BEECH-NUT Continued from Page 20 teration, but the July test did not. LiCari concluded that Kaplansky had switched from corn syrup to beet sugar, an adulterant that current technology could not detect. Once again he ap proached Lavery, suggesting that Beech-Nut require Kaplansky to repurchase the concentrate. This time, Lavery instructed that the concentrate be blended into mixed juices, where adulteration is far harder to detect. Lavery's attorney, Steven Kimelman, says that his client does not recall his rationale for the decision, but argues that on this matter, as on others, he acted in concert with other executives, including LiCari. Lavery and LiCari were locked in a hopeless conflict of roles, values, and personality. Steven Kimelman characterizes Lavery as "more like a general. He's the kind of guy who gives orders, and he has no trouble making up his mind; LiCari was too much of a scientist type to him, and not practical enough." LiCari had become consumed by the issue of the concentrate. By the spring of 1981 he was working almost full time on tests to determine its purity. Finally, on Aug. 5, LiCari circulated a memo to executives, including Lavery. "A tremendous amount of circumstantial evidence," he wrote, makes for "a grave case against the current supplier" of apple concentrate. No matter what the cost, LiCari concluded, a new supplier should be found. Several days later, LiCari was summoned to Lavery's office, where, as he told the jury, "I was threatened that I wasn't a team player, I was1 at working for the company. threatened to be fired." The choice could not have been more stark: capitulate, or leave. client made a "mistake in Or perhaps Lavery had "Mr. Belvin, what did you do when you found that Beech-Nut had been using a product in what it called apple juice that was not in fact apple juice?" "I-I became very upset." "Why were you very upset?" "Because we feed babies. "Did you ever hear Mr. Lavery express a sentiment similar to that you have just described to the jury?" "No." Many of those who know Lavery find this picture of him simply unbelievable. The Canajoharie view is that Lav. ery was victimized. Ed Gros, Lavery's former colleague, speculates that LICari "had a personal vendetta" against Lavery. Ira Knickerbocker blames the Government. Yet even Lavery's friends admit to a kind of moral bafflement. "I've lost a lot of sleep over this," says a former company vice president, Bill Johnsey, Steven Kimelman denies that Lavery threatened LiCari, but concedes that his B Y 1979, BEECH-NUTS financial condition had become 80 parlous that Frank Nicholas admitted failure and sold the com. pany to Nestlé S.A., the Swiss food giant. Nestlé arrived with $60 million in working capital and a commitment to restore a hallowed brand name to health. The view in the food industry was that Beech-Nut had been rescued from the brink. Yet evidence presented at the trial gives the exact opposite impres sion of a Procrustean bed being prepared for nervous managers. Hoyvald, who chose to testify on his own behalf, admitted that in 1981, his first year as chief execu tive, he had grandiosely promised Nestlé that BeechNut would earn $700,000 the following year, though there would be a negative cash flow of $1.7 million. Hoyvald had arrived at Nestlé only a year before, but he was a seasoned executive in the food business. The answer nevertheless shot back from Switzerland: the cash flow for Beech-Nut, as for all other Nestlé subsidiaries, would have to be zero or better. "The pressure," as he conceded, "was on." Hoyvald testified that he knew nothing about adulterated concentrate until the summer of 1982. In January 1981, however, LiCari had sent to both Lavery and Hoyvald a copy of an article in a trade magazine discussing signs of adulteration in apple juice, and had written and attached a memo noting. among other things, that "Beech-Nut has been concerned over the authenticity of fruit juice products." LICarl also told the jury that in August of that same year, several weeks after his disastrous confrontation with Lavery, he went to BeechNut's corporate headquarters in Fort Washington, Pa., to appeal to Hoyvald -an uncharacteristic suspension of his faith in the chain of command. Hoyvald had been appointed president only four months earlier, and LiCari testified that he liked and trusted his new boss, whom he felt had a mandate from Nestlé to restore Beech-Nut's prestige. The meeting in Fort Washington persuaded LiCari that he had finally found an ally. Hoyvald, LiCari testified, "appeared shocked and surprised" at LiCari's report, and left him feeling "that something was going to be done and they would stop using it." Then, month after month, nothing happened Finally, at a late-fall company retreat at a ski resort in Vermont, LICari raised the issue with Hoyvald one last time. Hoyvald told him, he testified, that he was unwilling to fire Lavery. (In his own testimony, Hoyvald denied that either meeting had taken place.) LiCari was now convinced that