The Fall of Big Tobacco
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  For Big Tobacco, a Future Without GOP Support

First of three articles

By Ceci Connolly and John Mintz
Washington Post Staff Writers
Sunday, March 29, 1998; Page A1

While cadging a ride to California on the U.S. Tobacco corporate jet one day recently, Newt Gingrich delivered a most unwelcome message to his hosts: Their long ride with the GOP was over. No longer would the GOP automatically represent the industry's interests as it presses its fight to win a long-term truce in America's tobacco wars.

"You guys have screwed us," the House speaker lectured the group of tobacco lobbyists aboard the plane, according to industry officials. "The Republican Party has been saddled with tobacco."

This time, said Gingrich, he wouldn't allow President Clinton to demagogue Republicans on the tobacco issue in the same way he had outmaneuvered GOP leaders on the budget in 1995.

"I will not let Bill Clinton get to the left of me on this," he said.

And as for getting Congress to give them a break on the lawsuits that threaten to strangle the industry, Gingrich added: "We're not going to support anything the industry's for."

In the last five years alone, the industry has contributed $15 million to the Republicans, as well as countless rides like this one. But the chastened lobbyists had to stifle their outrage at Gingrich's ingratitude. They knew the speaker's outburst reflected reality. It was merely the latest sign of how far they've fallen.

The industry's friends and foes alike agree that Big Tobacco is in big trouble. The once-mighty makers of cigarettes have seen a vast reservoir of political support evaporate at the same time their opponents have found new weapons with which to attack them.

For the industry – essentially the five companies that make most of the country's tobacco products – this new reality has created an urgent need to make some kind of a deal with the government, giving away money and future customers in return for some legal protection.

For the industry's opponents – from President Clinton to the American Cancer Society – it means a historic opportunity to reform the nation's smoking habits, especially among teenagers. But for the hard-core enemies – those who believe Big Tobacco is never to be trusted – it means a chance to cripple a business that once seemed untouchable.

Those three camps are now focusing on Capitol Hill, where the future of tobacco could well be decided over the next few months – and key decisions may begin happening as soon as this week.

The outcome is anything but certain, promising only one of the more byzantine Washington battles in recent history. Congress has the final say, and its members may not have the stomach in an election year to cast votes curtailing a national vice, a product used by 50 million people. Tobacco's economic impact is apparent in the approximately $15 billion in cigarette taxes paid annually and the jobs it generates – 662,400 in 1994, according to the most recent industry figures. On the other side of the ledger, tobacco remains the leading cause of preventable death in the United States, claiming more than 400,000 lives each year and almost $100 billion in direct and indirect medical costs.

Lawmakers must settle thorny constitutional, public health and tax issues that have divided them before. Then there are the political questions: How sincere are the companies about changing their aggressive marketing? Are they desperate enough to make more concessions? Will additional revelations of deceit by the companies kill chances for a deal? Will Democrats destroy prospects for compromise with demands to punish the industry? Will Republicans rescue tobacco in the last reel?

And no one is quite sure whether the White House will ultimately invest the political capital necessary to make a deal happen, or just batter the Republicans for letting it wither.

"We still don't have the cover of either the White House or the Republican leadership," said one company executive, lamenting the industry's weakened political position.

More clear is how all the parties arrived at this moment of possibility. While the cigarette business long enjoyed a reputation of invincibility in courtrooms, state legislatures and Congress, in truth its power diminished steadily during the 1990s because of a dramatic shift in public opinion. Now a huge majority of Americans – polls place it between 70 and 80 percent – mistrust the cigarette companies, viewing them as greedy executives profiting from kids.

This three-part series looks at how that change in public perception has led to the fall of Big Tobacco: how an insular industry decided to go from stonewalling to conciliation; how a collection of clever Mississippi lawyers pioneered a new kind of lawsuit that for the first time made cigarette makers contemplate bankruptcy; and how an unlikely trio of Clinton administration officials exploited the companies' new weakness to persuade the president to regulate tobacco as a drug. The stories are based on interviews with industry executives, government officials and lawyers directly involved in the events, most of whom were willing to speak only if they weren't identified.

