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Johnson & Johnson : SEC Rejects Proposal for Mandatory Shareholder Arbitration

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02/11/2019 | 06:43pm EST

By Dave Michaels and Gabriel T. Rubin

WASHINGTON -- Johnson & Johnson Inc. won't have to hold a shareholder vote that would have made the company a guinea pig for a politically divisive fight over class-action lawsuits.

The Securities and Exchange Commission told J&J on Monday it could choose not to hold a vote on a proposal to push all suits brought against the company by its shareholders into private arbitration hearings. The decision marks the first time during the Trump administration that the SEC has ruled on the contentious issue, which fractures along partisan lines and sometimes pits corporate executives against their investors.

The SEC often plays the referee on divisive proposals that proponents seek to advance at corporations' annual meetings. Supporters of mandatory arbitration want the agency to let companies require arbitration, saying it would be faster and less expensive than grinding out disputes in court.

Many institutional investors, including public-sector pension funds, say class-action access to the courts is vital for enforcing investor-protection laws.

The SEC's staff on Monday said J&J could choose to not hold a vote on the proposal because it would violate New Jersey state law. New Jersey Attorney General Gurbir Grewal told the SEC last month that mandatory arbitration would violate state law. J&J is based in New Jersey.

J&J didn't immediately respond to a request for comment.

Hal Scott, a Harvard University professor who represents a trust that owns J&J shares, filed the proposal in December. Mr. Scott had told the SEC that New Jersey's attorney general relied on a flawed and incomplete legal analysis.

Mr. Scott questioned why the New Jersey attorney general had chosen to intervene and said that he was weighing his options as to how to proceed, noting that he had the option to appeal the SEC decision in court.

"I think it's sad that the SEC is not allowing shareholders of a company to decide this issue," Mr. Scott said in an interview.

The decision allows SEC Chairman Jay Clayton to avoid an extended fight over the issue. While many Republicans favor mandatory arbitration, saying too many shareholder lawsuits are without merit, Mr. Clayton has said he wants to avoid a brawl over a subject that would pit business groups against investors and likely splinter his agency along party lines. The SEC has four commissioners and includes members from both Democratic and Republican backgrounds.

"I continue to believe that any SEC policy decision on this subject should be made by the commission in a measured and deliberative manner," Mr. Clayton said in a statement, adding that he supported the staff's decision.

In a letter last year to Rep. Carolyn Maloney (D., N.Y.), Mr. Clayton said "this issue is not a priority for me" and warned that an extended debate over it would "inevitably divert a disproportionate share of the commission's resources" from other more pressing issues.

Write to Dave Michaels at dave.michaels@wsj.com and Gabriel T. Rubin at gabriel.rubin@wsj.com

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Financials ($)
Sales 2019 81 061 M
EBIT 2019 25 952 M
Net income 2019 19 844 M
Finance 2019 1 900 M
Yield 2019 2,78%
P/E ratio 2019 18,67
P/E ratio 2020 16,72
EV / Sales 2019 4,49x
EV / Sales 2020 4,19x
Capitalization 366 B
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