Sex Harassment Cases Mar ICN’s Success

ICN Pharmaceuticals Chairman Milan Panic should be basking in the hard-won victories of building one of the world’s fastest-growing drug companies.

The Costa Mesa drug maker is posting record profits and is boldly expanding into Eastern Europe and Russia.

But one lingering problem mars the image of success. Barring an out-of-court settlement, Panic is set to stand trial next month in Orange County Superior Court on charges that he sexually harassed ICN’s former human resources director, Mary Martinelli.

Martinelli, a $101,200-a-year executive whose duties included dealing with sexual harassment claims, is one of six female ICN employees in the past five years to accuse the 68-year-old Panic of sexual harassment, and one of four to file a lawsuit.

New documents recently filed in her case offer a rare insider’s account of how directors on an all-male corporate board--two of whom have close relationships to Panic or the company beyond their directorships--responded to the rising number of sexual harassment claims against its chairman.

The case also shows how directors of a hugely successful enterprise struggled to hold the boss accountable.

Court records show that ICN directors, worried about more lawsuits, bad publicity and the effect it could have on the company’s stock price, resolved to reduce or eliminate the flow of allegations. Yet they were loath to take steps against Panic, a former prime minister of Yugoslavia, that could jeopardize the company’s expansion in Eastern Europe.

Testimony by a special three-member panel of board members shows that they concluded that there was no reason to take any action involving Panic beyond holding him financially responsible for settling one of the lawsuits, which was filed by Debra Levy, Panic’s former secretary.

“We felt that the settlement was enough, and to engage in any other activities with respect to him might result in the company business around the world being harmed,” director Alan F. Charles said in a deposition.

It is that type of bottom-line view that contributed to the growing number of harassment claims against Panic, said Alan Exelrod, Martinelli’s lawyer.

“Officers of the company have known about his behavior for at least six years,” Exelrod said. The company’s directors “haven’t acted in a responsible manner to protect the women of ICN.”

Panic, who declined to be interviewed, has long maintained that he has done nothing wrong. So far, none of the harassment allegations has been proved.

The lawsuits by the four ICN employees alleged that Panic made unwanted advances, propositioned them for sex, touched them in undesired ways and indicated that their responses might affect their careers.

As for Martinelli’s case, which alleges that Panic harassed her for more than six years, “our position is that the allegations are wholly lacking in merit and we’ll defend it vigorously,” said David C. Watt, ICN’s general counsel.

As is common practice in legal matters involving a chief executive, ICN’s board asked a special committee of directors to oversee its handling of the harassment case filed against Panic by Levy. She had separately sued him for paternity.

The three-member group was composed of Norman Barker Jr., the 75-year-old retired chairman of First Interstate Bank of California; Charles, a 60-year-old retired UCLA vice chancellor; and Stephen D. Moses, a 63-year-old Los Angeles real estate developer.

Barker’s First Interstate was Panic’s corporate banker until the mid-1980s, and the two have known each other more than 30 years, according to a deposition in the Martinelli case given by Barker.

Charles, who handled public relations duties at UCLA, testified that he received about $72,000 in the past couple of years as a consultant for ICN on public relations programs.

Moses said in his deposition in the case that in the early 1990s, he and Panic considered working with the Yugoslav government to build houses there.

The ventures were scuttled after ethnic hostilities in the Balkans flared anew, Moses said.

While the panel’s scope was limited to the Levy case, the directors heard about other potential claims against Panic from Watt, ICN’s general counsel, and Arnold Burns of the New York law firm now called Proskauer Rose LLP, which defended Panic and ICN in the Levy case.

The panel--and the board that eventually approved its recommendations--vacillated in its attempts to rein in the mounting allegations against Panic, court records show.

On one hand, the directors believed that each harassment case should be weighed separately on its own merits and noted that none of the allegations against Panic had been substantiated in court.

On the other hand, the board required Panic to personally pay a confidential settlement with Levy, despite the chairman’s claims that he had done nothing wrong.

The directors decided that it would be best for the rapidly growing company to avoid a public trial and potentially bad publicity, according to court documents.

A year after settling the Levy case, the panel reported to the full board last July 24, recommending that the board refrain from taking further action against Panic.

Charles, in a deposition, said ICN directors were concerned that “the very delicate business arrangements and the progress of the company, particularly in Eastern Europe, could be endangered by the prolonged dispute on the subject and particularly a dispute between the board and Mr. Panic.”

It’s not uncommon for directors to have business ties with the companies on whose boards they serve. However, corporate governance experts not involved with ICN question whether Charles and Moses could have brought the desired level of independence to their jobs on a panel looking into alleged improprieties by Panic.

Carolyn Brancato, director of the Conference Board’s global corporate governance research center, said Moses’ testimony about potential business deals with Panic means that Moses may have lacked the sort of arms-length distance from the chairman that is desired of an independent panel.

