Wednesday, February 14, 2007

Johnson & Johnson says improper payments were made

  • Note: If you skip to the last line, you'll understand that the payments were to made to... guess who?

    Johnson & Johnson, the drug and consumer products company, said Monday night that some of its foreign units might have made improper payments related to the sale of medical devices in two "small-market countries."

    The company also said that the executive responsible for the units, Michael J. Dormer, 55, worldwide chairman of medical devices and diagnostics, had retired.

    Johnson & Johnson, of New Brunswick, NEW JERSEY, said that it had conducted a review of the matter and had voluntarily disclosed the information to the Justice Department and the Securities and Exchange Commission.

    Certain subsidiaries, which Johnson & Johnson did not name, "are believed to have made improper payments in connection with the sale of medical devices in two small-market countries," the statement said.

    It also did not name the countries and did not offer details of the payments but said they were "contrary to the company's policies" and "may fall within the jurisdiction of the Foreign Corrupt Practices Act."

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    A company spokesman, Jeffrey J. Leebaw, declined to comment beyond the news release. "Given the nature of the situation, we have nothing further to add," he said.

    But the disclosures were unusual for a company that emphasizes its longstanding credo of ethical conduct and responsible behavior.

    The company said it would cooperate with any investigation that the agencies might undertake.

    Representatives of the Justice Department and the SEC could not be reached for comment.

    The foreign corruption law, enacted in 1977, forbids American companies from paying foreign government officials to win or influence business deals outside the United States.

    An analyst for Morgan Stanley, Glenn Reicin, said in a research note Monday night that the company's actions might help it avoid federal enforcement action.

    In a resignation letter to the company, Dormer cited the internal review of questionable payments made by some subsidiaries. He said that he had "ultimate responsibility by virtue of my position" for the subsidiaries.

    Reicin said that Dormer's "acceptance of responsibility for improper payments is a very big statement" for the Johnson & Johnson.

    "Since a company that is found guilty of a felony can be barred from Medicare programs," Reicin wrote, "we suspect that J.& J. management probably had to find a way to make it clear to authorities that this matter is being taken seriously."

    Dormer, who was named to his current position in April 2002, had been responsible for several medical units, including DePuy orthopedic, Ethicon wound care, Ethicon-Endo Surgery and Ortho Clinical Diagnostics units.

    He began his Johnson & Johnson career in 1976 as a product manager in Britain. In 1992, he left to become president for DePuy International, where he was named chief operating officer, DePuy in 1996. He rejoined Johnson & Johnson in 1998 with the company's acquisition of DePuy.

    Johnson & Johnson said that effective immediately, all worldwide businesses within the medical devices and diagnostics division would report to Nicholas J. Valeriani, who is assuming Dormer's title.

    Valeriani, a longtime company executive, will have responsibility for businesses previously managed by Dormer as well as those for which he is already responsible, the statement said.

    The medical devices and diagnostic section brought in about $20 billion last year, more than a third of Johnson & Johnson's total sales.

    The Justice Department and the SEC have stepped up investigations of suspected violations of the corruptions act in the last several years. In 2005, the Titan Corporation, a leading military and intelligence contractor, paid $28.5 million — the largest penalty imposed on a company in the history of the 1977 law — to settle charges that it bribed the president of Benin.

    In April 2004, Lucent Technologies fired four executives at its division in China after it was discovered that they might have violated bribery laws. In March 2006, DaimlerChrysler dismissed or suspended several employees after an internal investigation uncovered evidence that its executives had paid bribes in Asia, Africa and Eastern Europe.

    In August 2003, the SEC advised Johnson & Johnson of its informal investigation under the act of accusations of payments to Polish governmental officials by American pharmaceutical companies.

    In November 2003, the SEC told the company that the investigation had become formal and issued a subpoena for information. The company and its operating units in Poland have responded to these requests.