(Bloomberg) -- Novartis AG’s top lawyer became the first executive to take the fall for the controversial $1.2 million in payments he helped arrange to Donald Trump’s attorney, as the drugmaker tries to contain the furor from last week’s revelation.
Felix Ehrat, who along with former Chief Executive Officer Joe Jimenez signed the agreement with a consulting firm led by lawyer Michael Cohen, will step down after seven years as Novartis’s general counsel, the Basel, Switzerland-based company said Wednesday in a statement. In an interview with Bloomberg, Jimenez said Cohen told him he had left Trump’s organization and stopped working for the president before pitching for business with Novartis.
Novartis’s new CEO Vas Narasimhan has been grappling with the fallout over the contract, which drew the drugmaker into Special Counsel Robert Mueller’s probe of suspected Russian meddling in the U.S. presidential election. Narasimhan, who’s meeting with investors Wednesday in Basel, conducted a conference call Monday for 5,000 managers in which he said the company needs to rebuild trust and rethink its approach to the use of consultants and lobbying firms, according to a person familiar with the situation.
“Although the contract was legally in order, it was an error,” Ehrat said in the statement. “As a co-signatory with our former CEO, I take personal responsibility to bring the public debate on this matter to an end.”
Novartis is among a handful of companies that have been scrambling to explain why they made payments to Cohen’s firm, Essential Consultants LLC. AT&T Inc., which paid the firm $600,000, forced out veteran lobbyist and attorney Robert Quinn as CEO Randall Stephenson called the hiring of Trump’s lawyer a “big mistake” and said that its vetting process had failed.
Novartis has said it quickly determined that Cohen’s firm was unable to provide the services it anticipated and after a single early 2017 meeting decided not to engage further. Still, the drugmaker was contractually bound to keep making monthly payments of $100,000 for a year. Novartis has said that Narasimhan had no involvement.
Jimenez said in the interview that a “third party” had recommended Cohen to Novartis, declining to identify that person. Novartis should have done more due diligence and “definitively parted ways” with Cohen as soon as it knew he wouldn’t be able to help, the former CEO said.
“Michael Cohen was somebody who was introduced to us, and he was unknown to us, but he was said to be somebody who could help,” Jimenez said. “After my team met with him individually, it was clear that he oversold his abilities.”
In the meeting with investors, Narasimhan cited a number of steps the company is taking in the wake of a series of legal troubles in recent years. Those include putting in place an independent ethics board that looks at access and patient issues, tightening controls and plans to deploy a big data analytics system to monitor email traffic, he said. Ehrat will be replaced by Shannon Thyme Klinger, currently the chief ethics, risk and compliance officer, according to the statement.
“We’ve been taking strong actions, but now I want to take those strong actions even further,” Narasimhan said in the meeting. “Let me be absolutely clear: I never want Novartis to achieve our financial performance or objectives because we compromised on ethical standards or our values.”
Novartis shares were little changed at 78 Swiss francs as of 10:26 a.m. in Zurich.
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