John Nash, president emeritus of the Washington, D.C.-based National Assn. of Corporate Directors, said Charles’ consulting arrangement with the company also raises questions about independence.

Last year, the association recommended that a corporate director have no affiliation with the company other than as a director.

Watt, ICN’s general counsel, defended the company’s appointment of Moses and Charles to the panel. He said that both were sufficiently independent and that, as lawyers, they brought expertise to the task.

Moses referred questions to the company. Charles and Barker did not return calls.

Experts say ICN’s directors grappled with an unusual situation in corporate America--a high number of separate claims against the chairman and the prolonged period in which the claims surfaced.

However, the directors’ general approach to dealing with the problem is fairly typical among corporations these days, experts said.

Companies typically settle sexual harassment claims regardless of whether they’re true, said Dan Gallipeau, president of Dispute Dynamics Inc., a Torrance firm that advises companies on how jurors think.

Gallipeau’s surveys of mock juries picked to assess about 50 sexual harassment claims brought against Southland employers show that jurors usually side with plaintiffs.

Gallipeau said his surveys found that people generally believe that:

* Women tell the truth about being sexually harassed.

* Companies value an experienced executive or top salesman more than a secretary.

* Executives who sexually harass subordinates typically “get nothing more than a slap on the wrist” from the employer.

Rarely is the chairman of a large publicly held company fired for sexual harassment. Although statistics are not available, only a handful of executives from big corporations have been fired after being accused of harassment.

The most prominent dismissal came at Swedish drug giant Astra, which fired its top U.S. executive and in February paid $9.8 million to settle a federal sexual harassment case.

Last week, Mitsubishi Motor Manufacturing Co. of America Inc. agreed to pay $34 million in the largest-ever settlement of a sexual harassment case brought by the government.

David Ritter, a Chicago lawyer who is not involved in ICN’s case, said that a lower-ranking employee facing a similar number of allegations probably would have been dismissed.

It is unclear from directors’ testimony when the board first learned that the company had a problem with sexual harassment allegations against its chairman, how much it knew and whether management kept it fully informed.

Moses said in a deposition that in discussing the Levy case, he privately told Panic that he considered it inappropriate to have sexual relations with an employee he supervised. Moses said Panic responded by saying that Levy had been in love with him and pursued him. Panic also referred to allegations by women against him as “bull----” and said that they had loved him.

Panic has repeatedly told directors that he did nothing wrong.

Charles said he knew of only one other court claim when the company discussed settling Levy’s suit.

Barker, meanwhile, said that until his lawyers prepped him shortly before his deposition in the Martinelli case in September, he hadn’t been aware of ICN’s 1993 settlement with Colleen James, a former trade show manager. He also said he hadn’t heard of the company’s private settlements with two other women.

Watt said that the company kept directors informed and that Barker may simply have forgotten.

In his deposition, Barker acknowledged telling another businessman that ICN had been “getting a lot of publicity in Orange County” and, under a lawyer’s questioning, agreed that he had made a flippant remark to the effect that “the problem with Milan Panic is he can’t keep it in his pants.”

Barker testified that he had “no factual reason” on which he based the remark and characterized it as “[one] of those things that was better not to have been said.”

On July 24, 1997, the board unanimously adopted the panel’s recommendations for beefing up ICN procedures for dealing with sexual harassment and discrimination.

The panel urged management to “take a much more active approach in enforcing its sexual harassment policies and procedures.”

ICN also took a step that other companies have taken to minimize litigation. It unveiled a new policy that requires all employees to take any claims of sexual harassment or other unfair treatment to private mediation and binding arbitration instead of a public court proceeding.

Watt said ICN lawyers came up with the idea for the program and directors weren’t directly involved, although they knew of the policy.

In the last year, ICN has moved to implement changes in its program on sexual harassment, Watt said. It held several half-day training sessions for groups of top managers, including one attended by Panic, and a daylong session for the board is planned this summer.

The company hasn’t received any new claims of sexual harassment by Panic in the past year, Watt said.

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Harassment Complaints

Here’s a look at the sexual harassment complaints that female employees of ICN Pharmaceuticals have lodged against Chairman Milan Panic.

* 1997: Michelle McKenney, executive secretary. Set for trial in January, seeks unspecified general and punitive damages and legal fees.

* 1996: Mary Martinelli, former human resources director. Set for trial July 14. Seeks unspecified amounts for lost pay and benefits, legal expenses, and general and punitive damages. ICN also settled claims out of court with two other female employees. Terms were never disclosed.

* 1995: Debra Levy, Panic’s former secretary. Case settled in 1996; board required Panic to pay the full amount, which wasn’t disclosed.

* 1993: Colleen James, former trade show manager. Case was settled later that year; terms never disclosed.

Source: Court records