The story they tell is how those twin fears – multibillion-dollar court judgments and a federal crackdown that tobacco executives worried could lead to an outright cigarette ban – prompted the industry to make a deal.

"We were naked to the world," recalled one cigarette executive.

Last spring, the industry reached a settlement with state attorneys general and trial lawyers that contained substantial concessions. Now Big Tobacco is fighting tall odds to get Congress to embrace the settlement. The essence of the deal is a trade-off: Cigarette companies pay $368.5 billion over 25 years while strictly curtailing their marketing and advertising and, in exchange, are shielded from major lawsuits.

The reason to make a deal, its supporters say, is because even in their weakened state, the tobacco executives still have leverage. All sides agree that the only effective plan for cutting youth smoking is both to raise the price of a pack of cigarettes and to restrict ads. The industry has the constitutional right to advertise, however, and says it will stop only if it gets legal protection. If Congress refuses, the companies say they'll be forced to slug it out in court – and continue their aggressive marketing.

Ironically, it could come to that, say those who have followed the saga, because the tobacco executives' misjudgments may have finally caught up with them.

"I think it's too late," predicted one executive closely involved in last summer's settlement.

There's no doubt that the industry was unprepared for the fact that it suddenly had lost clout on Capitol Hill. Even the companies' closest political allies over the last century, the dozens of tobacco belt legislators from both parties, now won't help because the deal doesn't protect the farmers who grow tobacco. But most surprising, and most damaging, may be the late-blooming critics in the upper reaches of the GOP.

At a Republican congressional leaders' meeting on Jan. 26 in the Members Room of the Library of Congress, Gingrich shared his new-found contempt of tobacco with his lieutenants. The Georgian said the party needn't feel bullied into granting the industry's pleas for legal liability limits, attendees recalled.

Then, shooting a grin at his deputy, Majority Leader Dick Armey (Tex.), he declared: "We can just tax the hell out of them."

It was a statement that would have been inconceivable even a year ago.

Business as Politics

When Tom Griscom joined R.J. Reynolds Tobacco Co. as a senior executive to work on government and public relations problems in 1991, he was stunned by what he discovered. While the company intimately understood its customers and their smoking preferences, it had little idea how the broader public saw it.

A Washington insider schooled by years of working for fellow Tennessean Sen. Howard H. Baker Jr. and in Ronald Reagan's White House, Griscom recommended polling.

"I don't know why we hired you," replied one irate executive, according to people familiar with the exchange. "We're in the business of making and selling cigarettes."

A compact man with a touch of the South left in his voice, Griscom was one of a handful of Reagan refugees who tried to teach Politics 101 to the corporate chieftains. The instructors included Craig Fuller, Vice President George Bush's chief of staff; M.B. Oglesby Jr., Reagan's deputy chief of staff; and Charles Black, a longtime Reagan adviser and GOP operative. They all encountered similar recalcitrance.

Tobacco's big five – Philip Morris Cos., RJR, Brown & Williamson Tobacco Corp., Lorillard Inc. and U.S. Tobacco Co. – had never needed polls, industry officials said. They knew many Americans disliked them, yet assumed that was largely a result of strident rhetoric by ragtag anti-smoking activists. For years, they relied for protection on southern Democrats who ran Congress, rewarding them with generous campaign donations, until they came to see Republicans as their most important allies.

But public anger at the industry had intensified starting in 1991, when studies revealed that RJR's advertising cartoon figure, Joe Camel, was almost as recognizable to 6-year-olds as Mickey Mouse. The next year, the Environmental Protection Agency detailed the medical risks in breathing secondhand smoke. That "fundamentally changed the debate," one former industry executive said.

By 1994, industry whistleblowers were smuggling small libraries full of internal documents confirming the critics' harshest accusations: that the firms had hidden evidence of the danger and addictiveness of cigarettes. That April, top tobacco executives testified on Capitol Hill, raising their hands to swear to the truth. They denied that cigarettes are addictive – a laughable assertion to most Americans.

