Ashes to Ashes (121 page)

Whatever Jacobs’s reasons, Maxwell found Jacobs Suchard—
sans
Brach, which was not included in the deal—a solid enterprise and said he would proceed provided that the Swiss company was not shopped around. The transaction was accomplished expeditiously, and entirely with Philip Morris’s own funds. Thus, Maxwell’s empire grew by 16,000 new employees spread over the twenty countries where Jacobs Suchard operated, and his global sales surged past $50 billion by the close of 1990. Food now accounted for more than half of the company’s revenue and two-thirds of the payroll though only one-third of the net. But signs were encouraging of higher profitability on the food side, as Michael Miles was able to do enough cost-cutting to post a 25 percent gain in KGF earnings on a rise of just over 3 percent in sales. Tobacco, though, was still king at Philip Morris, as Marlboro sales accounted for 26 percent of the U.S. cigarette business; the brand was rated the largest-grossing branded consumer product on earth for the moment. And the company’s overall return on equity hit the spectacular annual rate of 33 percent.

Even so, a few purists complained that the Maxwell-Houminer-Storr strategy of leveraging on the huge free cash flow from cigarette margins had, by strict accounting standards, not worked. The $5.4 billion it had netted on sales of $79 billion from its food acquisitions over the 1985–90 period fell $337 million
short—applying the 9 percent average prime lending rate in effect over that span—of the borrowing charges on the $22.8 billion that the company had paid to become a food titan. That is, the strategy amounted, in practice, to deleveraging. This was, however, a rarefied and exceedingly narrow view. In fact, the company had paid back most of the borrowed principal, so that earnings, if sustained, would soon increasingly outstrip debt charges; meanwhile, Wall Street had kept bidding up the price of Philip Morris stock, as the architects of the food strategy had foreseen, so that investors were realizing a bonanza in terms of total return (dividends plus stock price enhancement)—at least on paper. If Maxwell had overpaid, he had gained a whole new world and future for his company.

All of this success, and perhaps his own recent heart surgery, may have contributed to a slight softening in the company line about the health charges against smoking as noted in the 1990 annual report, the last one to bear Hamish Maxwell’s signature. The formal Philip Morris position now was:

We have acknowledged that smoking is a risk factor in the development of lung cancer and certain other human diseases, because a statistical relationship exists between smoking and the occurrence of these diseases. Accordingly, we insist that the decision to smoke, like many other lifestyle decisions, should be made by informed adults. We believe that smokers around the world are well aware of the potential risks associated with tobacco use, and have the knowledge necessary to make an informed decision.

Never before had a major tobacco manufacturer acknowledged the hazardous nature of its product; the concession in the form of a warning on the cigarette pack, attributed to the Surgeon General, had been made only under duress from Congress. To be sure, Philip Morris had not exactly donned a hair shirt, and one could argue with the failure of the company report to concede anything beyond a statistical link in view of the overwhelming body of clinical and histological evidence. But it was no longer a die-hard denial: the annual report left it to smokers to decide the merits of their habit while recognizing the peril it presented to them. Had the industry said no more—and no less—over the years as medical science was lodging its charges, its moral position would have been strengthened. Or at least it would have had a basis for claiming one.

X

PHILIP MORRIS
may have been the darling of Wall Street, but on Main Street a growing segment of the public viewed the company as peddlers of
a deadly substance. To improve this image as soon as possible after he became chairman, Hamish Maxwell named a bulky, creative Tennessean, Guy L. Smith IV, to be vice president for corporate affairs, and told him to “make something happen.”

A former newspaperman in Knoxville and later press secretary to that city’s mayor, Smith had won high grades as a publicist over an eight-year stint with the company’s beverage subsidiaries, Miller Brewing and Seven-Up. Summoned to corporate headquarters for the ultimate challenge any public-relations man could hope to face, he brought to the task several useful assets—charm, guile, not even a scintilla of perceptible guilt, and a very large budget. His tactics were mostly diversionary, in more than one sense. At their core they were an elaboration of the program that George Weissman, a past master at the craft, had persuaded Joe Cullman to embrace: associate the company at every opportunity with positive social values, institutions, and ideas, and if it behaved like a sterling corporate citizen, people would overlook the unfortunate tendency of the core product to shorten life expectancy.