the company was bent on lawbreaking, as he later testified, and rather than acquiesce, he quit, in January 1982. His allies concerned with quality control remained be raised in a provincial town in Denmark, he had relocated to the United States and received his Master of Business Administration degree from the University of Wisconsin in 1960. An ambitious man, Hoyvald had hopscotched across five companies before joining Beech-Nut as head of marketing in 1980, with the promise that he would be promoted to president within a year. Throughout his career, Hoyvald's watchword had been "aggressively marketing top quality products," as he wrote in a three-page "Career Path" addendurn to a 1979 résumé. He had turned around the faltering Plumrose Inc., a large food compa. ny, by emphasizing quality, and he viewed the job at Beech-Nut as a chance to do just that. In June 1982, Hoyvald's principles were abruptly tested when the quality of his own product was decisively -5 challenged. A trade association, the Processed Apples Institute, had initiated an investigation into longstand❘ ing charges of adulteration throughout the apple-concentrate business. By April 1982, an investigator working for the institute, a former New York City narcotics detective named Andrew Rosenzweig (who is now chief investigator for the Manhattan District Attorney's office). was prowling around the Woodside, Queens, warehouse of a company called Food Complex, which was Universal's manufacturing arm. By dili. gent questioning, and searching by flashlight through a dumpster in the middle of many nights, Rosenzweig discovered that Food Complex omitted apples from its recipe altogether, and that its biggest customer was Beech-Nut. On June 25, Rosenzweig tracked a tanker truck full of sugar water out of the Food Complex loading dock and up the New York State Thruway to Canajoharic, where he planned to confront management with his findings He was hoping to persuade the company to join a civil suit being prepared against Univer sal and Food Complex; but, expecting the worst, he secretly tape-recorded the ensuing conversation At the trial, the tape proved to be a damning piece of evidence. In the course of the discussion, Lavery and two other executives, instead of disputing Rosenzweig's claim that Beech-Nut was making juice from suspect concentrate, unleashed a cascade of tortuous rationalizations. When Rosenzweig explained that the trade association had made new strides in lab testing, Lavery, obviously panicking, suddenly announced "At this point, we've made our last order from" Universal. But despite considerable pressure, Lavery refused to give Rosenzweig samples of the concentrate, and declined to join the suit The one anxiety he expressed was over the possibility of bad publicity. On June 28, Paul E. Hillabush, the head of quality assurance at Canajo harie, called Hoyvaid to tell him of Rosenzweig's visit. Hillabush testified that he suggested Beech-Nut recall the product. But Beech-Nut would not only have had to switch to a new and more expensive concentrate, it would have had to admit publicly that the product it had been selling since 1978 was bogus. The cover-up, which Lavery had begun three years earlier with the order to blend the concentrate in mixed juices, was attaining an irresistible momentum. Hoyvald made the fateful decision to reject Hillabush's advice, and to devote the next eight weeks to moving the tainted products as fast as possible. It would be aggressive marketing, though not of a quality product. T HE APPLE INSTITUTE'S suit, as it turned out, was only the first wave to hit the beach. Federal and state authorities had been investigating suppliers of adul terated concentrate since the spring. and the trail led them, too, to Canajo harie. On July 29, an inspector from the United States Food and Drug Administration arrived at the plant, announced that samples taken from supermarket shelves had proved to be adulterated, and took away cases of apple juice ready to be shipped. On Aug 11, Paul Hillabush received a call from an old friend, Maurice Guerrette, an assistant director with the New York State Department of Agriculture and Markets, who reported much the same conclusion Guerrette recalls receiving one of the great shocks of his life when Hillabush tried to laugh the whole thing off. It was only then that he realized - as would each investigator in his turn that Beech-Nut was not the victim of a crime, but its conscious perpetrator. Guerrette's phone call persuaded Lavery and others incorrectly, as it turned out that a seizure actionwas imminent. After consulting with Hoyvald, executives in Canajoharie decided to move the entire inventory of tainted juice out of the state's jurisdiction. And so, on the night of Aug. 12, nine tractor-trailers from Beech(Continued on Page 52) BEECH-NUT Continued from Page 38 Nut's trucking company were loaded with 26,000 cases of juice and taken in a ghostly caravan to a warehouse in Secaucus, N.J. One of America's most venerable