What's up guys and welcome back to wall street millennial on this channel, we cover everything related to stockton, investing today we're going over a corporate scandal that goes back decades, but has recently flared up again since the 19th century, johnson, johnson or jnj has stole its iconic Baby powder, the soft powdery substance helped the company grow into the behemoth. It is today with nearly half a trillion dollars in market cap and 23 billion dollars in quarterly sales, but according to relatively recent revelations, this baby powder, which millions of people use on a daily basis, may have contained an extremely toxic substance for decades. Even worse, some people have alleged that the company knew about this contamination, but because symptoms don't show up for decades after exposure, they decide to cover up the contamination rather than announce it publicly. Of course, johnson johnson has denied these claims and emphasized that all current and modern talk power that they have sold is compliant with health and safety regulations.

But regardless they've already lost several lawsuits and been ordered to pay out billions of dollars in damages and penalties, with tens of thousands more lawsuits on the way, they've also taken measures to address the crisis, including discontinuing their baby powder. However, they've also directly taken steps to limit their liabilities by spinning off a special purpose. Company called ltl, which contains all the baby powder liabilities, then having that company declare bankruptcy. Obviously, this maneuvering and use of a bankruptcy court loophole has led to outrage from the victims and lawmakers, and the developments seem to be only gaining steam exponentially in recent months.

In this video we're going to talk about what the scandal is, how exactly j j is dealing with the crisis and what lawmakers are doing about it going forward to fully understand the baby powder scandal? First, we need some background on j j j was founded in the late 19th century by three brothers: james wood, johnson, robert wood, johnson and edward mead johnson. Their first business area was sterile, surgical supplies and other medical products, as well as similar household products. These include things like gauze, absorbent, cotton and lightweight surgical tools. They also publish a detailed guide on how to treat wounds called modern methods and antiseptic wound treatment together.

This guide with their wound treatment products formed the basis of the iconic, johnson and johnson. First, aid products recognizable to this day in 1894, jnj developed, johnson's baby powder. This product would become one of their most widely distributed and recognized products. It was also included in many of jnj's pre-made kits such as maternity kits for at-home births throughout the early 1900s.

The company expanded rapidly, they played key roles in world war 1 and the great depression. In many ways. They led corporate america in advocating for higher wages for employees during the depression and also produced and donated many first aid kits towards the military efforts. The company went public in 1943 as part of the ipo process.

The company wrote so-called credo a short document defining the company's values and principles. The document starts off with idealistic statements as follows. We believe our first responsibility is to the patients, doctors and nurses, to mothers and fathers and all others who use our products and services in meeting their needs. Everything we do must be of high quality.

We must constantly strive to provide value, reduce our costs and maintain reasonable prices. Customers orders must be serviced promptly and accurately. Our business partners must have an opportunity to make a fair profit. Clearly, johnson and johnson's credo aligns with righteousness and good citizenship.

It also served them well in becoming one of the most successful corporations in u.s history, but eventually even j and j became subject to controversy involving business ethics. The baby powder series of ongoing litigation is johnson and johnson's most drawn out and costly legal battle ever. It is perhaps among the biggest corporate scandals in modern history relating to consumer products. The issue revolves around j j's baby powder, a product used by millions of people worldwide.

For decades it has been made from talcum powder, which is a refined and purified form of talc. Talc is a clay mineral that is one of the softest minerals on earth. Talc itself is, what's called an inner ingredient; in other words, it doesn't easily react with other chemicals when used on human, skin or ingested. Because of these characteristics, it is used in baby powder to provide a soft powdery dryness that helps relieve abrasion, especially where diapers meet the skin.

Talc itself is not a bad substance. It has been used for centuries for all sorts of uses, with records of it being used going back to ancient egypt. It is also present in many everyday foods like chewing gum, rice and olive oil. In addition, it is also used in products like makeup and deodorant for many the same purposes as it is used in baby powder and according to the national cancer institute.

Talc itself does not cause cancer. The problem comes in with the mining process for talc, johnson and johnson mines talc at various mines across the world, including places as far apart as vermont, italy and china, while jnj claims to use the highest quality standards in filtering talc mined into usable and unusable samples Tests going back to the mid-1900s show they found contaminants in some of their talc. According to a reuters investigation into the baby powder scandal released in 2018, records of contaminated j and j talc can be found as early as the 1950s chemical consulting labs. That j j used reported microscopic contaminants described as acicular or needle-like and found something called tremolite.

Tremolite is a silicate material. That is one of the six forms of the toxic substance asbestos. It is known to cause serious illness, including lung cancer, mesothelioma and asbestosis if inhaled or ingested. Unfortunately, tremolite is frequently found alongside taut intalc mines, which theoretically leads to the toxic substance in baby powder used by millions of people.

Asbestos used to be used extensively for various construction materials. It's a silicate material that has many useful physical properties, because it's basically fibrous rock. It is a good electrical and fireproof insulator. For these reasons, it was used extensively in construction until the 1970s.

Around that time, scientists and the public began to realize that asbestos is highly linked to tumors in humans and animals. In particular, it has been known to cause mesothelioma. Mesothelioma is a type of cancer that affects the thin membrane that surrounds many internal organs, especially the lungs and chest wall. Symptoms include the buildup of fluid around the lungs and usually start about 40 years after exposure.

