(Bloomberg) -- When Michael Cohen showed up at Novartis AG last year proposing to help the drugmaker navigate the Donald Trump administration, it sounded like a promising opportunity. Cohen had, after all, served as an attorney for Trump and had close ties to the new president.
It didn’t take long for Novartis to conclude Cohen was full of hot air. And soon -- but not soon enough -- the company realized he was also a hot potato.
After the first meeting between Novartis officials and Cohen, in March 2017, “it was clear that he had oversold his abilities,” said Joe Jimenez, the company’s chief executive at the time.
Jimenez, who stepped down as CEO earlier this year, was one of two Novartis executives to sign a one-year, $1.2 million contract with Cohen’s firm, Essential Consultants LLC. The other, Felix Ehrat, the drugmaker’s top lawyer since 2011, is leaving the company due to the affair, Novartis said Wednesday.
How a global powerhouse like Novartis could get entangled in controversy with Trump’s personal fixer highlights the way established lines of doing business have been upended by the unorthodox new president. Now the job of digging out of the situation falls to Jimenez’s successor, Vas Narasimhan, who has spent much of the last week meeting with investors and managers in an effort to mend the company’s tarnished reputation.
“We know we’ve made a mistake, and we also know we need to get better,” Narasimhan told investors gathered Wednesday at Novartis headquarters in Basel, Switzerland. “This is something I take incredibly seriously.”
On paper, a contract with Cohen made sense. He had worked at Trump’s organization -- though he said he was no longer employed there -- and offered insights into a president who had said the pharmaceutical industry was “getting away with murder” and had vowed to kill off President Barack Obama’s signature health-care legislation.
What was less clear to Novartis -- and other companies such as AT&T Inc. and a Korean aerospace firm that worked with Cohen -- was the extent of his ties to a cluster of New York real estate and taxi companies. And that he was the man who had brokered a $130,000 payment to Stephanie Clifford -- the adult-film actress who performs as Stormy Daniels -- to keep her from disclosing what she says was a sexual relationship with Trump.
After the initial meeting with Cohen, Novartis decided not to engage with him further. But the company opted to simply let the agreement lapse while continuing to pay the fees it had agreed to, figuring litigation to end it would be costlier. In hindsight, Jimenez said, that was a mistake. Cohen never provided access to anyone in the White House or any lobbying services, Jimenez said.
“Had we done deeper background checks on him we would have discovered that he was probably not somebody we wanted to get involved with,” said Jimenez, who worked at Clorox Co., ConAgra Foods Inc. and H.J. Heinz Co. before joining Novartis in 2007. “We should have just ended the contract regardless of the costs.”
Novartis said in September that Jimenez would retire and pass the reins to Narasimhan, who the company says had no involvement in the arrangement with Cohen. Two months later, the office of Special Counsel Robert Mueller -- investigating suspected Russian meddling in the presidential election -- contacted Novartis about its ties to Cohen.
Narasimhan, a Harvard-trained doctor, on Wednesday outlined steps he’ll take to reshape the company’s culture. Novartis has been embroiled in a string of legal woes, and in 2015 agreed to pay the U.S. government $390 million to settle allegations of kickbacks to pharmacies in return for recommending its drugs. It’s also fighting a U.S. lawsuit alleging that it improperly provided doctors with lavish dinners, fishing trips, and speaking fees to boost drug sales.
On Monday, the new CEO, an American who came to Novartis in 2005, held a conference call with 5,000 of his managers, according to a source familiar with the matter. On the call, he stressed the need to regain the public’s trust and change the way the company works with outside groups such as consultants and lobbyists.
Yet the drama isn’t over. Switzerland’s Attorney General is talking with prosecutors in Basel about the payments the drugmaker made to Cohen, though no investigation has been opened. Democratic senators Elizabeth Warren of Massachusetts and Richard Blumenthal of Connecticut sent a letter to Narasimhan this week saying the arrangement appears to be “stunningly irresponsible” while also questioning whether Novartis and the Trump administration were engaged in a “pay-for-play operation.” The lawmakers sent a similar letter to AT&T, which paid the consulting firm $600,000 and later forced out veteran lobbyist and attorney Robert Quinn.
Narasimhan has been candid in his assessment of the Cohen contract, repeatedly calling it a mistake and beneath company standards. The day the payment became public, the CEO went to bed “frustrated and tired,” he told his 120,000-plus employees in a memo. Though he says he’s determined to repair the company’s image, he told the investors in Basel, “I don’t want to stand here and tell you that we are going to resolve these issues right away. This is going to be a long-term journey.”
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