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The real meaning of J&J’s layoffs

by Jessica Shambora

We keep hearing how the economy is improving, but with U.S. unemployment at 9.8% and rising, the job market gives us nothing but anxiety. Today Johnson & Johnson added to the pain by announcing layoffs of 6-7% of its workforce. That’s about 7,000 employees.

While J&J faces lots of industry-specific challenges–patent expirations, increasingly complex regulation, healthcare reform–the news is stunning. Particularly because J&J is known for its legendary credo that puts employees above communities and shareholders–second only to customers in terms of management’s priorities.

CEO Bill Weldon talked with me at length about this–the eminence of J&J’s employees–in interviews that I did with him last Spring. He told me that he says to his employees: “I guarantee we will fight for every one of you that works in this corporation. Does that mean we can always protect every job? Absolutely not. What it does mean is we’re going to do the best we possibly can to ensure we take care of the people that have made the company what it is and fight the battles every day.’”

Assuming that Weldon and J&J’s board haven’t abandoned the company’s age-old credo, might today’s layoffs be a sign that J&J’s fortunes have turned dramatically worse than Weldon anticipated?

“Investors have been asking all day, ‘Is there something worse environmentally than we understand–or than what J&J has relayed to all of us?’” says analyst Rick Wise, who follows the healthcare industry for Leerink Swan. J&J stock closed at $58.93, down nearly 2% for the day.

Wise, who rates the stock “neutral,” says that some investors view the cuts as a desperate grasp for profit growth. But he believes that as a traditionally conservative industry leader, J&J is simply trying to get ahead of the curve in responding to challenges.

“Would J&J have been in trouble today if they hadn’t done it [announced layoffs]? Hard for me to believe,” says Wise. The layoffs, he adds, give the company more freedom and flexibility to invest in areas that management has talked about, like treatments for Alzheimer’s.

J&J’s harsh action leaves many questions unanswered. To me, the two most compelling are: Is this another example of prescient management at the much-admired 123-year-old company? Or are the changes in the world so severe as to force a 123-year-old company to let go of its precious credo to take care of its employees?

For more on J&J’s legendary culture, read a piece I co-wrote with Geoff Colvin earlier this year, “J&J: Secrets of Success” and check out my interview with J&J CEO Bill Weldon below.

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