Getting mesothelioma is akin to a death sentence, though only about eight percent of people with a disease survive for more than five years with diseases as serious as mesothelioma and ovarian cancer, possibly being caused by johnson and johnson baby powder. It's no surprise that once people thought that baby powder was to blame that the lawsuits would come rolling in the company has been subject to tens of thousands of lawsuits from women who say that asbestos contaminated talc powder caused their diseases in court. In the past few years, these women frequently won their lawsuits. For example, in 2017, the court, in los angeles, ruled in favor of one woman who claimed her ovarian cancer was due to j j talk powder.

She said that she had used j and j products for decades for feminine hygiene uses. The case was one of the biggest today, despite several other cases in missouri, which jj also lost against other women. The court ordered j j to pay 70 million dollars in compensatory damages, in addition to 347 million dollars in punitive damages. The compensatory damages were to compensate the woman for her illness, but the punitive damages which were much greater was for johnson and johnson's alleged cover-up of the fact that their baby powder was contaminated with toxic asbestos, even when they knew it was contaminated in the various trials.

Johnson and johnson's lawyers argue that their baby powder was, or at least has been for the past several decades safe. Despite records that show that lab tests found asbestos in their talc powder, they claimed that some of them were only on tack powder intended for industrial use, not baby powder. They also claimed that some of their records showed alternate forms of the same chemicals as asbestos which were actually not harmful. According to the 2018 reuters investigation, plaintiffs in the lawsuit against j and j had tests run on baby powder from as early as the 70s, which they acquired from places like ebay those tests, they claimed found levels of asbestos that would be considered harmful.

However, j and j's lawyer said that their expert geologists did not find any asbestos in current or modern jnj products because of the long period of time between exposure to asbestos and the onset of the cancers associated with it. It's difficult to assign blame beyond a reasonable doubt, while j j might be able to truthfully say that their modern or even their baby powder from the last 40 years did not have appreciable levels of asbestos. Many of the plaintiffs in the legal cases cite baby powder from before then, and the courts thus far have cited against the half-trillion dollar corporation. Given their lack of success in the courtroom, johnson johnson has turned to alternative means to counter the never-ending lawsuits.

As recently as 2021, the company has tried a strategy to isolate their lawsuit liabilities according to npr they're, using a controversial bankruptcy strategy to shield the bulk of the company from the tens of thousands of lawsuits against them over their baby powder. How it works is as follows: using an obscure texas law, they spun off a new company called ltl as separate from johnson and johnson. This new company holds, among other things, all the asbestos-related liabilities, but very few of jnj's actual assets. The idea is that ltl can simply file for bankruptcy.

Putting a cap on the payouts of the plaintiffs and lawsuits can demand. The consumers of the baby powder can't try to recover damages from the multi-hundred billion dollar company, that is johnson and johnson. While this tactic obviously seems like a legal maneuver with the sole purpose of sticking it to the victims, jnj says that is how they view the best way of getting a fair outcome for the company. They provided ltl with two billion dollars allocated towards baby powder lawsuit payouts.

So it's not as though the plaintiffs will get nothing they're partially worried about these lawsuits going on forever, with no limit to what people can claim against them. After all, with a product as widespread as jnj baby powder over so many decades, the number of people who used it at some point and could theoretically claim damages against the company may as well be infinite still. The move has understandably drawn the ire of lawmakers and other critics. Elizabeth warren from massachusetts accused jnj of abusing america's bankruptcy system to evade liability and shield its own assets.

Shortly after she, along with other congress, people from the house judiciary committee introduced a new bill aimed at closing this type of bankruptcy loophole. Among other things, it would prohibit courts from discharging liabilities and claims for any entity other than the entity that is directly responsible in the case of jnj. That would theoretically mean that the courts would not be able to give bankruptcy to the jnj subsidiary j j. Thus would not be able to destroy those liabilities without going through bankruptcy themselves in another, even more significant corporate action johnson johnson announced in november of 2021 that it plans to split into two separate companies, the two companies would split jng's consumer products, business in its pharmaceutical Business ceo alex gorsky, said in a statement that the board of directors and management believe that splitting the company is the best way to accelerate the company's innovation and quality.

Many economists think that when a company becomes too diversified, the individual businesses become unfocused and management becomes stretched too thin. Also, it's well known that conglomerates suffer what's known as a conglomerate discount. That's the phenomenon where conglomerate companies receive lower valuations from the market than they would. If they were split into separate companies, this happens because investors prefer to be able to build their own portfolios of separate stocks, rather than be stuck with whatever constituent businesses the conglomerate entails.

But some people also believe that the acceleration of developments in their baby powder lawsuits played a factor in the decision once the company splits, the consumer products division, which also makes things like band-aid and listerine, would hold the liabilities of the baby powder. The faster growing pharmaceutical business, which is the business that made the jansen kovid 19 vaccine, would be insulated from those liabilities. Thus, shareholders of that part of the company would not be dragged down by the possibility of billions of dollars of lawsuits. In any case, a company.

The size of johnson and johnson splitting into two companies is not unheard of, but certainly extremely uncommon. The split is expected to be completed by the end of 2023. It remains to be seen to what extent johnson johnson will be able to get away with this troubled baby powder past, alright, guys that wraps it up for today's video. What do you think about j j's baby powder scandal? Do you think they do a really withheld knowledge of the contamination from the public? Do you think they should be able to spin off their legal liabilities related to it in a separate company to shield the company's assets? Let us know in the comments section below in the meantime, if you enjoyed this content, make sure to smash that like button and subscribe, so you don't miss future videos as always.

Thank you so much for watching and we'll see in the next one wall, street millennial signing out.