Influence Peddling, Nestle Style

Nestle Corporation, under fire for its marketing of infant formula in the Third World, has responded by launching a propaganda campaign in the press and at national and international forums.

Direct rebuttal having failed, the Swiss-based food giant Nestle has shifted to a new strategy for countering charges about the way it markets its infant formula in developing countries.

The approach calls for Nestle itself to maintain a low profile in the infant formula marketing debate, but to encourage others outside the corporation to advocate its position to the hilt.

Though the new approach may have helped stall the reform of infant formula marketing practices, it has done so at some cost to the company's already tainted image. An internal memo recently leaked by a Nestle executive in Vevey, Switzerland raises serious ethical questions about the tactics Nestle is deploying in pursuit of its new "third party" strategy.

The 1500-word memo is a report by Nestle vice-president Ernest W. Saunders to Arthur Furer, the chief executive officer of the company. It offers an extraordinary glimpse of corporate thinking on how to deal with critics.

Saunders, heading the company's efforts to stall infant formula marketing reforms, wrote his memo fresh from a three-day fact-finding mission in the U.S. last summer. He recommends in the memo that as a result of the "lack of credibility for any company to overtly sell itself when it has been attacked," the company should promote "third party rebuttals of the activists' case."

More than simply publicizing such "third party" views, Saunders appears to urge Nestle to sponsor them, albeit discreetly. At the top of the agenda, suggests Saunders, should be efforts to "encourage" the work of the Washington, D.C. Ethics and Public Policy Center, headed 4 by Ernest Lefever, the rightwing ideologue whom President Reagan has nominated for the post of Assistant Secretary of State for Human Rights.

Joining Lefever on the "encouragement roster" is Herman Nickel, Fortune's Washington editor and author of a diatribe against infant formula activists which recently appeared in the business magazine.

An ordained minister, Lefever consistently has criticized church activists involved in corporate responsibility and, human rights issues; His most r recent' book, Amsterdam to Nairobi: the World Council of Churches and the Third World, is a tirade against the: denominational organization's support for progressive causes.

It is quite plausible - though not necessarily the case - that Lefever, independent of any prodding from industry, decided to turn his guns on the infant formula marketing campaign in the fall of 1979. It is certainly not surprising that, having made his decision to focus on the issue, he would look to ideological soul-mate Herman Nickel to author the study.

In October, 1979, Nickel signed a $5,000 contract to write the study for Lefever: $2,500 upon delivery of the manuscript, and the remainder upon publication. Nickel's superiors at Fortune granted permission for him to do the project - on the condition that he would write a "spin-off" article for the magazine.

Soon after his initial discussion of the proposal with Lefever, Nickel grew a bit wary, having learned of o Lefever's plans to have the submitted manuscript reviewed by a three-person panel that would include a representative of the infant formula industry.

Nickel did not attempt to change the ground rules for his study, which are standard operating procedure at the Ethics and Public Policy Center. However, for the record, Nickel wrote a letter of understanding stating that the inclusion of an industry representative on the review panel "will in no way impair the independence of my study and my right to reach whatever conclusions I find are warranted by the evidence." The letter also noted Lefever's assurance that "none of the funding will come from the infant food industry."

With Lefever's acceptance of this document, Nickel set to work, reporting on the issue while at Fortune, as well as on his own time. Nickel's first draft of the study for Lefever's group is far from complete. But any lingering doubts about the direction Nickel's study will take were laid to rest in Nickel's venomous spin-off article for Fortune in June, 1980 (see page 7).

Nickel's article was immediately seized upon by the industry as a clarion call in the campaign to vindicate the reputation of infant-formula manufacturers. "The Fortune article, together with the interests of the Ethics and Public Policy Center, is the best opportunity we have had yet to put the record straight, and must be fully exploited," the Nestle memo advised (emphasis theirs.)

Bristol Meyers and other infant formula companies have purchased more than 100,000 reprints of the article for distribution to shareholders. Nickel receives a share of royalties on copies sold, although Fortune personnel refused to disclose the manner in which the royalties are shared.

In July, 1980, Lefever's group published its own slick reprint of Nickel's "The Corporation Haters," changing its title - without first getting the approval normally required by Fortune - to "Crusade against the Corporation: Churches and the Nestle Boycott."

Two months later, the Ethics Center chose the Nickel reprint as the centerpiece for a nationwide fund-raising mailing addressed to "community leaders." All told, a nice piece of industry advocacy. Indeed, Nestle vice-president Saunders recommends in the internal memo that "there must be maximum exploitation of the opportunities presented by the Fortune article and the Ethics and Public Policy Center's willingness to undertake additional activity."

The leaked Nestle memo, however, suggests that the article would be embarrassing for Nestle if the financial connections between Nestle and Lefever's group became known.

