Principles for Growth

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As Seen in CFO Studio Magazine Q1 2017 Issue

THE CFO OF JOHNSON & JOHNSON LINKS ETHICAL DECISION-MAKING WITH STEADY, STRONG RETURNS

Dominic Caruso, CFO of Johnson & Johnson, told CFOs gathered at a recent CFO Studio Reception held in his honor that the company bases all its important decisions on the Credo that General Robert Wood Johnson II wrote in 1943. But he said he realized that the audience might be a little bit skeptical. They might wonder “How stringent are you? Do you ever bend? Do you ever flex?”

“We do flex these principles,” he said. “We constantly challenge ourselves. We go to Credo challenge sessions to make sure we understand what [the Credo’s wording] means in the new environment.…But we generally stay pretty close to those principles.”

He noted that the Credo is “not an aspirational statement,” but a set of responsibilities by which “we live our lives at Johnson & Johnson and make business decisions.”

Each of its four paragraphs talks about “what we must do for each of our constituencies.” First, for patients; then for employees — their welfare and careers; next for the communities where the company lives and works around the world; lastly, for shareholders. General Johnson was a shareholder, “and he placed himself last.”

Mr. Caruso said that the 32 consecutive years of adjusted earnings growth that J&J has returned is “the proof in the pudding” that the company’s firm principles are properly guiding J&J through turbulent times and changes in economic circumstances.

An attentive group of around 60 finance leaders from New Jersey and the tri-state area formed the audience at the Heldrich Hotel in New Brunswick, NJ. CFO Studio Publisher Andrew Zezas introduced Mr. Caruso, who was profiled in the Q4 2016 cover story, stating that under Caruso’s stewardship, Johnson & Johnson has strengthened and built upon its position as the world’s largest and most diversified health care company.

“During his 10-year tenure as CFO, Johnson & Johnson’s share price has appreciated over 90 percent,” said Mr. Zezas. “Speaking as a shareholder, thank you, Dominic.”

Finance’s Pillars

In his remarks, Mr. Caruso said, “I owe a lot of credit to my predecessors. I’m fortunate to be in a long line of previous CFOs at Johnson & Johnson who have done outstanding work.”

He went on to enumerate the four principles by which J&J’s Finance organization operates. These are: to drive competitive profitable growth, generate sustainable cash flow, allocate capital to maximize shareholder value, and manage enterprise risk.

Regarding that third principle, allocating capital to maximize shareholder value, Mr. Caruso said, “We have very strict principles by which we do this. We have a set of hurdle rates and analysis that we use to ensure that each decision we’re making is maximizing the value that we set for the deployment of our capital.”

Mr. Caruso runs a global finance team of 5,000. He spent part of his time at the microphone discussing the role of “the great financial people at Johnson & Johnson.”

Finance professionals at J&J “are asked to do three things,” he said: “To drive sustainable, superior financial performance. And, I say that very clearly: to drive it, not to monitor it, or to measure it, or to report on it. To actually drive it. They’re also asked to develop great leaders,” he said. “And they’re asked to do one more thing, which is without compromise the most important thing that they do: To assure the financial integrity and compliance in what we do as a finance organization for Johnson & Johnson.”

Mr. Caruso and the finance leaders at J&J have assured the company’s financial integrity such that Johnson & Johnson remains one of two companies in the world with a AAA credit rating. The CFOs in attendance gave him rousing applause for that accomplishment.

Copyright 2017