30 Business or Ethics amount out of a $50 V get, but Bed At the tir insignificant cultural pur plant in Ca If parents are outraged by Beech-Nut's had confessed in a press release that it had bro- actions, many people are also baffled. Even ken a "sacred trust. after the trial and verdict, the question of Yet there was Niels Hoyvald, 54 years old, motive lingers: why would two men with tall, silver-haired, immaculately dressed, stand- ing before Judge Platt with head bowed, as his impeccable records carry out so cynical and reckless a fraud? Except for Theuer, no cur- attorney. Brendan V. Sullivan, Jr., described rent Beech-Nut employee who was involved in him as “a person we would be proud to have in the events of the trial agreed to be inter- our family.” When it was Hoyvald's turn to viewed for this article, nor did Hoyvald or address the judge, he spoke firmly, but then his voice cracked as he spoke of his wife and Lavery. But a vivid picture of the economic and psychological concerns that impelled the mother: “I can hardly bear to look at them or speak to them,” he said. “I ask for them and company along its ruinous course emerges myself, please don't send me to jail.' from court documents and a wide range of Judge Platt was clearly troubled. He spoke interviews. The Beech-Nut baby food scandal in a semiaudible mutter that had the crowd in is a case study in the warping effects of blind the courtroom craning forward. Though it was korporate loyalty. unusual for a corporate executive to do time v For three-quarters of century after its found- for consumer fraud," he said, he had “no alter- ing in 1891 as a meatpacking company, Beech- native” but to sentence Hoyvald to a prison Nut expanded steadily into a large, diversified term of a year and a day, plus fines totaling food concern, eventually including Life Savers, $100,000. He then meted out the same punish- Table Talk pies, Tetley tea, Martinson's coffee, ment to the 56-year old Lavery, who declined chewing gum and, of course, baby food. The to speak on his own behalf. He received his company had an image straight from Norman sentence with no show of emotion. Rockwell-pure, simple, healthful. In 1969, The combination of babies, apple juice and a Beech-Nut was taken over by the Squibb Cor- well-known name like Beech-Nut makes for a poration. Only four years later, a remnant of potent symbol. In fact, apple juice is not espe- the old company was spun off and taken cially nutritious (bottlers often fortify it with private by a group led by private by a group led by a lawyer, Frank C. extra Vitamin C), but babies love it and find it Nicholas. The company that emerged from the easy to digest. Parents are pleased to buy a prod- Squibb umbrella sold only baby food, and, as uct that says “no sugar added”—as Beech-Nut added”—as Beech-Nut in earlier years, regularly divided with Heinz advertised—and seem to regard it as almost as the third or so of the market not controlled by pure and natural as mother's milk. That, of Gerber. It was a completely new world for course, was the sacred trust Beech-Nut broke, Beech-Nut’s newly independent owners, and and is now struggling to repair . The company's an extremely precarious one. Beech-Nut was in share of the $760 million United States a continuous financial bind. baby-food market has dropped from a high of After an expensive and unsuccessful effort 20 percent in 1986, when Beech-Nut and the in the mid-1970's to market Beech-Nut as the two executives were indicted, to 17 percent this "natural" baby food, the imperative to reduce year. Its losses in the fruit-juice market have costs became overwhelming. In 1977, when a . been even more dramatic. Richard C. Theuer , Bronx-based supplier, who would later take the company's president since 1986, still gets a the name Universal Juice, offered Beech-Nut stream of letters from outraged parents "who a less-expensive apple-juice concentrate, for of them, he says are "almost obscene. retired, says was only slig! petition's. “T the quality or other baby-fod juice manufa quantities of early 1981, He to Universal al conventional I plier refused to plant. Another Fede contends that sal concentrate 25 percent belo been enough in the concentrate Jack B. Hartog, a Nut much of its a agrees with Flede about it in the trag John Lavery, F of operations and Canajoharie, did ticity of the con his entire career a risen to a position almost 1,000 emplo around Canajoharie Montgomery Coun Lavery was known-as rectitude. "He was as anything you cou Ed Gros, an engineer at Beech-Nut. Laver don't