Johnson & Johnson has told the US government that it believes some of its subsidiaries abroad have made “improper payments” which relate to sales of the company’s medical devices.
J&J noted that it had voluntarily disclosed to the Department of Justice and the Securities and Exchange Commission that the problem involves the sale of medical devices “in two small-market countries” though where exactly has yet to be disclosed. The payments may fall within the jurisdiction of the Foreign Corrupt Practices Act, noted J&J, adding that the company will provide additional information to the DOJ and SEC and offer these agencies its full cooperation.
The news has led to the resignation of Michael Dormer, worldwide chairman of J&J’s medical devices and diagnostics division. He cited the internal review of the matter as the reason for his departure and noted he had "ultimate responsibility by virtue of my position" for those subsidiaries that were the subject of the disclosure.
The fall-out of this disclosure is unclear at the moment but analysts doubt whether the share price will be hurt much. However the company’s reputation has been slightly damaged by this and much will depend on whether J&J will face criminal charges.
In a research note, Morgan Stanley analyst Glenn Reicin said that Mr Dormer's departure may help the company avoid federal enforcement action. "Since a company that is found guilty of a felony can be barred from Medicare programmes, 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," he noted.
The division accounted for $20.28 billion in sales last year, or about 38 percent of J&J's total sales.