Smith focused his efforts on staging or sponsoring public spectacles and practicing strategic philanthropy. The former took “mass-and-class” forms—sports and popular music events to attract the widest audience possible, and high-art, even avant-garde, exhibitions and performances to reach the monied and educated elite who ran much of society or shaped its opinions. The philanthropic outlays had to be highly visible, reach people who badly needed the help, and present at least the appearance of altruism. A subcategory of giving allowed for coalition-building in the form of ad hoc grants to recipient groups whose mission or plight was transparently useful to the company.

Beginning after the broadcast ban on tobacco commercials took effect in 1971, the company’s investment in sports sponsorship was essentially a repackaging of the
verboten
cigarette ads, combining a heavy on-site presence with far-flung visibility through televised signage at arenas. At its least complicated, this meant renting space for and erecting giant billboards or scoreboards at major league ballparks and flaunting the Marlboro brand name—only Dodger Stadium in Los Angeles and Wrigley Field in Chicago did not permit such displays. At its most involved, it meant heavy outlays—Philip Morris’s Virginia Slims tourney, for example, cost $17 million in annual prize money alone by the late ’Eighties—and saturation brainwashing of the crowd. Of PM’s trackside effort during the Marlboro Grand Prix, targeting young males who were the brand’s most desirable customers, marketing services vice president Ellen Merlo explained, “We have samplers and sweepstakes booths, we give away branded merchandise, we have signage around the track. We have a media center where we supply information about [the] … car series. We make the drivers available for interviews … .”

All of these colorful efforts were aimed at associating smoking with the
wholesome ambience of athletic prowess, youth, strength, and the excitement of nonlethal combat, obscuring the habit’s link to disease. They also purchased easy access to young people without the obvious appearance of targeting them, as well as the complicity of sports administrators. The president of baseball’s American League, Bobby Brown, a former New York Yankee infielder and a physician, told
Washington Monthly
writer Jean DeParle in September 1989 that “it’s unrealistic for tobacco advertising to be removed from baseball parks,” because the companies would just put up the ads somewhere else—as if that excused their presence there, or any other site offered a comparably large captive viewership in person or via telecasts of the games. Television people were hardly more discerning or contrite. The ABC network’s sports program director, Lydia Stephans, said of Philip Morris’s access to millions of potential customers through its sponsorship of the televised Virginia Slims tennis circuit, “I think it’s clever. They’ve found a loophole … .” And the athletes themselves, recognizing their meal ticket, testified unapologetically to the company’s brazenness and their own gratitude for it. “Virginia Slims is our sponsor,” said Pam Shriver, who made millions from the sport, “ ‘cause they’re a great sponsor. Too bad they’re a cigarette company.”

Philip Morris pranced so gracefully through the world of the visual and performing arts that
The Wall Street Journal
was driven to anoint it in 1988 as “a twentieth-century corporate Medici, the art world’s favorite company.” Its outlay as patron of the arts was in the $10-to-$15-million-a-year range by the late ’Eighties—about one-fifth of what it spent on sports promotion. The identity linkage here was more subtle but was not lost on the cognoscenti. Posters, programs, catalogues, and ads prominently mentioned the company as prime benefactor of as many as twenty art exhibitions a year, ranging from regional museum shows to traveling international retrospectives, and dozens of regional and repertory theatrical companies around the nation. Most notable in this latter category was the company’s support of the leading cultural institution in Hamish Maxwell’s home borough—the Brooklyn Academy of Music, which received ongoing grants to help establish its New Wave Festival, one season featuring a nine-hour, three-part adaptation of the 100,000-verse Sanskrit epic,
The Mahabharata
, staged by British director Peter Brook and requiring among its props a fiery pyre, a pool of water, and thirty-five cubic yards of mud. Brook was feted at a luncheon hosted by Philip Morris, which immodestly noted, in a 1990 report, its role as “an arts patron on the cutting edge of contemporary sensibility.”

The company’s most constant presence in the art world took the form of chief patron of the dance. It contributed significant amounts to the Joffrey and Alvin Alley troupes, the American Ballet Theatre, and some fifty smaller companies, sustaining virtually an entire art form and displaying its generosity to a high-powered elite that consisted of not only authentic dance-lovers but
also a wider circle of lacquered arts patrons, opinion-creators, showbiz celebrities, and their fawning hangers-on. There was, of course, nary a whisper about the product during any of this. “I don’t talk about health and smoking in the middle of an art show,” Philip Morris chairman George Weissman would remark. “We hope people will come away with favorable impressions of the company—that we are cultured human beings like everyone else, not a bunch of barbarians.”