realize that it was a long time ago." Some company abandoned its longtime supplier the new source. The savings would never Methodist church, or in community organic but Beech-Nut was under the gun. Business or Ethics 31 -Nut's · Even ion of with al and O cur- ved in inter- ald or nomic ed the retired, says out of a $50 million-plus manufacturing bud- presence of impurities in the new concentrate, At the time, the decision may have seemed In 1978, after initial testing indicated the Lavery agreed to send two employees to inspect plant in Canajoharie, N.Y., who has since the "blending facility that Universal's owner, insignificant. Ira Knickerbocker, head of agri- Zeev Kaplansky, claimed to operate in New cultural purchasing at the main Beech-Nut Jersey. The two reported that all they could find that in 1977 the new concentrate was only slightly less expensive than the com- drums. The bizarre field trip aroused further petition's. “There was never a question about plant, but only one, Jerome J. LiCari, head was a warehouse containing a few 55-gallon the quality or anything else," he insists. Yet no other baby-food company, and no large apple- erges ge of suspicions among executives at the Canajoharie of research and development, chose to act andal blind LiCari sent samples of the concentrate to an outside laboratory. The tests, he reported plant. pund- eech- sified avers, offee, The juice manufacturer, ever bought significant quantities of concentrate from Universal. In early 1981, Heinz would return the product to Lavery, indicated that the juice was adul- to Universal after samples had failed to pass terated, probably with corn syrup. Rather conventional laboratory tests and the sup- than return the concentrate, or demand plier refused to let company officials visit the proof of its authenticity, as Heinz would do contends that the low price of the Univer- ment," indemnifying Beech-Nut against dam- Another Federal prosecutor, John R. Fleder, that Kaplansky sign a “hold-harmless agree- three years later, Lavery sent down the order ages arising from consumer and other com- man 969, Cor- nt of aken k C. the d, as einz d by for and sal concentrate, which eventually reached 25 percent below the market, “should have plaints (Ironically , in May 1987 Beech-Nut the concentrate was diluted or adulterated. $7.5 million.) been enough in itself to tip off anybody” that settled a class-action suit against it totalling Jack B. Hartog, a supplier who had sold Beech- LiCari, however, was scarcely satisfied by Nut much of its apple concentrate until 1977, Lavery's legalistic approach. Like Lavery, agrees with Fleder: “There was no question LiCari was also every bit the local boy. Born about it in the trade.” and raised in neighboring Herkimer County, John Lavery, Beech-Nut's vice president he had worked in the Beech-Nut plant dur- of operations and manager of the plant in ing summers home from college, and, after Canajoharie, did not question the authen- 14 years with Beech-Nut, he had achieved his ticity of the concentrate. After spending greatest ambitions. Yet it was LiCari who his entire career at Beech-Nut, Lavery had accepted the solitary role of institutional con- risen to a position in which he managed science. In April 1979, and again in July , he almost 1,000 employees. In the small hamlets Mound Canajoharie, a company town in rural laboratory , in California. The April test again rectitude. “He was as straight and narrow as in sent samples of the concentrate to a second fort the uce switched from corn syrup to beet sugar, an en a. ake Nut the Montgomery County, northwest of Albany, found signs of adulteration, but the July test Lavery was known-as a figure of propriety and did not. LiCari concluded that Kaplansky had as anything you could come up with,” says adulterant that current technology could not Ed Gros, an engineer who worked with Lavery detect. Once again he approached Lavery, Methodist church, on the school board and for ver at Beech-Nut. Lavery was a fixture in the suggesting that Beech-Nut require Kaplansky to repurchase the concentrate. This time, Lavery instructed that the concentrate be in community organizations. urice Na'tela D Green Cynthia Greenwood Ally B Harris Hannah D Hennessy Mya Hicks Cole Higgins Business or Ethics 32 99 and in any case 'S? blended into mixed juices, where adulter- ation is far harder to detect. Lavery's attorney, LiCari tended to overreact, 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, includ- ing LiCari. conflict of roles, values, and personality. Steven