Broker, Trader, Lawyer, Spy (15 page)

Penetrating this secrecy meant going beyond the typical competitive intelligence techniques. After all, as a private company,
Mars produced no detailed filings with the Securities and Exchange Commission, and left almost no other paper trail for the public to peruse.

B
ECKETT
B
ROWN HAD
arrived on the scene just in time to become Nestlé’s own private intelligence agency in the chocolate war.

In late 1997, the candy giants were battling over a new product: Nestlé Magic, a two-inch chocolate candy ball encasing a plastic shell that in turn held a small Disney-themed toy. Nestlé planned to market the candy for children as young as age three. Given that age group, Nestlé knew safety would be a concern. What’s more, the FDA had already warned Nestlé that the new product ran afoul of a decades-old law banning combinations of food and toys.

But Nestlé’s executives were satisfied that they’d tested the candy sufficiently, and they argued that the Consumer Product Safety Commission had signed off on it. They thought their disagreement with the FDA was a minor technical point, nothing that would stop the rollout of Nestlé Magic. They signed a deal with Whetstone Candy, a family-run manufacturing company based in Florida, to set up an assembly line for the new chocolates. The deal called for Nestlé to spend up to $6 million to construct a new building at the facility in Florida, and Whetstone hired as many as 125 employees to operate new machines to turn out the chocolate balls.

Nestlé began selling the candy in July 1997, sending marketing material to retailers with the tagline “The power of Nestlé. The excitement of Disney.” The product was an immediate success, moving swiftly off the shelves. The Disney tie-in was sure to be a winner. The toys inside the candy were based on the hugely popular animated film
The Lion King
and included such characters as Simba the lion and his sidekicks Timon and Pumbaa. There were also figurines of other characters from great Disney films: Cruella de Vil from
The 101 Dalmatians
, the genie from
Aladdin
,
and more.
*
Nestlé also knew that children four to twelve years old have an astonishing amount of purchasing power in the economy. The company calculated that parents of children in that age group spent about $3 billion every year. The Nestlé team predicted that Magic would soon be generating $1 billion in annual sales. “There was an obsession with Magic,” recalls one person who was involved. The chocolate pros knew how powerful the new rollout could be: “Whoever gets the toy-chocolate combination right, they’ve got the holy grail.”

But almost immediately, Nestlé came under a wave of assault from critics across the country. Complaints about the candy with a toy inside were being heard at federal agencies, on Capitol Hill, and in the offices of consumer groups. Even the Centers for Disease Control and the state attorneys general in Minnesota and Connecticut registered alarm. To Nestlé’s embattled executives, it looked like a coordinated attack. But they weren’t sure where it was coming from. In a 1997 memo stamped “Confidential,” a top officer at Nestlé summed up the few facts the company had: “We are aware that an individual (or individuals) are attempting to create questions about the safety of Nestlé Magic (i.e., that its marketing is illegal and/or presents a choking hazard for young children).”

Nestlé and its consultants decided to winnow down the list of potential suspects in the attacks, and consider the evidence before them. There were complaints about children who had choked, but Nestlé’s team couldn’t identify a single actual child who’d been harmed by the product. Science-minded Nestlé executives spent an inordinate amount of time examining and reexamining the product. They inserted the little plastic toys every which way into a plastic cylinder known as a “choke tube”—a device designed to mimic the opening of a small child’s throat. If any object fits entirely within the cylinder, the U.S. Consumer Product Safety
Commission considers it a potential choking hazard for kids. None of the Disney toys fit inside the choke tube, although the little Timon figure caused some worry. Still, Nestlé had designed the figurine to have overly large feet—feet that conveniently poked just over the lip of the choke tube. Nestlé concluded that its product was safe. Also, it still couldn’t find any kids who had been harmed.

To the veteran crisis experts at Nichols Dezenhall, the fact that no children had actually choked suggested that the campaign against Magic wasn’t prompted by one group often behind such publicity: trial lawyers. After all, if trial lawyers planned to sue for huge damages, they’d need plaintiffs. Without any actual children in evidence, that wasn’t happening. There was only one other possibility: the attack was coming from competitors.

In the candy business, a victory for one company often comes at a direct cost to another. Suddenly, Nestlé Magic was making the Mars market share disappear. Nestlé suspected that Mars was behind the sudden flurry of complaints about the new candy. Perhaps Mars was using friendly consumer groups to start an ostensibly grassroots campaign against Nestlé. Mars reminded some people at Nestlé of the dark paranoia of the Nixon White House. Surely the secretive company was capable of orchestrating a dirty-tricks campaign?

Nestlé needed to know for sure, and quickly. It wasn’t clear that all the attacks were coming from Mars, but the charges were starting to sting:

• A letter to the deputy commissioner of the FDA called the candy “extremely dangerous.”
  
• An anonymous fax to columnists and food writers across the country called the idea of toys inside candy a “crazy gimmick,” and complained that “this lunacy proposed by Nestlé to the FDA today should be loudly branded a bad idea by anyone who loves children.”
  
• And—going right to the top, or almost—someone sent a
  letter to Vice President Al Gore’s fax number at the White House, urging a ban on Nestlé Magic.
  

The chocolate war was raging in Washington. Soon, even odder things began to occur. In late 1997, a mysterious stranger stopped by the offices of the activist group US PIRG, which issues an annual report on toy safety. The mystery man chatted with the receptionist at the front desk—and left behind a package that included damning information about Nestlé Magic.

Over the next several months, the man continued to send packages to US PIRG, encouraging the group to take a stand on the issue. When the people at Nestlé found out about this anonymous source, they nicknamed him Deep Chocolate—a reference to the most famous secret source of all, Watergate’s Deep Throat.

