In some ways the more fascinating aspect of the fallout from yesterday’s Michael Cohen revelations is seeing Fortune 500 companies struggle to explain how and why they found themselves connected, albeit simply through a shell company, with the President’s payoffs to Stormy Daniels and his fixer’s pay-offs from a Russian oligarch. I think the evolving Novartis story is going to be a good example of the difference between the press release business press and the national political press in full scandal mode. Novartis’s explanation simply makes zero sense – it’s telling that they thought it would survive first contact with any scrutiny. I suspect we’ll find out that that’s the case because it’s a hastily contrived cover story. Even now, the story seems to be evolving toward a more plausible and problematic destination.
Here’s Novartis’s official explanation.
In February 2017, shortly after the election of President Trump, Novartis entered into a one year agreement with Essential Consultants. With the recent change in administration, Novartis believed that Michael Cohen could advise the company as to how the Trump administration might approach certain US healthcare policy matters, including the Affordable Care Act. The agreement was for a term of one year, and paid Essential Consultants 100,000 USD per month. In March 2017, Novartis had its first meeting with Michael Cohen under this agreement. Following this initial meeting, Novartis determined that Michael Cohen and Essential Consultants would be unable to provide the services that Novartis had anticipated related to US healthcare policy matters and the decision was taken not to engage further. As the contract unfortunately could only be terminated for cause, payments continued to be made until the contract expired by its own terms in February 2018.
The engagement of Essential Consultants predated Vas Narasimhan becoming Novartis CEO and he was in no way involved with this agreement. Contrary to recent media reports, this agreement was also in no way related to the group dinner Dr. Narasimhan had at the World Economic Forum in Davos with President Trump and 15 Europe based industry leaders. Suggestions to the contrary clearly misrepresent the facts and can only be intended to further personal or political agendas as to which Novartis should not be a part.
In terms of the Special Counsel’s office, Novartis was contacted in November 2017 regarding the company’s agreement with Essential Consultants. Novartis cooperated fully with the Special Counsel’s office and provided all the information requested. Novartis considers this matter closed as to itself and is not aware of any outstanding questions regarding the agreement.
The first thing to note is that whereas last night we thought Novartis had paid Cohen slightly less than $400,000 it turns out they paid him $1.2 million. So there’s $800,000 that went through a channel other than what we heard about last night.
But let’s consider this explanation.
They signed Cohen up because they thought he could advise them on US health care policy. Obviously, Cohen doesn’t know the first thing about healthcare policy. He’s just someone who’s close to Trump. What is important to keep in mind here is that when Trump came into office the pharmaceutical companies were terrified and flying blind as to what would happen under President Trump. There was actually an out of the blue statement Trump made in the second week of January 2017 about cracking down on the Big Phrma that had the big companies terrified. He told a press conference on January 11th that the pharmaceutical companies were “getting away with murder.” He had repeatedly talked about reining in drug prices on the campaign trail. But in January he seemed to be upping the ante dramatically. It even crosses my mind, in retrospect, whether this comment wasn’t intended to scare companies into Cohen’s arms.
So they sign up Cohen, based it seems simply on being a friend of the President. Then they meet with Cohen, decide he can’t deliver and have no more communication with him. Notwithstanding this, they decide to pay him the entire $1.2 million. “As the contract unfortunately could only be terminated for cause, payments continued to be made until the contract expired by its own terms in February 2018.”
No, that’s not how it works. Not remotely. If you find out someone is not able to do the job, you don’t pay them for a year. Also, what was it they thought Cohen could do that it turned out he couldn’t? The simplest Google search would tell you that Cohen knows absolutely nothing about health care policy.
A fuller story starts to emerge in this story from StatNews, a still relatively new digital health care policy publication. StatNews spoke to an “employee inside Novartis familiar with the matter.”
The real story is a bit different.
According to this account, early in 2017, probably in January, Cohen cold-called then-CEO Joe Jimenez and pitched himself as a way to buy access to Trump and the Trump inner circle. Jimenez instructed his team to cut a deal with Cohen, which they did. That was a year’s consulting contract for $1.2 million.
Then a month later, in March 2017, a group of Novartis employees from DC went to New York to meet with Cohen. These are people from the so-called ‘government relations’ office.
Here are the key two grafs …
In March 2017, a group of Novartis employees, mostly from the government affairs and lobbying teams, met with Cohen in New York to discuss specific issues and strategies. But the meeting was a disappointment, the insider explained, and the Novartis squad left with the impression that Cohen and Essential Consultants — the firm controlled by Cohen that Novartis was making payments to — may not be able to deliver.
“At first, it all sounded impressive, but toward the end of the meeting, everyone realized this was a probably a slippery slope to engage him. So they decided not to really engage Cohen for any activities after that,” the employee continued. Rather than attempt to cancel the contract, the company allowed it to lapse early in 2018 and not run the risk of ticking off the president. “It might have caused anger,” this person said.
The language is delicate but to me pretty clear. “[E]veryone realized this was a probably a slippery slope to engage him.” Here’s the translation: everyone could see that Cohen was dirty and were worried that working with him could be dangerous – “a slippery slope.” A slippery slope into what exactly? Not getting as much access as they thought? I doubt it. The DC lobbying world may be ethically compromised or bought and paid for. But there are ways you do things to stay on the right side of the public opinion, watchdogs and the law. There are ways you can operate that can get you into trouble very quickly. My sense is that these folks had little confidence that Cohen understood those lines or cared about following them.
They decided it was better not to deal with him at all. This to me seems pretty plausible. The next part also seems plausible. Why’d they keep paying Cohen? Because they were afraid of pissing off Trump. This is very plausible. Did Cohen give them some reason to think this? Again, very plausible.
I do not think we’ve heard the end of this story.