Novartis ex-CEO Jimenez speaks out as top lawyer takes the fall for $1.2M Cohen deal

Two people signed Novartis' now-infamous contract with Michael Cohen, and they've both left the company.

The first was ex-CEO Joe Jimenez, who broke a week-long silence Wednesday to explain how the Swiss drugmaker came to pay $1.2 million to President Donald Trump's personal lawyer. The second was Novartis' top lawyer, Felix Ehrat, who stepped down as general counsel, effective June 1, and took "personal responsibility" for the deal, which landed Novartis in a scandal that the company is now scrambling to contain.

Ehrat, who's served as GC since 2011, said in a Wednesday statement that he co-signed the contract last year with then-CEO Jimenez.

“Although the contract was legally in order, it was an error,” said the departing executive, echoing CEO Vas Narasimhan's comments about the deal in last week's email to employees.

Jimenez also had his take on where the mistake lay. In an interview with Bloomberg, Jimenez said he hired Cohen thinking the lawyer had stopped working for Trump and turned to selling "his expertise in terms of knowing the personalities that were in the administration." And no one questioned the deal or warned him hiring Cohen could bring unwelcome side-effects, "because of the speed with which we were moving, and that was a mistake," Jimenez told Forbes.

"This was right after the election. Things were moving fast," he told Forbes. "The rhetoric around the Affordable Care Act was huge and we moved too fast without doing our due diligence."

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But after Jimenez's people sat down with Cohen individually for the first time, "it was clear that he oversold his abilities," the former CEO said. Rather than terminating the contract, Jimenez elected not to, because he worried that ensuing litigation would cost more than paying out the contract would.

“That was the mistake,” Jimenez told Bloomberg. “We should have just definitively parted ways with this guy as soon as we knew he was not going to be a help.”

Jimenez said he never met Cohen himself but told Forbes they did have a long phone conversation where he asked about Cohen's background. He maintained that Novartis never acted on any of Cohen's advice or tried to gain access to anyone in the administration. 

The one-year Cohen deal started in early 2017, a year before Narasimhan took the company reins from Jimenez. After the payments were exposed last week, Novartis has fought hard to distance Narasimhan from the scandal, insisting he was not involved in the contract. Company insiders had blamed Jimenez in anonymous interviews with different media outlets, but this is the first time the company has officially pinned its former chief and top lawyer's names to the controversial consulting contract.

Ehrat will be replaced by Shannon Thyme Klinger, the chief ethics, risk and compliance officer who was just promoted to Novartis’ executive committee in March. At that time, Novartis said it had added heft to that role because of its “commitment to hold ourselves to the highest ethical standards in all of our activities.” Klinger first joined Novartis in 2011 as Sandoz’s general counsel.

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Ehrat's departure was announced ahead of today’s investor conference at Novartis headquarters in Basel, Switzerland, where executives addressed questions via Q&A.

“Our new executive team and I have a deep commitment to ensure we always operate with the highest integrity and sound judgment and will work hard to rebuild lasting trust with society,” said Narasimhan in a separate statement.

Rebuilding trust and reputation was one of five top priorities Narasimhan outlined for the company at the investor event, at a time when its count of global scandals keeps growing and some investors are urging the company to act before "corruption becomes a tradition."

After a much-publicized series of scandals and legal actions in Japan, Novartis has fielded bribery and kickback allegations in multiple countries—twice, in China's case—and paid at least two related fines: A $50 million penatly to South Korean authorities last year in a doctor kickbacks case and $25 million to the U.S. government to settle charges of illegal doctor payments in China.

And investigations continue. Among the ongoing actions:

  • An investigation in Greece, where Novartis allegedly bribed top government officials millions of euros for product sales. After an investigation led by Parliament, those allegations were handed off to prosecutors there.
  • A U.S. probe into whistleblower allegations that the company offered kickbacks to doctors via fancy dinners shamming as educational events.
  • Inquiries from the Department of Justice and the U.S. Securities and Exchange Commission into Alcon's business practices in Russia and Asia. The agencies are questioning current and former senior executives of the Novartis eye unit, securities filings show.

“Let me be absolutely clear: I never want Novartis to achieve our financial performance or objectives because we compromised on our ethical standards or our values—we must always choose our values,” the CEO told investors, and promised to roll out a new guidance on how best to organize on integrity and compliance in the coming months.

Ehrat said he hopes his departure will “bring the public debate on this matter to an end,” but that might not happen any time soon.

Criticism has been loading up on Novartis since the Cohen deal was made public by porn star Stormy Daniel’s lawyer. The implication looks bad enough. Sen. Ron Wyden, D-Ore., ranking member of the Senate Finance Committee, has raised suspicion of a pay-to-play scheme, and said his committee is launching a probe. Prosecutors in Switzerland are also weighing their options of potential legal actions.

Novartis’ executive shakeup comes right after a similar move by AT&T, which also paid Cohen last year for similar services. The telecommunications giant ousted its top lobbyist in Washington in an effort to contain the fallout.