But the swearing-in was also an important moment in the evolution of the CEOs. As one industry pollster put it: "They saw themselves portrayed as bandits."

Big Tobacco's political operatives finally got to take their soundings – and the results were startling.

"We were losing our audience," a former ranking industry executive said.

The angriest Americans, pollsters found, were from the growing group that had watched relatives and friends die of tobacco-related diseases. Ex-smokers came next. But what most surprised cigarette executives was the reaction of current smokers. Tobacco lobbyists had always thought of them as a kind of centurion guard. But the industry found its own customers were turning sour and endorsing tough measures to rein in youth smoking. The most militant were smokers who had tried and failed to quit.

Said one industry consultant, "Many, many smokers say, 'Tobacco companies hooked me, I can't get off and they should drop dead.'"

A New Brand of Strategy

After facing the brutal numbers, the industry's top executives began to consider a major change in strategy. In 1994, top executives of RJR and Philip Morris convened a series of meetings in New York to broach what had once been unspeakable – the idea of sacrificing profit to calm an angry public.

"It was an incredibly dramatic step," said one executive involved in the talks. Fear was the motivation.

Realistically, the wealthy companies had a long way to go before they would actually lose money. Their profits were still enormous, with an increasing share coming from foreign countries. But what they – and their stockholders – wanted was stability, some certainty of what they'd have to pay to resolve the growing claims against them.

Those talks would become the outline of all that followed. At first, the executives discussed only giving up Joe Camel and the Marlboro Man, the ad "icons" that helped sell two of the most popular brands. A team of top managers proposed other voluntary reforms, such as restricting vending machines and free samples – puny concessions today, but radical at the time.

The internal talks sputtered along until the stakes got higher still. In December 1994, Griscom was summoned from his North Carolina home for a mission that would consume the next three years of his life: RJR wanted him in Washington to oversee secret talks with the government.

Washington was humming with rumors about the tough new smoking regulations being drafted by Food and Drug Administration Commissioner David A. Kessler. In the eyes of the frantic tobacco executives, Kessler's zealous reformers intended to regulate them out of business.

The tobacco strategists decided to send one of their most reliable emissaries straight to the president. On Aug. 9, 1995, Clinton flew to North Carolina for a speech and was greeted at the airport by his old friend, Gov. James B. Hunt Jr. As the pair rode to Charlotte in the president's limousine, Hunt made his pitch.

"I'm concerned that efforts to reduce teenage smoking not hurt our tobacco farmers," Hunt recalled telling the president. "There are other ways this can be done, including a very active and strongly financed public information campaign to convince kids this is not the right thing to do."

Tobacco is the number one cash crop in North Carolina, Hunt reminded Clinton. "It affects a quarter-million people and hundreds of millions of dollars in this state."

Clinton made no promise, but Hunt was encouraged by his feel-your-pain sympathy. But the next day, Clinton sided against the tobacco-state politicians and their time-honored argument. He would allow the FDA to regulate tobacco as a drug.

Within hours, the industry reverted to its never-give-an-inch posture, filing a lawsuit challenging FDA's authority (a suit that has long been awaiting a ruling by the federal appeals court in Richmond). "Make no mistake; the real hidden agenda here is prohibition," said Philip Morris vice president Steven C. Parrish.

But behind their public bluster, industry executives had come to place more hope in compromise than confrontation. Sporadically, over the next several months, the industry floated alternatives to Kessler's plan with Congress and the administration, but nothing took.

Then, on Aug. 9, 1996, a jury ruled against a cigarette maker for the first time, awarding the family of Florida lung cancer victim Grady Carter $750,000. Tobacco stocks plummeted, and Brown & Williamson's Martin Broughton began rounding up his fellow CEOs for another round of meetings about how to buy some relief.