Anxious to unmask Deep Chocolate, and eager to hear any information its allies could gather about him, Nestlé put out the word: Help us expose Deep Chocolate. One afternoon a lobbyist from Nestlé’s law firm, Hogan and Hartson, came to the offices of US PIRG for a meeting on an unrelated subject. She started asking questions about the mysterious stranger, and sent her impressions to other executives in a high-priority e-mail headed “Deep Chocolate Strikes Again”:

If Mierzwinski knew the true identity of the spy, he wasn’t going to reveal it to a corporate lobbyist. The e-mail continued:

Mierzwinski did offer the lobbyist one clue: “Ed told me that he believes Deep Chocolate is being paid by or in league with Mars, probably working through a public relations firm,” she wrote. But who was he?

To unravel the mystery, Nestlé hired Kroll Associates, which investigated Mars’s Washington team, gathering background information, addresses, media clips, and in some cases Social Security numbers and children’s names. They researched the lobbying firms involved, pulled the records of campaign contributions from key officials, and noted which people involved in Mars’s effort had gone to the same schools, which ones were old family friends, and which were former colleagues.

Kroll’s investigator was James Bucknam. He had retired the year before from government service as a senior adviser to the FBI’s director Louis Freeh. At 11
A.M.
on September 30, 1997, Bucknam sent a thirty-two-page fax to Christine Pfeiffer, a senior counsel in Nestlé’s legal department, laying out a strategy for Nestlé to fight back against the maneuvers by Mars:

Kroll also noted that Nestlé should underscore the political connection: Mars was using a “cadre of Democratic Party operatives” in Washington to make its case.

But it was too late. The FDA had granted a damning interview to the
New York Times
about Nestlé Magic, including one comment that made it all but impossible for the Nestlé company to continue to market the product: “This product is illegal under our act,” William Hubbard, the associate commissioner for policy of the FDA, declared to the
Times
reporter.
³
That was the end. Nestlé surrendered. In a defensive-sounding press release issued on October 1, the company said, “Nestlé Magic meets all Consumer Product Safety Commission (CPSC) safety standards; however, due to an unresolved technical, legal question related to food/toy combination products, Nestlé has agreed to voluntarily withdraw the product.” Frank Arthofer, president of Nestlé’s Confections Division, conceded that the company faced “an unfavorable environment to market the product.”
⁴

Losing a skirmish in the ongoing battle with Mars was a blow to Nestlé’s pride—as well as its bottom line. Nestlé had put enormous resources and effort into Magic. Now all this input had vanished. Hank Whetstone, who ran the company in Florida that was churning out the candies, got the word to shut down the assembly line on the same day the Nestlé press release went out. He walked over to his brand-new building, told the 125 workers that they were fired, and turned off the main power switch for the machines. “It made me so sick,” he says.

Whetstone says that Nestlé officials told him they’d lost $30 million on Magic. The hole in their balance sheet was a far cry from the dreams of billions that had nourished the Magic project from the outset. Soon, the manufacturer in Florida would find himself in a protracted legal battle with Nestlé over who had to pay the costs of the new manufacturing facility, now sitting idle. Nestlé’s hired spies would find their way to his facility, too, this time eager to learn whether Nestlé’s former subcontractor was using the factory that Nestlé had built to produce candy for the enemy: Mars.

The “chocolate war” was about to see a new offensive. Nestlé continued to pour in resources. It needed better intelligence to
unravel what had happened in the defeat of Magic. Nestlé wanted to know the players, the techniques, and the time line of the effort. After all, Nestlé suspected that other battles were looming.

Now Nestlé turned to Beckett Brown, which set up elaborate surveillance on a small consulting firm, the Hawthorn Group in Alexandria, Virginia. This firm is almost entirely unknown outside public relations circles. But it has a close association with Mars, and James Kiss, the chairman of Hawthorn’s advisory board, is an elder statesman of the public relations business. He has earned the rare privilege of being allowed to cite his work for the highly secretive Mars in his marketing material.

Beckett Brown decided to target Richard Swigart, a consultant with Hawthorn who seemed to be deeply involved in its strategic work for Mars. Could Swigart have been Deep Chocolate? Beckett Brown knew that Swigart was an important figure: when the former Secret Service men at Beckett Brown drew up an organization chart of the Mars team, Swigart was shown working closely with Edward Stegemann, the general counsel of Mars, who was said to be one of the few close personal friends of the reclusive Mars brothers.

Finding Swigart’s home address—3119 Circle Hill Road in Alexandria—was easy. With that information, Beckett Brown found his home phone number. And it wasn’t much harder to find out who Swigart was talking to. Beckett Brown hired a small private investigative agency in New York to gain access to Swigart’s home phone records. That firm, Science Security Associates, Inc.,
*
submitted
a detailed handwritten account of telephone calls from Swigart’s home phone number listed on the AT&T phone bills Swigart received in the mail in January 1998, and November and December 1997. The report listed about eighty long-distance and credit-card calls, and included notations about who was listed as the owner of each of the extensions Swigart dialed. Science Security billed Beckett Brown $1,250 for this intelligence.

Beckett Brown also wanted to know about Swigart’s financial situation, and somehow gained access to records from his bank indicating that he had an account balance in January 1998. But there was nothing dramatic to be found there, either: Swigart had a modest balance of $14,410. The spies followed Swigart’s movements, issuing reports that read more like foreign agents’ intelligence dossiers than corporate e-mails: “Swigart appears to be working from home. He sets up a weekly schedule that rarely includes the Hawthorn Group.” And they had no hesitation about delving into his personal life, even noting the name and occupation of a woman he was dating at the time.