Last year, as Lefever's group cut financial ties with Georgetown University and began to fundraise on its own, Nestle S.A., through its U.S. subsidiary, became a leading contributor to the Ethics and Public Policy Center.

Such financial backing apparently made David Guerrant, president of Nestle's subsidiary, a little apprehensive. The memo states that Guerrant "is somewhat concerned that Nestle should not be seen to be the dominant subscriber to the Ethics and Public Policy Center."

The memo then adds that Thomas Ward, Nestle's Washington lawyer and senior partner at Ward, Lalos, Keegan and Lett, "informs us that there are ways in which this matter can be satisfactorily handled." Memo-writer Saunders recommends that "Mr. Ward remain closely involved in follow-up activity with the Center."

Only the most naive - or disingenuous - would fail to read the bit of counsel from Ward as a suggestion that Nestle would be able to cover up the extent of its support for Lefever's group.

Lawyer Ward declines to expand on what Saunders meant in this troubling passage, citing the privilege of the lawyer-client relationship.

And Nestle's New York public relations firm, tapped by Nestle's Vevey, Switzerland headquarters to fend off all queries raised by the leaked memo, dismisses any unflattering interpretations of Ward's remark. A spokesperson at the Daniel J. Edelman Agency insists Guerrant was concerned to avoid Nestle appearing as the Center's dominant subscriber for the simple reason that Nestle is not the Center's dominant subscriber. According to the spokesperson, when Ward said the money matter "could be satisfactorily handled," he meant that it would not present a problem since Nestle is not the dominant contributor.

Just how significant were Nestle's 1980 contributions to Lefever's group?

It is difficult to say with certainty, since Lefever declines to discuss details of his funding, and he is not required by law to disclose such information. Lefever did offer that his group's total operating budget for 1980 was approximately $500,000 with about 10 percent of funds coming from corporate contributors, 10 percent from the sale of literature, and 80 percent from foundations.

Nestle, S.A. however, has disclosed that its U.S. subsidiary gave Lefever's group $25,000 in 1980, making Nestle unquestionably the Center's largest corporate patron, and the contributor of fully five percent of the Center's operating funds for the year. The corporation says it contributed $5,000 in March, 1980, to the Center's general fund. Several months later, in "the summer of 1980" (Nestle says a more precise dating of the contribution "isn't relevant"), the corporation gave another $20,000.

It is of course conceivable that even more money has found its way to the Center (perhaps with lawyer Ward's help) which Nestle has not disclosed. The Center's books, after all, are- confidential, and there are myriad ways in which money could have been funnelled through third party groups to the Center.

Leaving that aside, one is left still questioning the degree of impact Nestle's largesse has had on the work of the Ethics and Public Policy Center.

Nestle's hefty donation came in the same period Lefever reprinted Nickel's - Fortune article and decided to use it as promotional material. Who can but wonder what was discussed early in August when Herman Nickel and Ernest Lefever met Nestle memo-writer Saunders and lawyer Ward for dinner at Washington's University Club?

Nickel, Lefever and Nestle, of course, claim that all their actions have been completely above-board and ethical. In August, says Nickel, he spoke with Nestle's Saunders as "a reporter talking to a source." Nickel claims he was unaware of Nestle's contributions to the Center until the memo surfaced.

Ernest Lefever denies Nestle's donations had any effect on the conduct of the Ethics and Public Policy Center. "Even if I got 90 percent of my money from one source, it wouldn't influence me." He added, "The Center never permits any donor to influence the selection of any topic to be addressed, the selection of an author, or the conclusions."

Lefever also stressed that no donations have been specifically "earmarked" for the infant formula study - a seemingly trivial observation, since all of the Center's studies are technically financed by the "general fund" to which Nestle contributed.

While Lefever has been diplomatic in his response to reporters' queries on Nestle's relationship with his group, he has not been above hardball tactics.

Ten days after the Lefever-Nestle connection first surfaced publicly in a Washington Post article, Lefever was on the offensive. In a January 14 opinion article in the Wall Street Journal, Lefever came forward with his first printed attack on the formula marketing reform movement, written in the best Herman Nickel "Corporation Haters" tradition.

Finally, there is the Nestle Corporation, with egg on its face, trying to double-talk its way through the incontrovertible evidence leaked by its own executive. The company's response, through its New York public relations firm, has been to firmly - if somewhat cynically - hold its ground.

The company stresses that it was not even aware of the work of Lefever's group until after Nickel had started work on the Fortune article and the as-yet-uncompleted study. The decision to support Lefever's work, made early last year, was a "humanitarian gesture,. .. part of being a responsible corporate citizen," says the Nestle representative.

"Nestle believes that Dr. Lefever and his associates are dedicated to fair and reasonable treatment of important issues," the company spokesperson said, "and therefore believes it is a privilege to support this work, as Nestle supports various other charitable and educational programs."