Shortly after Clinton was reelected in November, RJR's chief executive Steven F. Goldstone traveled to Raleigh, N.C., on behalf of all the CEOs and asked Gov. Hunt to reach out to Clinton again. Tobacco's "fight to the death mentality" had to end, Goldstone said.

Two days before Christmas, when Clinton flew to North Carolina for a holiday tour of Camp Lejeune, Hunt was waiting for him. Sitting in the presidential helicopter, the governor told Clinton the cigarette makers were ready to bargain and had appointed J. Philip Carlton – a former state Supreme Court judge, the son of a tobacco warehouser and friend of White House Chief of Staff Erskine B. Bowles – as their spokesman. Clinton said he would play. He said longtime confidant Bruce R. Lindsey would be his point man.

Finally, the industry figured, a deal was possible.

Tension at the Table

It took several months to pull the pieces together, but on April 3, 1997, former Senate majority leader George J. Mitchell – now a tobacco lobbyist – formally opened peace talks. Seated in a cramped conference room at the Crystal City Marriott outside Washington, Mitchell greeted the bitter enemies.

"We have a historic opportunity," he said. "The tobacco industry is sincere in its desire to reach a resolution."

Together for the first time were the veterans of America's tobacco wars: Big Tobacco's corporate chiefs and hired guns; the state attorneys general teamed with private trial lawyers; and a lone public health advocate, Matthew L. Myers of the Campaign for Tobacco-Free Kids. The White House kept its distance, but Lindsey's regular phone calls to the negotiators confirmed the president's ardor for a deal. Congress was not represented.

Despite Mitchell's pledge, the enmity in the room that day was so great that "almost all of us, when we got into this, did not think it would work," said attorney John P. Coale. But they eventually reached a deal to pay $368.5 billion over 25 years and agree to FDA oversight and marketing restrictions, in exchange for some protections from lawsuits.

Exhaling Too Soon

By the time they signed the agreement last June 20, the industry leaders thought their problems were almost over. Their negotiators said Clinton would endorse the deal within days, and Congress would swiftly ratify it. But once again, they had misread the political winds. In the words of one White House policymaker, they were "almost childlike in their naivete."

"The Constitution does not make any provision for Congress to delegate to private groups in secret meetings the power to write law," Gingrich said curtly a day after the deal was penned.

Clinton was silent. He said he wanted his advisers to review the specifics, but let a promised 30-day review period stretch to 90 days – meaning Congress would have little time to consider the matter before winter recess.

The news went downhill from there. Continued release of industry documents heaped detail on a pattern of deceit and possible criminal conduct. The Justice Department expanded an investigation of industry executives. Even Rep. Thomas J. Bliley Jr., the Richmond Republican so friendly to the hometown business that he has been tagged "R-Philip Morris," went on the attack, demanding 39,000 pages of embarrassing corporate records.

"Gentlemen, the recent disclosures of documents ... have shaken my confidence that your companies care about the truth," the Virginian said as he opened a recent House hearing.

Meanwhile, rank-and-file Republicans began contemplating the fallout in autumn elections if they don't pass tough anti-smoking legislation.

"Members are afraid of the taint of that money" they've taken from tobacco, said a GOP aide. "There's a race to see who can punish the industry more."

Assessing the current state of the industry, one official summed it up: "There's a lot of internal sniping and second-guessing. You've got a sense of frustration that's close to panic."

Last month, Geoffrey Bible, Philip Morris CEO, made the rounds on Capitol Hill, hoping to educate lawmakers on the virtues of the deal. But when he arrived at the mahogany-paneled office of Senate Majority Whip Don Nickles (R-Okla.), it was Bible who got the lesson, attendees said.

"This isn't last June; this is February 1998 and things aren't going well for you," Nickles said. "You are not going to get what you're looking for here."

What the industry doesn't know at this point is whether such statements mean "Make more concessions," or "It's really too late."

Staff researcher Ben White contributed to this report.

NEXT: Two Mississippi lawyers take on Big Tobacco.

© Copyright 1998 The Washington Post Company

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