Kimelman characterizes Lavery as “more like a general. He's the kind of guy who gives orders, Kimelman insists that Lavery “thought that felt that there was no other concentrate LiCari's tests showed no signs of adulteration whose purity he could entirely trust In fact, in several other, more expensive, concen trates. A harsher view is that Lavery acted Lavery and LiCari were locked in a hopeless quite consciously. “He just didn't care," says Thomas Roche, one of the prosecutors. "He gance. I think his sole objective was to show and he has no trouble making up his mind; Beech-Nut and Nestlé's (since 1979, the cor- Or perhaps Lavery had simply blinded him consumed by the issues of the concentrate. By self to the consequences of his acts. The apple showed an extraordinary amount of arres I you found. LiCari was too much of a scientist type to him, porate parent) that he could do well." and not practical enough." LiCari had become spring of 1981 he was working almost full juice had become merely a commodity and time on tests to determine its purity. Finally, on the babies merely customers. One exchange Aug. 5, Licari circulated a memo to executives, between another prosecutor, Kenneth L. Jost. including Lavery. “A tremendous amount of and an executive at the Canajoharie plant circumstantial evidence," he wrote, makes for Robert J. Belvin, seemed to sum up Lavery's "a grave case against the current supplier” of state of mind: apple concentrate. No matter what the cost, “Mr. Belvin, what did you do when LiCari concluded a new supplier should be found that Beech-Nut had been using a prod uct in what is called apple juice that was not in Several days later, LiCari was summoned to fact apple juice?" Lavery's office, where, as he told the jury, “I was “I—I became very upset" threatened that I wasn't a team player, I wasn't “Why were you very upset?” working for the company, threatened to be “Because we feed babies. fired." The choice could not have been more “Did you ever hear Mr. Lavery express a sen- stark: capitulate, or leave. timent similar to that you have just described Many of those who know Lavery find this to the jury?” picture of him simply unbelievable. The "No." Canajoharie view is that Lavery was victimized. By 1979, Beech-Nut's financial condition Ed Gros , Lavery's former colleague, speculates had become so parlous that Frank Nicholas that LiCari “had a personal vendetta" against admitted failure and sold the company to Lavery. Ira Knickerbocker blames the Govern- Nestle S.A., the Swiss food giant. Nestlé ment. Yet even Lavery's friends admit to a kind arrived with $60 million in working capital of moral bafflement. “I've lost a lot of sleep and a commitment to restore a hallowed over this," says a former company vice presi- brand name to health. The view in the food year as chief executive, he had g promised Nestlé that Beech-Nut w $700,000 the following year, tho would be a negative cash flow of $ Hoyvald had arrived at Nestlé o before, but he was a seasoned exec food business. The answer nevert back from Switzerland: the cas Beech-Nut, as for all other Nestlé s would have to be zero or better. sure," as he conceded, "was on." Hoyvald testified that he knew ng adulterated concentrate until the 1982. In January 1981, however, Lic to both Lavery and Hoyvald a copy in a trade magazine discussing si teration in apple juice, and had attached a memo noting, among that “Beech-Nut has been concer authenticity of fruit juice products told the jury that in August of th several weeks after his disastrous with Lavery, he went to Beech-Nu headquarters in Fort Washington, to Hoyvald—an uncharacteristic his faith in the chain of comm had been appointed presider months earlier, and LiCari testifie and trusted his new boss, whom mandate from Nestlé to restore prestige. The meeting in Fort W= suaded LiCari that he had finally Hoyvald, LiCari testified, “appe and surprised” at LiCari's repor feeling that something was goi and they would stop using it." Then, month after month, pened. Finally, at a late-fall com a ski resort in Vermont, LiCari with Hoyvald one last time. Ho he testified, that he was un Lavery. (In his own testimony, that either meeting had taken LiCari was now convinced pany was bent on lawbreaki > che dent, Bill Johnsey. industry was that Beech-Nut had been rescued from the brink. Yet evidence presented at the threatened LiCari, but concedes that his trial gives the exact opposite impression-of a managers. Hoyvald, who chose to testify on his client made a "mistake in judgment.” The Procrustean