food companies was fleeing the law like a bootlegger. By the late summer of 1982, BeechNut was racing to unload its stock before regulators initiated a seizure action. On Sept. 1, Hoyvald managed to unload thousands of cases of juice from the Secaucus warehouse to Puerto Rico, despite the fact that the Puerto Rican distributor was already overstocked. Two weeks later, Hoy.. vald overruled his own lawyers and colleagues, who again suggested a recall, and ordered a feverish "foreign promotion"; under certain circumstances, American law does not prohibit the selling abroad of products banned at home. Within days, 23,000 cases were trucked at great expense from the company's San Jose, Calif., plant to Galveston, Tex, where they were off-loaded onto the first boat bound for the Dominican Republic, where they were sold at a 50 percent discount. While Beech-Nut's sales staff shipped the evidence out to sea, its lawyers were holding Federal and state agencies at bay. On Sept. 24, lawyers scheduled a meeting with F.D.A. officials that was designed to placate their adversaries. It worked. Three more weeks passed before the F.D.A. Administrator, Taylor M. Quinn, threatened to seize the juice, and thus finally wrung from the com. pany a pledge to begin a nationwide recall. New York State authorities, less patient, threatened a seizure before Beech-Nut hurriedly agreed to a state recall. But the delay allowed Niels Hoyvald to virtually complete his master plan. By the middle of November Hoyvald could boast, in a report to his su perior at Nestlé: "The recall has now been completed, and due to our many delays, we were only faced with hav ing to destroy approximately 20,000 cases. We received adverse publicity in only one magazine." As it turned out, of course, Hoyvald's self-congratulation was premature. Further Federal and state investigations exposed details of the coverup, as well as the fact that Beech-Nut had continued to sell the juice in its mixed-juice product for six months after the recall. New York State sued Beech-Nut for selling an adulterated and misbranded product, and imposed a $250,000 fine, by far the largest such penalty ever assessed in the state for consumer violations. In November 1986, the United States Attorney obtained indictments of Hoyvald, Lavery, Beech-Nut, Zeev Kaplansky and Kaplansky's colleague Raymond H. Wells, the owner of Food Complex. Beech-Nut eventually settled by agreeing to pay a $2 million fine. Kaplansky and Wells, who had earlier settled the apple-institute suit with financial agreement and by ceasing production of their concentrate, also pleaded guilty, and await sentencing. The F.D.A. referred the case to the Justice Department for criminal prosecution. HE CASE AGAINST HOYvald and Lavery seemed overwhelming - so overwhelming that Lavery's first attorney sug gested he plead guilty. Why did Lav ery and Hoyvald insist on standing trial? Because both men, by most reports, are still convinced that they committed nothing graver than a mistake in judgment. Hoyvald and Lavery seem to think of themselves as corporate patriots. Asked by one of the prosecutors why the entire inventory of concentrate was not destroyed once it came under suspicion, Hoyvald shot back testily: "And I could have called up Switzerland and told them I had just closed the company down. Because that is what would have been the result of it " The question of what Nestlé would have said, or did say, was not resolved by the trial. Jerome LICari testified that in 1980 and 1981 he had expressed his concerns to six different Nestlé officials, including Richard Theuer, who was then a vice president of Nestlé and would become Beech-Nut's president in 1986. In an extraordinary effort to clear its reputation, Nestlé brought all six officials to court, mostly from Switzerland, and each one either contradicted LiCari's account or stated he had no memory of the alleged conversation. Nestlé is acutely sensitive to its public image, which was tarnished in the 1970's and early 80's when it aggressively promoted infant formula in third-world countries despite public health concerns, sparking interna tional controversy and boycott campaigns. Nestlé has defended its subsidiary's acts as vigorously as it de fended its own in the past. The company has spent what sources close to the case estimate as several million dollars in defencing the two axecu tives, and has agreed to keep both men on the payroll at annual salaries of $120,000 and $70,000 - until their current appeals are exhausted. In a memo sent to Canajoharie empluyees after the verdict, James M. Biggar, president of Nestlé's AmerIcan operations, claimed that LICari had confused "what he wished he had said" with "what he actually said or did," and faulted management only for failing to keep an "open door." Richard Theuer, the man Nestlé chose to replace Hoyvald, promises to keep that door open. He hopes to convince the public that at "the new BeechNut" decisions will be taken, as he says, "un behalf of the babies.” I |