A Phantom Returns to Haunt J&J: Secret Motrin Pullback Is a Lesson in What Not to Do

Johnson & Johnson (JNJ)'s secret plan to send contractors to drugstores to buy up Motrin en masse in a "phantom recall" is a classic of example of how lying is bad business strategy. J&J's McNeil Consumer Healthcare unit will now face further inquiries from the FDA and, possibly, from shareholder lawsuits wanting to know why the company surreptitiously removed Motrin from retail outlets in November 2008 but didn't actually recall the drug until July 2009.

Read J&J's phantom recall document here.

It's worth repeating: If your business plan relies on subterfuge or lying by omission, then it isn't a business plan -- it's a scandal waiting to happen.

Rep. Edolphus Towns, D-N.Y., the chairman of the congressional oversight committee at which the news emerged, christened the Motrin maneuver a "phantom recall." Colleen Goggins, J&J's worldwide consumer group chairman, told the committee that she didn't know contractors were pulling Motrin off store shelves or that they were instructed not to mention the word "recall" to store owners:

I can't tell you right now what they were instructed to do or not, sir.

Naturally, the FDA thought the whole thing was "strange":

"We had been informed that they were going to look if any was out there on the shelves," said Joshua Sharfstein, the FDA's principal deputy commissioner, in an interview during a break in the hearing. "We didn't realize they were going around buying it up and telling people to act natural. It just was strange, so we thought, 'if you're going to do that, you might as well do a recall.'"

Other points to emerge include:

The FDA considering is considering criminal charges against J&J. "Well, it has been referred to the FDA's crime division," said Deborah Autor, a director at the FDA's compliance office.
The number of employees at the Fort Washington, Pa., Tylenol factory was sharply reduced in the runup to it being shut down.

Until today, things were starting to swing J&J's way. The FDA began by admitting that it had not linked any of the 775 consumer complaints to flaws in the company's products. The feds also said the health risk to consumers was "remote."

Then Goggins showed up, in place of CEO William Weldon. Goggins is emerging as the person J&J should not have sent to defend the company at the hearing. In addition to admitting she didn't know about the phantom Motrin recall, she also said that even though a number of executives at McNeil Consumer Healthcare had lost their jobs, she didn't know how many -- because she wasn't in the room when the decisions were made. She did say that a number of people were dismissed and they were replaced by J&J insiders.

Key executive to watch: McNeil CEO Peter Luther has not been heard from since the scandal broke. He only got the top job at McNeil in February 2009 -- right before the recalls started. Will he stay or did he go?

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