Tuesday, 23 October 2012

Day 74: "My mission was to restore profitability"

See note on accessing documents at the end of this post.

The second and last day of Mr. Patrick Fennell's testimony at the Montreal trial of the Quebec class action suits against tobacco companies was more fractious, but no less revealing than the first. 

Yesterday the questions had been directed by the the somewhat distant Gordon Kugler. Today the second round for the plaintiffs went to the more combative Bruce Johnston - and it was an uphill battle for him all day. Opposing counsel, judge and witness all contributed to a verbal obstacle course to his questions.

Mr. Fennell volunteered little about what he knew about the company or the industry during the period he headed Rothmans, Benson and Hedges (1985-1990). Nonetheless, he revealed much about the thinking of a    professional manager trying to satisfy tobacco shareholders while keeping health regulators at bay.

Managing public pressure 

Although all three of the big tobacco companies in Canada are now privately held by multinationals, two of them were publicly traded companies during Mr. Fennell's time at RBH. One of his jobs was to participate in the annual shareholders meetings and to field questions from shareholders, including those in the public health community who used the opportunity to challenge tobacco industry practices.

Records of some of these exchanges (Exhibit 847848  are like snapshots of the company's position at the time, as are briefing books prepared for the event (Exhibit 849).

Today, Mr. Fennell tried to distance himself and the company he once worked for from the statements they made on two of these meetings. He told the court that company chairman, Senator Kelly, was wrong to say "I guess I am not" to a question about being concerned about the rate of kids smoking and that Mr. Kelly was wrong to say that the position of the company was that "it hasn't been proven than smoking causes lung cancer."

As to why he had let the answers stand and had not corrected the record, he first testified that he didn't know, but then tried to shift the focus. "Have you ever met Mr. Sweanor?" he asked "In a disruptive situation, as this was, I felt that Senator Kelly was handling the situation as well as he could and my adding a comment would not help, so I withheld any comments." 

But on the fine distinctions that have been made about "cause," he fudged. Senator Kelly had told shareholders that the company was "still taking the position that it hasn't been proven that tobacco products cause lung cancer."  Today, Mr. Fennell said the position of the company in 1987 was "the one I stated at the legislative hearing," but didn't restate it. 

"Did you believe that it had been proven that tobacco products caused lung cancer?"
"At the time I believed that smoking could cause cancer with some people."
"And you thought this had been proven?"  "No I did not."

The NSRA had written Mr. Fennel to put the company on notice that it had not adequately warned customers about the harms of smoking, and to draw attention to a Globe and Mail story on teenagers' poor understanding of the health harms for smoking. (Exhibit 853)  No reply had been sent. Mr. Fennell explained "The NSRA did not have credibility with me, hence whatever they sent us was suspect, usually inflammatory."

Seeing the government as an adversary 

In 1985, a month before Mr. Fennell joined RBH, the corporate affairs department of Rothmans Benson and Hedges also prepared background material on sensitive issues (Exhibit 850). Mr. Fennell explained that he had never seen the document because he was too busy with "business decisions" to read "historic documents."

He did not refute the contents of the document, saying that at times they had seen the Health Ministry as adversaries. He confirmed the view in the paper that the industry did not agree that there was a causal relationship with disease. At first he explained that the reason the industry wanted the warnings attributed to the government was because "We believed that if the government was going to regulate us they also had to be responsible for attribution," but later confirmed that a reason they wanted them attributed was because they did not believe that the health warning statements were scientifically proven.  Health-Canada related exhibits:  851
And were those warnings necessary?

Mr. Fennell, like other witnesses, has been unable to answer questions about the magnitude of the risks of smoking, or the number of smokers who are harmed. His answers show his ability to simultaneously maintain  two apparently contradictory positions: 

"Can you give me your understanding of what the risks to a lifetime smoker were?"
"This is conjecture because I don’t have hard information. My mother smoked from the age of 15 to 95. That one example that the only one I have hard facts about. ... We chose never to talk about those numbers because it would confuse the government's message."

"You haven’t answered my message. What were the chances?"
"I don’t know."

"Ten percent? Ninety percent?"
"I don’t know. How can I know." 
"Did you think that was an important factor in an informed decision whether to smoke?"
"I think it is important to know. And smokers know it."
"But you don’t know it."
"They know it. They know that if they smoke for an extended period time there is a chance they will get sick and die."

All hang together or all hang separately: RBH and the CTMC

Over the past two days, Mr. Fennell emphasized the "highly competitive" relationship between tobacco companies. He explained that his concerns that the CTMC was being managed to the advantage of Imperial Tobacco was behind his decision to withdrawing RBH for a period from CTMC membership. (He said that their withdrawal was publicly announced, although he could not recall the dates and there appears to be little paper trail in newspaper archives). 

He confirmed that Mr. Bédard had been recruited by Imperial Tobacco to set up the Smokers' Freedom Society, and affirmed the misgivings he had shared at the CTMC about funding the organization. (Exhibit 60A). He also confirmed that the Four Seasons project was "in preparation in the event of a lawsuit in Canada."  CTMC-related exhibits: 854

Whatever happened to RBH's science files?

Although concerns about litigation have been linked to the destruction of scientific documents with Imperial Tobacco, Mr. Fennell could offer no insights as to why it is that the science records from Benson and Hedges are no longer in the files of the merged company, Rothmans, Benson and Hedges. His expressed the view that it would have been inappropriate to get rid of these files as "the optics of returning information to another party or destroying information or material implies you have something to hide."

No surprises, please

Mr. Potter takes umbrage when documents are shown to his witnesses that have not been previously circulated. Yet this witness showed the benefit of introducing new documents, as doing so can trigger changes in testimony.