No less skillfully deployed was the company’s social philanthropy, budgeted at about 1 percent of pretax corporate earnings and concentrated upon those in earnest need of funding and recognition. By the late 1980s, this program came to about $50 million annually. Other leading philanthropic companies gave more in proportion to their revenues—some twice as much as Philip Morris—but none achieved greater visibility for its gifting. Seventy percent of PM’s 3,000 grants in 1990 were for under $10,000; typical were $5,000 gifts to the New York chapter of the American Civil Liberties Union and the Hispanic Bar Association of Pennsylvania. Larger gifts went to a wide array of nonprofit causes, from seed money for the nation’s first “multimaterial” recycling facility outside Atlanta to sustaining grants to New York City’s Holy Apostles Soup Kitchen. Most emphasis was placed on educational causes, with gifts ranging from a small grant for disadvantaged preschoolers in Little Rock to multimillion-dollar donations to the Gateway literacy project in Philadelphia.

Calling the public’s attention to these less visible boons required some ingenuity. In the case of a million-dollar grant to the New York Public Library for the cleaning of 3.5 million volumes, the company spread around bookmarks that noted the project and instructed library patrons on how to care for their own collections. Less subtle was a two-page ad in
The New York Times Magazine
discussing Strive, an East Harlem job-training and placement program for disadvantaged youth. In Strive, the ad explained, Philip Morris had found some hope in a neighborhood of crime, drugs, and family violence, “and we’re proud to support their efforts.” That support amounted to gifts totaling $75,000 over three years, doubtless admirable in and of itself but more than a touch suspect in light of the cost of the horn-tooting
Times
ad, which came to about the same amount as the contribution itself.

Antismoking advocates charged Philip Morris with seeking “innocence by association” through its strategic gift-giving to cultural institutions and social causes, but in this effort to improve its appearance and win recognition as a good citizen, how was the company different from any other? “Let’s be clear about one thing,” George Weissman had said in 1980. “Our fundamental interest in the arts is self-interest.” The difference, of course, resided in the hazardous nature of its product, so that Philip Morris stood accused of passing out blood money in seeking expiation from the society it victimized. Even if its
philanthropy sprang from a guilty conscience, though, did that make the program reprehensible and its recipients tainted?

The moral problem seemed to crystallize in either of two circumstances—when the company pretended to noble instincts and when its beneficiaries denied all social responsibility for the activities that had generated the money bestowed on them. “If we gave a million dollars to Mother Teresa, they’d find something wrong with it,” remarked Philip Morris spokesman Tom Ricke in 1988. “We do it because it’s the right thing to do.” If doing right was indeed Philip Morris’s guiding star, however, tobacco industry spokesmen would not have made a career of challenging every new finding by science that regular use of their product could lead to grave medical consequences. The far more debatable issue that Ricke opened up was whether his designated paragon, Mother Teresa, given her mission to salvage the lives of perhaps the most hopeless souls on earth, ought to have accepted a donation from his company if it had in fact been offered. Should any individual, agency, or institution devoted to saving or enhancing life have faced an ethical dilemma in accepting funds derived from sales of a product that certifiably hastened death for millions?

For some of Philip Morris’s beneficiaries, to hear them tell it, the question never arose. The company made a point of selecting causes in dire need of financial support and without the luxury to be fussy about their benefactors. “To tell you the truth, I’m not that interested,” Alison Dineen, fellowship director of the Women’s Research and Educational Institute, responded when asked if she suffered any qualms about accepting tobacco money. “I’m just glad they [Philip Morris] fund us.” Said a spokesman for the Ailey dance troupe, “If it were not for the support of the Philip Morris Companies, we would be forced to curtail many of our activities.” On another occasion, the Ailey’s general manager, Peter Brown, suggested—with perhaps a touch of hyperbole—just how unselective his group had to be to survive, telling
The Wall Street Journal
, “We would accept money from the Mafia if they offered it.” Behind such a remark was the implication that no one who helped the genuinely deserving needy could be all that bad. Indeed, the worthiness of the recipient organization’s mission overrode all other considerations that might have decently excluded a donation as compromising. “If you deny us the support of enlightened members of the private sector,” the Alley’s William Hammond asked on another occasion, “where is the money to come from?” Enlightenment, in such a view, consisted largely (if not entirely) of adequate appreciation of the recipient group’s contribution to humanity; the giver’s contribution—or destructiveness—was irrelevant. Noted Karen Brooks Hopkins, vice president of the Brooklyn Academy of Music, a prime recipient of Philip Morris largesse, “There are so many people who do absolutely nothing for the arts. Let’s go after them … .”