bed being prepared for nervous own behalf, admitted that in 1981, his first mistake was in not kicking the matter up to Hoyvald when he received the Aug. 5 memo. C ht that y case ntrate n fact, ration ncen- 33 acted says "He arro- show cor- I 이 him- pple and nge Ost, ant ry's ou od- in Business or Ethics promised Nestlé that Beech-Nut would earn year as chief executive, he had grandiosely testified, and rather than acquiesce, he quit , in January 1982. His allies concerned with $700,000 the following year, though there quality control remained behind, but evi- Hoyvald had arrived at Nestlé only a year would be a negative cash flow of $1.7 million. dently none was stubborn or reckless enough to press his point. before, but he was a seasoned executive in the Hoyvald, like Lavery, was a man with an back from Switzerland: the cash flow for food business. The answer nevertheless shot exemplary background, though one that was a good deal more varied and sophisticated Beech-Nut, as for all other Nestlé subsidiaries, than his subordinate's. Born and raised in a sure," as he conceded, "was on.” would have to be zero or better. “The pres- provincial town in Denmark, he had relo- cated to the United States and received his Hoyvald testified that he knew nothing about Master of Business Administration degree adulterated concentrate until the summer of from the University of Wisconsin in 1960. An 1982. In January 1981, however, LiCari had sent ambitious man, Hoyvald had hopscotched to both Lavery and Hoyvald a copy of an article across five companies before joining Beech- in a trade magazine discussing signs of adul- Nut as head of marketing in 1980, with the teration in apple juice, and had written and promise that he would be promoted to presi- attached a memo noting, among other things, dent within a year. Throughout his career, that “Beech-Nut has been concerned over the Hoyvald's watchword had been “aggressively authenticity of fruit juice products.” LiCari also marketing top quality products," as he wrote told the jury that in August of that same year, in a three-page “Career Path” addendum to a several weeks after his disastrous confrontation 1979 résumé. He had turned around the fal- with Lavery, he went to Beech-Nut's corporate . tering Plumrose Inc., a large food company, headquarters in Fort Washington, Pa., to appeal by emphasizing quality, and he viewed the job to Hoyvald—an uncharacteristic suspension of at Beech-Nut as a chance to do just that. his faith in the chain of command. Hoyvald In June 1982, Hoyvald's principles were had been appointed president only four abruptly tested when the quality of his own months earlier, and LiCari testified that he liked product was decisively challenged. A trade and trusted his new boss, whom he felt had a association, the Processed Apples Institute, mandate from Nestlé to restore Beech-Nut's had initiated an investigation into long- prestige. The meeting in Fort Washington per- standing charges of adulteration throughout suaded LiCari that he had finally found an ally. the apple-concentrate business. By April 1982, an investigator working of the insti- Hoyvald, LiCari testified, “appeared shocked tute, a former New York City narcotics detec- and surprised” at LiCari's report, and left him feeling that something was going to be done tive named Andrew Rosenzweig (who is now chief investigator for the Manhattan District and they would stop using it. Then, month after month, nothing hap- Attorney's office), was prowling around the Woodside, Queens, warehouse of a company pened. Finally, at a late-fall company retreat at 7- - d " a ski resort in Vermont, LiCari raised the issue called Food Complex, which was Universal's with Hoyvald one last time. Hoyvald told him, manufacturing arm. By diligent question- he testified, that he was unwilling to fire ing, and searching by flashlight through a Lavery. (In his own testimony, Hoyvald denied dumpster in the middle of many nights, that either meeting had taken place.) Rosenzweig discovered that Food Complex LiCari was now convinced that the com- omitted apples from its recipe altogether, pany was bent on lawbreaking, as he later and that its biggest customer was Beech-Nut. Maurice Na'tela D Green Cynthia Greenwood Ally B Harris Hannah D Hennessy AUG Mya Hicks Cole Higgins Business or Ethics The Apple Institute's suit, as it 34 turned On June 25, Rosenzweig tracked a tanker full of sugar water out of the Food Complex loading dock and up the New York State VHO'S ing the worst, he secretly tape-recorded the ensuing conversation. was