One such document was a contract between Philip Morris International and Rothmans, Benson and Hedges, for services that included public relations materials "for use in presenting the position of the tobacco industry in Canada." (Exhibit 852)  Mr. Fennell had said that no contractual arrangement existed, but when  his memory 'refreshed' with this 'surprise' document, he acknowledged that RBH had paid 1% of its revenues to each of Philip Morris International and to Rothmans International for the "services we requested."

Is exaggerating health concerns to sell more cigarettes any better than denying them for the same reason?

Mr. Johnston returned to the advertisements that had been placed by Rothmans in the early 1950s that suggested an acceptance of the relationship between cigarette tar and cancer. Today Mr. Fennell said that he had never seen the advertisements until preparing for this testimony, but offered his explanation of the thinking behind them.

"At that time Rothmans was introducing or had introduced a filter. It was considered to be revolutionary and to help in the health of smoking cigarettes. I believe that the company in the early days was overstating the health concern and were being opportunistic because they were bringing out something that was going to help... This is more of a sales document that something that would help the health of consumers. To position this as anything else is an error."

The Cross Examination

It was not long after lunch that Mr. Johnston asked his last question and the opportunity for other parties was made available. 

Maurice Regnier, lawyer for the Attorney General, was the first to follow up. Yesterday, Mr. Fennell had testified that the industry agreement on expenditure ceilings on promotions was "part of a voluntary code, and the Government told us what we could spend and what share we could each have, and the share of it was dependent on our market share."

Mr. Regnier wanted to know whether Mr. Fennell could recall the federal government ever instructing the companies on the amount they could spend. The witness didn't seem to understand the question, but eventually acknowledged that the sum was established within the CTMC. (Exhibit 433E). If the voluntary code was an agreement with the government, did Mr. Fennell ask permission of the government before withdrawing from the CTMC and the code? "I am not sure. If so, it was by someone other than by myself. My guess is that it didn’t happen."

Restoring the company to health 

a decreasing market share
Exhibit 830
Mr. Potter's cross examination was a more measured event than his dramatic questioning of Mr. Cohen last week. His approach left me scratching my head a little - in focusing on the concern Mr. Fennell had for shareholders, he underscored the contrast with his lack of interest in the company's consumers. 

It may have been the first time that Mr. Fennell volunteered the use of the word "healthy".  

Mr. Fennell testified that the company had lost $30 million in the first year of his presidency. Without management action "we would be out of business and not one less tobacco product would be sold," he explained. He made drastic cuts and 1,500 jobs were shed, but the remaining 1,000 workers "had jobs – good jobs – well paid, well taken care of. They stayed because they were with a healthy company."

Mr. Potter led Mr. Fennell to testify that at the heart of the company's problem was the older age of its clients. Mr. Fennell explained that the average age of their customers was 48, while the average age of Imperial's customers was 33 and RJR-Macdonald was 40. Mr. Potter underscored that the financial crisis faced by RBH was that it was a failure at the task of getting a younger market. In defending his client, he touched on an issue that has been identified earlier: the key to long term success is young smokers.

At 4:10, Justice Riordan thanked Mr. Fennell and wished him well.  Mr. Fennell shook hands with the lawyers that had questioned him, and also with the (presumably) Philip Morris team that has been a recent presence. Exhibits related to business operations: 855858

The questions not ask-able. 

The statistics have not yet been gathered, but if there is a contest on the industry benches for who gets the most favourable decisions from Justice Riordan, Simon Potter appears to be winning. Today he scored a hat trick.

Win 1: After Mr. Potter's objection, Bruce Johnston was not permitted to ask Mr. Fennell whether he felt that it was appropriate to place advertisements in the magazine, Junior Hockey

Win 2: Mr. Potter was also able to block questions about a fight between Rothmans, Benson and Hedges and Imperial Tobacco over the marketing of "custom cut" semi-manufactured cigarettes. Because these marketing innovations were considered as fine-cut by tax officials, they were taxed at $25 less per carton than regular cigarettes and naturally enough were a game changer on the market. Imperial Tobacco's attempt to respond with a similar product was struck down by the Federal Court in 1991.
Patent for Custom Cut

 Justice Riordan, having once before ruled out questions on fine cut, and apparently unaware that these products were legally fine-cut but physically cigarette-like, ruled the question out of order. (It took a decade or more for tax departments to decide that these products should not have any tax advantage. When the tax rates were equalized, the products disappeared from the marketplace.) A marketing innovation to undermine the health benefits of tax policy has now been shielded from this trial.

Win 3: The last (unanswered) question of the day went to the heart of the case.

Mr. Fennell spoke with apparent pride of the challenge he  undertook to try to "save" RBH from imminent bankruptcy.  "My mission was to restore profitability. To deal with the difficult things that had to be done – reducing the number of people, changing the management, focusing on a new strategy, turning market share around."  He spoke of his personal and financial stake in the outcome. He did not receive a performance bonus for 4 years, and his pride was on the line. "If the market share did not turn around, it would have been for naught .... I would have been a total failure." (It is a well equipped courtroom, but there were no violins to cue). 

Yet Simon Potter's objection to the following question was maintained: "In your search for profitability, did you consider that lives were less important than profits?"

Tomorrow the trial reverts to witnesses from JTI/RJR-Macdonald with the testimony of Mary Trudelle, a former public relations official.

To access trial documents linked to this site:

The documents are on the web-site maintained by the Plaintiff's lawyers. To access them, it is necessary to gain entry to the web-site. Fortunately, this is easy to do.

Step 1: Click on: https://tobacco.asp.visard.ca

Step 2: Click on the blue bar on the splash-page

"Acces direct a l'information/direct access to information" 
You will then be taken to the document data base.

Step 3: Return to this blog - and click on any links.