A group of J&J shareholders, including the NECA-IBEW Welfare Trust Fund and the Hawaii Laborers Pension Fund, sued the board in 2010, arguing that directors had ignored red flags. A U.S. District judge dismissed the complaint, but noted in her opinion that the shareholders' allegations against the board were "troubling and pervasive."
In J&J's 2011 proxy statement, the board praised J&J's CEO, William Weldon, for his handling of the recalls. The statement said Weldon "generally met expectations" in 2010, adding, "Mr. Weldon's leadership and engagement with employees, legislators, regulators, investors and the news media enabled the company to deal with the issues."
During a significant portion of 2010, though, Weldon avoided the press. When he first addressed the recalls, he said that they were isolated to the company's McNeil unit; not long after that, J&J issued recalls of hip implants made by its DePuy division. In April 2010, a J&J spokesperson said Weldon didn't think that cost cutting played a role in McNeil's problems. The following July, J&J released a report that conceded that the company's push to cut costs through layoffs had contributed to its quality woes.
The report also said that J&J's officers and directors had not breached their fiduciary duties, and pledged to create a new regulatory compliance committee. In an email, a J&J spokesperson wrote, "The Company's management takes the shareholder concerns and criticisms very seriously."
Excessive pay
Weldon's compensation is a sore spot for J&J investors, and may be the primary source of their growing dissatisfaction with the board. The directors on the compensation committee last year -- which, in addition to Prince and Johns, included former Xerox (XRX) CEO Anne Mulcahy and former Wm. Wrigley Jr. CEO William Perez -- were particularly unpopular with voters. Prince, who famously walked away from Citigroup with about $100 million, is the compensation committee's chairman.
ISS told its clients to vote against the company's pay policy, citing a "lack of negative discretion on CEO's pay magnitude despite ongoing reputational challenges." Weldon took home $23.4 million last year, according to research firm Equilar, making him the 13th highest paid leader of a large company (he received a 3% bump in his base salary). J&J recently disclosed that Weldon is set to receive more than $140 million worth of benefits and deferred compensation when he retires.
In 2011 -- the first year that the Dodd-Frank Act mandated "Say-on-Pay" votes -- 39% of J&J's shareholders voted against its compensation plan. The company responded by changing its program, focusing more on performance-based pay. But representatives from the American Federation of State, County and Municipal Employees (AFSCME) say Weldon's pay package was still excessive. "To the executives at J&J who deal with executive compensation, the changes they made were monumental. For shareholders, they just weren't enough," says Lisa Lindsley, the union's director of capital strategies.
