J&J and shareholder value

Johnson & Johnson’s stock declined by 10% on Friday – its largest one day decline in stock price in 16 years. The reason? A Reuters investigation uncovered the fact that J&J’s famous baby powder was sometimes tainted by cancer causing asbestos and that J&J kept this information away from regulators and the public.

Someone high up signed off on this idea. And, they likely did so because they thought the decision to keep this information hidden from regulators and the public would be the best way to maximize shareholder value.

It did – for a while at least.

Until it didn’t.

Lawsuits continue to pile up against the company. And, it is hard to imagine if J&J’s famous brand will ever recover.

Every such crisis reinforces one lesson – decisions made to explicitly maximize shareholder value in the short term always hurt the same shareholders in the long term.

The open question for boards, then, is – how do we create incentives for the leadership of the company to think beyond their tenure in the hot seat?