman Colleen Goggins in Weldon's place.)

Issa wrote that Weldon's attendance "is of the utmost importance" because problems at McNeil are "far more serious than previously known" and "out of control":

(Click to enlarge.) According to a source familiar with J&J's Quality & Compliance Worldwide department and the operating companies (or "opcos") it oversees, J&J has had less hands-on oversight of McNeil since a management revolt in late 2005 and early 2006 successfully persuaded Weldon to cut the compliance staff by half and change their mission from an oversight/risk-reduction function to a more consultative role.

Until that time, J&J compliance staff was headed by Brenda Davis (pictured). Davis was responsible for making sure that all operating company presidents received a six-monthly "Management Action Plan" review. Each opco president had to meet with his or her compliance supervisor twice a year and go over their progress as charted on the MAP, which was essentially a running to-do list of things that needed fixing at each unit.

Unsurprisingly, the source says, Davis was not popular among J&J's company managers. The MAP process, while reducing risk, was a giant pain the backside for anyone trying to run a J&J drug company. Things came to a head at a meeting of J&J's top executives in Florida. The opco presidents in attendance made it clear to Weldon that they were not able to keep up with Davis's MAP system and maintain profitability and hit their numbers all at the same time. Something had to give. It was, the source says, "a revolt, in essence."

Five things happened after the meeting, the source says:

Management consultancy McKinsey & Co. was brought in.
The MAP system was abolished.
The compliance department had its staff of about 30 people cut roughly by half.
Davis retired from J&J in 2007. (She did not return messages requesting comment.)

What remained was a decentralized management system in which opco presidents were given the authority to self-run and self-govern their companies. Problems began to emerge at McNeil in 2008 and weren't addressed systemwide until this year.

Weldon, meanwhile, has not yet explained to the public what happened inside McNeil that caused the recalls, an event that may cost the company $300 million in sales. Could it be that because the CEO was as surprised as the rest of us by the news?

McNeil did not immediately respond to a request for comment said it would not comment on rumors or speculation.

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