only the first wave to hit the beach. Federal Thruway to Canajoharie, where he planned suppliers of adulterated concentrate since and state authorities had been investigating to confront management with his findings. the spring, and the trail led them, too, to to join a civil suit being prepared against United States Food and Drug Administration He was hoping to persuade the company Canajoharie. On July 29, an inspector from the Universal and Food Complex; but, expect- arrived at the plant, announced that samples taken from supermarket shelves had proved to be adulterated, and took away cases of apple At the trial, the tape proved to be a damn- 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 ing 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 con- centrate, unleashed a cascade of tortuous that the trade association had made new tried to laugh the whole thing off . It was only strides in lab testing, Lavery, obviously panick- then that he realized-as would each investiga ing, suddenly announced; “At this point, we've tor in his turn—that Beech-Nut was not the made our last order from Universal.” But victim of a crime, but its conscious perpetrator. despite considerable pressure, Lavery refused Guerrette's phone call persuaded Lavery to give Rosenzweig samples of the concen- and others—incorrectly, as it turned out—that trate, and declined to join the suit. The one a seizure action was imminent. After consult- anxiety he expressed was the possibility of bad ing with Hoyvald, executives in Canajoharie publicity. decided to move the entire inventory of On June 28, Paul E. Hillabush, the head tainted juice out of the state's jurisdiction. of quality assurance at Canajoharie, called And so, on the night of Aug. 12, nine tractor- Hoyvald to tell him of Rosenzweig's visit. trailers from Beech-Nut's trucking company Hillabush testified that he suggested Beech- were loaded with 26,000 cases of juice and Nut recall the product. But Beech-Nut would taken in a ghostly caravan to a warehouse in not only have had to switch to a new and more Secaucus, N.J. One of America's most venera- expensive concentrate, it would have had to ble food companies was fleeing the law like a admit publicly that the product it had been bootlegger. selling since 1978 was bogus. The cover-up, By the late summer of 1982, Beech-Nut was which Lavery had begun three years earlier racing to unload its stock before regulators with the order to blend the concentrate in initiated a seizure action. On Sept. 1, Hoyvald mixed juices, was attaining an irresistible managed to unload thousands of cases of juice momentum from the Secaucus warehouse to Puerto Rico, Hoyvald made the fateful decision to reject despite the fact that the Puerto Rican dis- Hillabush's advice, and to devote the next tributor was already overstocked. Two weeks eight weeks to moving the tainted products as later, Hoyvald overruled his own lawyers and fast as possible. It would be aggressive market- colleagues, who again suggested a recall, ing, though not of a quality product. and ordered a feverish “foreign promotion": under certain circumstances, American does not prohibit the selling abroari of ucts banned at home. Within days, 2 cases were trucked at great expense fros company's San Jose, Calif., plant to Gal Tex., where they were off-loaded fe Dominican Republic, where they were a 50 percent discount. While Beech-Nut's sales staff shipe evidence out to sea, its lawyers were the Federal and state agencies at Sept. 24, lawyers scheduled a meeti F.D.A. officials that was designed to their adversaries. It worked. Thre weeks passed before the F.D.A. Admi Taylor M. Quinn, threatened to juice, and thus finally wrung from pany a pledge to begin a nationwi New York State authorities, les threatened a seizure before Beec riedly agreed to a state recall. Bu allowed Niels Hoyvald to virtuall- his master plan. By the middle of November Ho boast, in a report to his superio "The recall has now been comple to our many delays, we were on having to destroy approximately We received adverse publicity in azine.” As it turned out, of cou self-congratulation was prematu Further Federal and state exposed details of the cover-up fact that Beech-Nut had con the juice in its mixed-juice months after the recall. New Beech-Nut for selling an adul branded product, and imp fine, by far the largest su assessed in the state for con In November 1986, the Unit obtained indictments of Beech-Nut, Zeev Kaplansk colleague Raymond H. W che Jor en
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