Anheuser-Busch Has Bitter Taste of a Scandal Brewing

When a small St. Louis advertising and promotional agency was forced by its banker to shut its doors two days before Christmas in 1983, hardly anyone noticed.

The following February, when the same agency was forced by its creditors into an involuntary Chapter 7 bankruptcy liquidation, again almost no one marked its passing.

Hanley Partnership’s bankruptcy was a tiny, seemingly insignificant case, one that seemed rightly destined to disappear among the hundreds on file in federal bankruptcy court in St. Louis.

But three years later, that long dormant case has suddenly become the unlikely spark that has ignited a shattering explosion inside the giant Anheuser-Busch Cos., the family-owned empire built on Budweiser--an empire that not only dominates St. Louis, but the worldwide beer industry as well.

Testimony in the Hanley bankruptcy case alleging that Hanley gave Porsches, Rolex watches and other gifts and paid kickbacks to Anheuser-Busch executives in order to win marketing and promotional business from the world’s largest beer maker has rocked the St. Louis-based giant.

Five executives, including the brewery’s president, have already been fired or forced to resign as a result of an internal probe by the company; the FBI is investigating possible criminal wrongdoing, and a federal grand jury in St. Louis is investigating Anheuser-Busch’s relationships with its suppliers.

“I have to believe that this has been phenomenally traumatic inside Anheuser-Busch,” says Robert S. Weinberg, a St. Louis-based beer industry consultant and a former Anheuser-Busch executive. “I’m sure that the day after this broke, no work was done over there.”

In the explosion’s traumatic aftermath, the careers of some of the most powerful men in the brewing industry have been destroyed, including that of Dennis P. Long, a Horatio Alger figure who literally worked his way up from elevator boy to run the company.

More than a month ago, Long, 51, was the president of Anheuser-Busch’s flagship brewery subsidiary, was No. 2 at the parent company and was earning $838,000 a year. He was arguably the second-most powerful man in the world of beer.

Ousted by the most powerful man in beer, August A. Busch III, Anheuser-Busch’s stern, 49-year-old chairman and scion of the company’s founding family, Long now sits forlornly in his St. Louis office, reduced to little more than handling Budweiser marketing plans for Ireland, as his final days at Anheuser-Busch dwindle away.

Meanwhile, Anheuser-Busch, praised in the past both for its relentless pursuit of higher profits and market share, and for its deep civic involvement in St. Louis and around the nation, has been forced to endure the worst crisis in its modern history. Its highly polished image has been tarnished.

“I’m sure this has shocked everybody in the company,” says Jerry Steinman, editor of Beer Marketer’s Insights, an industry newsletter. “I was just at a meeting with some Anheuser executives, and they were talking about how they were up, and how they were ready to beat the competition, but you know underneath that they were still shocked.”

At the same time, the super-rich Busch dynasty, which has working control of Anheuser-Busch and which has run it like a family store for four generations, has also found itself in the uncomfortable glare of the media spotlight.

The investigation into Anheuser-Busch’s relationships with its suppliers has inadvertently prompted questions over whether the deep, longstanding ties between Anheuser-Busch and the Busch family have set a pattern of nepotism at the company.

For its part, Anheuser-Busch has refused to make its executives available for interviews since the scandal broke and has relied instead on prepared statements and written responses to specific questions from reporters concerning the Hanley controversy.

In its carefully worded responses to questions, the company seems to be trying hard to put the scandal behind it; it says that its own 15-week internal investigation, which began in December, has been completed and that no further actions need to be taken by the firm. The company has refused to say whether its own probe uncovered kickbacks or other abuses in its ties to other suppliers besides Hanley, and Anheuser-Busch denies reports that it is planning a wider internal investigation of its supplier relationships.

“It is always unfortunate when events like these occur,” said a statement from Jerry E. Ritter, a vice president and group executive at Anheuser-Busch who is widely touted as Long’s successor. “But we think we have demonstrated something positive about the company: When we find a problem, we review it carefully, reach a conclusion and move decisively, with integrity, to solve it.”

He added that the firm is “confident that our image remains strong and intact.”

Still, as long as the FBI and grand jury probes are under way, the case will remain unresolved; although the U.S. Attorney’s Office in St. Louis refuses to comment on the nature of the grand jury’s investigation, Anheuser-Busch says that the grand jury is investigating “certain former employees and suppliers.” That statement suggests that the probe will go beyond the Hanley case.

It also seems likely that at least some of the fired executives won’t let the issue die; they charge that they have been unfairly victimized by Anheuser-Busch’s desire for a quick purge. Several have hired lawyers and are widely expected to file wrongful discharge suits against Anheuser-Busch, while also seeking stock options they have lost in the process.