A Nickel's Worth From its provacative title to its final sentence describing Nestle boycott supporters as "Marxists marching under the banner of Christ," Fortune editor Herman Nickel's article, "The Corporation Haters," is a Vitriolic attack against those involved in the infant formula campaign. Shot through with sarcasm and spitefulness, it is little wonder that this article has been the subject of more correspondence from Fortune than any other in recent years. The major focus of the piece is the involvement of church groups in the infant formula and other corporate responsibility campaigns. "For student radicals of the 1960's,"' explains Nickel, "one way to turn the `struggle' into a steady job is to join the issues staff of organizations like the Interfaith Center on Corporate Responsibility." When, on occasion, Nickel attempts to shift from shrill polemics to reasoned argument, the "reasoning" is most often confused, if not deceptive. It has not been proven, says Nickel, that "promoting infant formula by giving away free samples is a significant factor behind declines in breast feeding." This assertion he backs with only the flimsiest evidence: "the use of infant formula apparently increased sharply in the Soviet Union" (the author does not say when) and "breastfeeding has staged a strong resurgence in the U.S., where baby formula is heavily promoted. Organizers of the infant formula campaign are livid over the article. Douglas Johnson, director of the Infant Formula Action Committee (INFACT) campaign, labels Nickel's efforts "a red baiting attack - an apology for Nestle and the other leading manufacturers." "As our interviews with Mr. Nickel wore on," says Tim Smith of the Interfaith Center on Corporate Responsibility, "it became evident that he was more interested in a polemical attack on church corporate responsibility work than in fair reporting. A conspiracy theory of some sort loomed large in his mind." Meanwhile, Nickel - testy over the controversy he leaked Nestle memo has spawned - is quick to voice his own view on the boycott's merits. "The whole infant formula issue is a phony," he growled in a recent interview.

Nestle Infiltrates the World Health Organization Although Nestle has Previously centered its attention on countering the consumer boycott of its products, more and more evidence is appearing which suggests a new focus: influencing the development of national and international guidelines regulating infant formula marketing practices. In the past 18 months, international agencies - most notably the World Health Organization and UNICEF - as well as Third World governments, have heightened efforts to establish new marketing rules. And Nestle, again utilizing money in a seeming attempt to buy friends, is at the head of the corporate campaign to counter these efforts. "It is always possible that we could even win a battle in the U.S. and lose the war as a result of determined pressure on Third World governments and medical authorities," warns Nestle's Saunders. He describes the need for an effective "counter-propaganda operation" to beat back the international regulatory challenge as "urgent." The current focus of attention is Geneva, where after several years of international debate and negotiation, member governments of the World Health Assembly will finally vote this May on a set of marketing guidelines. A final draft of guidelines, approved by the WHO executive board in mid-January, is tough: it advises the banning of mass media advertising by the companies, the use of commissions to pay company sales agents, the distribution of free samples and the use of company "milk nurses" in maternity wards. Proponents of the code - ranging from Third World health professionals, to government officials, to First World consumer groups - are gearing up to counter the industry's final push to influence the adoption of a weaker code. From its head offices down the road from the- WHO's Geneva headquarters, Nestle is ideally placed to affect the international proceedings. It has not missed the opportunity. Nestle's answer to the international reform effort is the Zurich-based International Council of Infant Food Industries. Started by Nestle, but now representing companies accounting for 85 percent of Third World infant formula sales, ICIFI is presided over by none other than Nestle memo writer Ernest Saunders. In the last several months, ICIFI officials have been ubiquitous at WHO meetings in Geneva and elsewhere, wining and dining country delegates and WHO officials. Although ICIFI publicly professes that it is participating in the WHO negotiations in good faith, with every intention of abiding by whatever code emerges from the May Assembly, behind closed doors it has adopted a much more recalcitrant stance. A ICIFI memo given to participants in this summer's WHO consultations, for instance, contained a not-so-subtle threat of non-compliance from the industry if the draft code was not revised in certain ways. At the executive board meeting in January, ICIFI gave selected members of the committee a letter stating that the "World Industry has found this present draft code unacceptable." Among the supporting documents appended to the letters were copies of the pro-industry screed by Nestle's old friend, Ernest Lefever. Lefever's article was distributed one day after its U.S. publication in the Wall Street Journal. And, in a move that has caused quite a controversy in the Geneva U.N. bureaucracy, ICIFI has hired retiring WHO Assistant Director General Dr. Stanislaus Flache, as the industry organization's first executive secretary. Even more troubling, a recently leaked letter from a Nestle lawyer, Carlo Fedele, to a Nestle director, suggests Flache was already working informally for ICIFI in June 1980, while he was still in his position at the WHO.