Tobacco On Trial

In case attorneys for the tobacco industry had not succeeded in completely tearing down the perceived credibility of Dr. Max Bazerman during their recent cross-examination, they brought to the stand Friday a seasoned University of Chicago professor and successful businessman in the field of law and economics to finish up the job. Mr. Daniel Fischel, the Lee and Brena Professor of Law and Business at the University of Chicago and President of Lexecon, testified for the Defense to rebut the testimony of Dr. Max Bazerman who had testified on behalf of the United States. He was retained by the Defense to dispute Dr. Bazerman’s suggested remedies, in particular the removal of senior management, as well as to dispute the claim that the Defendants would necessarily continue their alleged misconduct.

David M. Bernick, attorney for Brown and Williamson Tobacco, after wittily debating the semantics of ‘a hypothetical’ versus ‘an hypothetical’ (and settling firmly on ‘an’), began questioning his witness by inquiring as to his opinion of the behavioral train puzzle, without making direct reference to the puzzle’s source– Dr. Bazerman’s testimony. Dr. Bazerman had used this example to demonstrate what he argued was a decision-making scenario which a CEO may face. Mr. Bernick’s intent, however, was to have Mr. Fischel pooh-pooh this model as simplistic and unrealistic in the real business world. Mr. Fischel argued that Dr. Bazerman’s scenarios took place in controlled laboratory settings which have little relation to the real-world setting where much is at stake and managers have at their disposal multiple decision-makers, prior experience, and the need to work within the constraints of government frameworks and financial accountability to shareholders. Case Studies involving the complex weighing of costs and benefits for “years on end”, argued Mr. Fischel, are more applicable than the hypothetical scenarios that Dr. Bazerman had relied on in his research.

Mr. Bernick then unleashed a diagram of a judicial scale that Dr. Bazerman had used in his testimony, in his efforts to tear down each piece of evidence upon which Dr. Bazerman had built his arguments. Dr. Bazerman had argued that numerous incentives existed for misconduct including such examples as shareholder value, market share, stock options and bonuses, and which outweigh the incentives for honest conduct such as the threat of lawsuits, government regulations and the desire to ‘do the right thing’. Mr. Bernick’s questioning thus attempted to demonstrate that these so-called disincentives revolving around profits were in fact incentives for compliance and not non-compliance. Mr. Bernick drove his points home by elaborately diagramming an organization’s corporate structure to demonstrate the numerous apparent checks and restraints on the power of executives. His aim was to bolster Mr. Fischel’s argument that corporations have sufficient internal mechanisms to dismiss executives who engage in misconduct which would preclude the need for court-ordered regulation and removal of senior management.

In its lengthy cross-examination, the DOJ cleverly chiseled away at Mr. Fischel’s credibility, first by establishing that Mr. Fischel had only ’skimmed’ Dr. Bazerman’s testimony and the few other court documents he had examined, and then by establishing him as a biased witness for whom the tobacco industry had been a source of income on numerous occasions. He also established lengthy ties between the tobacco industry and Mr. Fischel’s company, Lexecon. The DOJ accused Mr. Fischel of being vague in his criticisms of Dr. Bazerman’s many suggested remedies and of only considering the one recommendation of count-appointed monitors in any depth. Even when considering this one recommendation, the DOJ demonstrated that Mr. Fischel had never studied the role of monitors in any case and could not cite any example where a monitor was refused by a court on account of his recommendation. To the questions of whether Mr. Fischel had ever investigated the removal of tobacco executives in the face of litigation, whether he had studied if tobacco industry managers are effective monitors, whether he had considered the costs of his recommended injunctions, and other such accusatory questions concerning his qualifications, Mr. Fischel responded with a litany of nays and the occasional long awkward pause.

Within the DOJ’s bag of tricks was a punch thrown at Mr. Fischel’s moral integrity by identifying a footnote in one of his writings in which he had scoffed at the importance of government regulation in the face of profit-seeking. The footnote, which Mr. Fischel did not deny authoring, argued that companies have no ethical obligation to comply with government regulations when high profits are at stake. However, in all fairness to Mr. Fischel, the writing dated back to 1982.

In the remaining half-hour or so before the court recessed for lunch, the DOJ critically picked through several charts that Mr. Fischel had constructed on the tenure of senior tobacco executives and on senior executives of other companies who had been removed for misconduct through internal mechanisms. The DOJ was able to illuminate several embarrassing inaccuracies, such as Mr. Fischel’s citing several tobacco companies who are not defendants in this case, while omitting important ones which are, and also confusing Philip Morris International with Philip Morris USA. Additionally, the DOJ depicted as arbitrary Mr. Fischel’s means of selecting examples of executives who had been deposed, while pointing out other small inaccuracies in these documents and in Mr. Fischel’s Written Direct Testimony.

By the time the court recessed, the audience was weary from the minuteness of the details and the lengthy back-and-forth of objections and over-rulings from both sides. Nonetheless, Mr. Fischel walked out of the courtroom with shoulders a little lower and perhaps a tad less dignity than that with which he had arrived. However, it was debatable whether the DOJ had succeeded in its task of the day, or whether it had simply grown a bit feistier in its tactics.

This entry was posted on Thursday, June 2nd, 2005 at 10:20 am and is filed under Notes. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.