Michael A. Orloff, the 37-year-old vice president for wholesale operations at the brewery subsidiary, charges that he was handed a letter of termination by a clerk in the company’s treasury department on March 9 when he tried to exercise his stock options in anticipation of looking for work elsewhere. He insists that he turned over personal bank records and tax statements to Anheuser-Busch and had been cleared by the internal company investigation.

“To this day, Anheuser-Busch has not informed me why the termination notice was given to me,” Orloff says.

Joseph Martino, the 35-year-old vice president for sales at the brewery subsidiary, who also resigned March 9, adds that he and the other ousted executives were the victims of a “witch hunt” conducted by Anheuser-Busch management. By the time he resigned, he says, “I believed the (internal company) investigation had gotten out of control, that it had turned into a witch hunt . . . and that because of this, my ability to continue to lead the sales department was impaired.”

Martino was told he was fired the day after he resigned, “apparently in an effort to prevent me from exercising my stock options.”

Meanwhile, outside observers, although stunned by the company’s crisis, now say in hindsight that there is so much money involved in Anheuser-Busch’s advertising and promotional activities that it shouldn’t be surprising that problems have developed. With a 1985 advertising budget of $522.9 million, Anheuser-Busch ranks as the nation’s 10th-largest advertiser; it is one of the biggest sponsors on network television and is one of the most important backers of sporting events around the country. It has also traditionally spent heavily on promotional items embossed with the names of its major brands, including Budweiser and Michelob beers.

“Given the nature of that (promotion) business, there could have been lots of others besides Hanley” giving gifts to Anheuser-Busch executives, says Weinberg. “This is a soft, squishy area, and there is enough money floating around that it would create an opportunity for chicanery. I just wonder whether the Hanley bankruptcy didn’t prompt this investigation in the beginning but then opened a Pandora’s box at Anheuser-Busch.”

From the beginning in 1984, Gerald Rimmel, the court-appointed trustee for the Hanley bankruptcy case, found himself in a bind. He had discovered that at least $1 million was missing from Hanley. Rimmel had to start tracking it down.

Rimmel quickly focused on Hanley chief Marvin Cotlar and his wife Madonna. Cotlar, it turned out, had been convicted of embezzling funds from General American Life Insurance Co., where he worked in the late 1960s, and had been sentenced in 1970 to eight years in Missouri state prison, serving 22 months before being released on parole. General American reportedly lost nearly $130,000 in the fraud.

In the Hanley case, Cotlar’s personal finances soon attracted Rimmel’s attention. At the time of Hanley’s collapse--when the firm’s debts far outweighed its assets--Cotlar was in the process of building a multimillion-dollar mansion outside St. Louis. His wife was also on the Hanley payroll, but ex-Hanley officials alleged she had no duties there.

Rimmel filed suit in bankruptcy court against Cotlar and his wife, alleging that they had siphoned off roughly $1 million from the firm before it was forced into bankruptcy, a charge that Cotlar denies through his attorney, Milton Goldfarb. The lawsuit is pending, according to William Prebil, Rimmel’s attorney.

Fortunately for Rimmel, one former Hanley executive was shocked by what had gone on at the company and was willing to talk. And when he did talk, he started naming names, not just at Hanley, but at Anheuser-Busch as well.

In February, 1986, William E. Bartlett, a former Hanley executive vice president, gave a revealing deposition in the bankruptcy case in which he described the financial chaos at Hanley and told of kickbacks to Anheuser-Busch executives.

Bartlett said Marvin Cotlar had told him that Hanley had paid Joseph Martino “bribes” in 1979 and 1980, in order to win business at Anheuser-Busch.

“I am told that fictitious invoices for services rendered, which really weren’t rendered, were delivered to Anheuser-Busch . . . and approved for payment,” Bartlett said. Cotlar and Mark Shyers, a Cotlar associate, and Martino then split roughly $250,000, Bartlett said.

Cotlar, through his attorney, has denied making such statements to Bartlett, and Martino has also denied all the allegations.

Bartlett added that Cotlar told him that Michael Orloff had been given $25,000 in cash delivered in a briefcase by Mark Shyers. He also said Cotlar had balked when Orloff wanted Cotlar to cover his $8,000 in wedding expenses.

Orloff now responds that the charges are “totally untrue” and Shyers has also denied the allegations.

Bartlett also said that John C. Lodge, manager of national sales promotions for Anheuser-Busch, was given a Porsche through a leasing agency that had been providing Cotlar with cars, and that Alan Sherman, a vice president for brand management at Eagle Snacks, an Anheuser-Busch subsidiary, was given a Rolex watch.

Bartlett, now director of marketing at Keeler Morris Printing Co. in St. Louis, says he still stands by his testimony “100%.”

Soon after the Bartlett deposition, Rimmel filed suit against Lodge, seeking the return of more than $13,000 that Hanley had paid on the Porsche delivered to Lodge. Lodge, denying that he ever asked Cotlar to obtain a car for him, has just filed a counterclaim against Hanley, which has led to a delay in the case. The trustee has never filed suit against Orloff, Martino or Sherman, according to Prebil.

Remarkably, even after the Bartlett deposition and the ensuing lawsuit against Lodge, apparently no one in authority at Anheuser-Busch was aware of the case.

In fact, Anheuser-Busch apparently first heard about the allegations against its executives in the Hanley case from John Curley, a reporter for the St. Louis Post-Dispatch. After going through the bankruptcy court file, including the Bartlett deposition, Curley called Anheuser-Busch last Dec. 10 or Dec. 11, while preparing a story that ran Dec. 21. His call apparently set in motion the company’s internal investigation, which began Dec. 11.

After that, it didn’t take long for heads to roll at Anheuser-Busch. One mentioned in the Bartlett deposition, Alan Sherman, was already gone. He had resigned in August, 1986, for what Ritter of Anheuser-Busch now says were “reasons unrelated to the Anheuser-Busch internal investigation.”

Lodge, Orloff and Martino all were forced out in early March, and William Glickert, manager of international marketing at the brewery subsidiary, left in late March.

But the most dramatic move came at a board of directors meeting in Tampa on March 25, when Long was forced to resign and accept responsibility for the scandal.

Although Long’s name had never surfaced in the Hanley case, he said he was resigning in order to accept responsibility for the actions of his close subordinates. Indeed, Martino, especially, was said to be a close friend and a Long protege.

But while Long has never been tied in any way to Hanley, questions quickly arose after his resignation about his ties to another supplier run by his brothers and other relatives--Worldwide Products, Inc., a St. Louis firm that provides promotional items for Anheuser-Busch. At the same time, there have been reports, which Anheuser-Busch refuses to confirm, that a number of Long’s relatives have been working at Anheuser-Busch.

It remains unclear whether such family ties played a part in Long’s dismissal. Long and his attorney, Steven Frank, refused to return repeated telephone calls and so could not be reached for comment. But some industry observers say Long’s relationship to Worldwide was well known within the industry, and doubt that it had any effect on his ouster.

In fact, Ritter now says that Anheuser-Busch is still doing business with Worldwide Products. And, when asked whether Long’s resignation was partly due to his ties with Worldwide, Ritter says only that “it is Anheuser-Busch’s policy not to discuss its internal investigation or to have any comment on the individuals or suppliers involved.”

But if Long favored his relatives in his business dealings, some critics argue that he was only following the example set by the Busch family itself. A major difference, of course, is that they control the company and have their family name over the office door.

The descendants of the original Adolphus Busch, in fact, treat running Anheuser-Busch as something of a birthright. August Busch III likes to tell the story of how five drops of Budweiser were poured down his throat right after he was born.

Today, the board of directors is filled with Busch relatives, including some who work for outside firms that do business with Anheuser-Busch.

Among the Busches on the board besides August Busch III, and his father, honorary board Chairman August A. Busch Jr., 87, there is Margaret S. Busch, August Jr.’s 70-year-old wife who is a former Anheuser-Busch vice president and now a $50,000-a-year consultant to the company.

There is also James B. Orthwein, 62, a first cousin of August A. Busch III, who is a former president of and now a consultant to D’Arcy Masius Benton & Bowles, which has handled Budweiser advertising since 1917.

Another relative is Peter M. Flanigan, 63, a great-grandson of Adolphus Busch. Flanigan, a former Nixon White House aide, is now managing director of Dillon, Read & Co., an investment banking firm. While Flanigan has been on the board, Dillon, Read has handled investment banking services for the company, Anheuser-Busch acknowledges.

The final relative on the board is Walter Reisinger, 63, a great-grandson of Adolphus Busch and a second cousin to August Busch Jr. He is also on the Anheuser-Busch payroll as a special representative for customer relations, helping in part to “develop contacts with the PGA golf community on behalf of the Michelob brands,” according to Ritter.

Meanwhile, Adolphus Busch, the half-brother of August III, is now part owner of the Houston distributorship for Anheuser-Busch. And, along with Andrew and William Busch, also sons of August A. Busch Jr., (who has children by three different wives) Adolphus sold the Homestead, Fla., Anheuser-Busch distributorship back to an Anheuser-Busch subsidiary for more than $7 million in December.

Anheuser-Busch notes that such family deals have all been cleared beforehand, and the company terms them “at least as favorable . . . as those which would be available from unrelated parties.”

Still, outsiders now wonder, in the wake of the Hanley scandal, whether such interlocking relationships haven’t set the wrong tone at Anheuser-Busch.

“You get into the question, for instance, of what impelled Denny Long to hire his relatives,” notes one industry observer familiar with the company. “And then you look at Anheuser-Busch, and the Busch family has relatives all over the place.”