Ashes to Ashes (114 page)

In the view of Carol Henry, director of inhalation toxicology and in charge of the CTR-ordered study at Microbiology Associates, even with all the flaws and skews the early results were building “a very strong case” that cigarette smoke could induce cancers in lab animals. This was unthrilling news to tobacco industry lawyers, who, according to a disclosure nearly a decade afterward by a former CTR associate science director, John Kreisher, “worried like hell” about it. CTR insisted that its lawyers be present in the laboratory during the latter stages of the project—yet another highly suspect factor in the undertaking.

The author of this book was presented with a copy of the CTR-published
Chronic Exposure of Mice to Cigarette Smoke
by a retired Philip Morris top executive with the suggestion that he consult it to satisfy himself on the relationship of smoking and cancer. After enlisting expert assistance, I wrote to the CTR to ask if it would explain some of the problems with the study discussed above, but in a December 11, 1991, letter in reply, the council’s president, R. F. Gertenbach, stated, “Our practice has been to let research funded by CTR speak for itself and not to become involved in discussions about the details or results of that research.”

Chow Lines

THE
last Philip Morris chief executive to have joined the company in the days before the Marlboro Man saddled up, Hamish Maxwell celebrated his ascension by buying a Maserati, not a palomino.

It was an uncharacteristic impulse for the modest Scotsman, never a showy sort. In his private life he withstood the lure of a Manhattan penthouse residence, retaining his Brooklyn Heights apartment with its expansive view of the New York harbor and skyline and enjoying an occasional night on the town, in the company of his wife, Gigi, a Wellesley graduate of surpassing charm. The couple typically went to the opera or an art gallery followed by dinner at a trendy spot in Tribeca. An unpompous man with a dry British wit useful for relieving a tight moment, he was not easily impressed with either himself or the accomplishments of his company. One close colleague viewed him as “the ultimate student,” unafraid to ask a lot of questions about how his two immediate predecessors, more outgoing men, had coped with the industrial giant Philip Morris had grown into. “You could watch by Hamish’s body language and see as time went on that he had become comfortable with the position and the knowledge that he deserved the job … and there wasn’t anybody better qualified for it.”

Indeed, after thirty years, Maxwell knew his steadily advancing company inside out, and on top of that, as another associate noted, “He was very smart—and enjoyed being very smart,” to the point where some subordinates found his formidable intellect intimidating, as they tried to anticipate what their somewhat sphinxlike chairman was likely to inquire of them that they had
not thought through adequately. Far more a strategic analyst than a charismatic field general of the sort Joe Cullman had been, or a pleasing cheerleader in the George Weissman mold, Maxwell drove his troops not by lashing them but by issuing directives and painstakingly following up on their execution. The results were one of the bravura performances in the annals of American corporate management.

Hamish Maxwell was not a callous man. His occasional brief remarks about the health charges against smoking, however, while less combative and absolute than those of his predecessors and rival tobacco chieftains, conceded little and could sound almost cavalier. Early in 1985, a year after becoming head of the company, he said of the medical findings against cigarettes, “What I feel is that living is hazardous. Most of the things you want to do are more hazardous than just breathing. As time goes on, smoking will be seen in that context.” Four years later, not long before he underwent heart bypass surgery, Maxwell, a pack-a-day smoker, cracked, in an unintended echo of a famous Mark Twain witticism denying the addictive nature of tobacco, that he would quit smoking “for a month or so, every so often, just to show that I can.” Maxwell granted that for the industry to keep insisting that nothing had been proven about the health allegations against smoking “sounds Neanderthal” and that his company’s public pronouncements “are affected by our concern over lawsuits.” It was better, he believed, to say nothing than “to make people madder at us than they already are … . Over the years we’ve been about as straightforward as you can be under the circumstances.” And if smoking brought perils with it, he felt that “people are or have been made aware of them … [and] have the right to decide for themselves if they want to take a risk … .”

Maxwell’s ruling concern was that his company not grow complacent following its arrival at the mountaintop; his driving ambition was to channel Philip Morris’s huge cash flow, among the highest of any U.S. company, in a way that would eventually free the business from dependency on a product whose appeal was visibly, if gradually, eroding in its home market. Meanwhile, he would press the aggressive cigarette-pricing policy set in motion by George Weissman and Shepard Pollack which seemed to defy the law of supply and demand and allowed profit margins to approach 40 percent and free cash flow to accumulate at the rate of $5 million a day.

American cigarettes had long been a one-price item, and the price was sharply lower proportionately than for far more heavily taxed cigarettes in other industrialized nations. But Maxwell, used to multi-tier pricing in the cigarette business overseas, was sure that the practice had to come eventually to the U.S. as well—after all, a range of prices was common to almost all other products worldwide, whether toothpaste or automobiles. Once the U.S. Congress raised the tax in 1983, opening the door to state legislatures to jack up tobacco
excise tax levies as well, there was no telling how high and how fast cigarette taxes might rise. Maxwell and his top marketers nonetheless continued to raise prices on a semiannual basis, using taxes as a scapegoat and relying on their competitors to follow suit, since retailers generally priced all brands to follow the market leader’s level. If a real price war eventuated, Maxwell was confident that Philip Morris had the resources and talent to prosper in the discount sector as well, but what was the point of prematurely encouraging the growth of that lowered-price tier? So, with the benefit of state-of-the-art manufacturing facilities and the availability of cheap foreign leaf to hold U.S. tobacco costs in line, Philip Morris was able to keep milking its miraculous cash cow, raising prices at twice the rate of inflation—with only a minimal impact on sales to its captive customers. In a momentary lapse of corporate pretense at the end of the decade, the company’s chief of tobacco operations, Vice Chairman William Murray, said of this brazen pricing policy, “We’ve done it because we thought we could get away with it—and we have. That’s what you’re in business to do.”

Still, all that money brought its own set of problems. What Maxwell had on his hands, if one did not dwell on the rosy view, was a badly unbalanced company; 92 percent of its profits came from tobacco, an industry facing an ever louder public clamor over the health toll it exacted. If the company’s cash was not put to creative use fast, it would soon likely attract corporate raiders, greenmailers, leveraged-buyout artists, and other predators enjoying their own heyday. The treasure trove from tobacco was also inviting lawsuits from aggrieved customers, further depressing Philip Morris stock, already selling at a price/earnings ratio comparable to that of companies with only half its per-share net. PM’s major forays into diversification—its beverage operations—had not proven much of a help; Seven-Up was barely breaking even now and facing bleak prospects, while Miller Brewing, though safely in the black, had been overbuilt and its earnings were just about enough to cover the interest charges on all the capital that had been invested in it. As far as some on Wall Street were concerned, the company would have been better off if it had socked its surplus funds into U.S. Treasury bills. When Maxwell’s new chief corporate planner, Ehud Houminer, made the rounds to get acquainted with the big New York investment and brokerage houses, he was chastened by the response. “You guys are just a big cash machine,” he was told, garnering few plaudits for the company as marketing marvels. The continuing attacks from the antismoking camp and the constant threat of endlessly draining lawsuits caused a downgrading of the company’s prospects, despite the surging numbers in its quarterly earnings reports and the steady annual dividend increases of 20 percent or more. Philip Morris was a tightrope walker in Wall Street’s eyes as long as it remained essentially a one-product company.

Maxwell’s choices, then, were to keep milking his cow as long as possible,
paying out ever more in dividends and buying back stock to raise earnings-per-share still higher—letting the animal enjoy its golden years, so to speak, before sending it to the slaughterhouse—or to convert the creature into a quite different being with the benefit of high cigarette profits for as long as they lasted. As a charter member of the new class of organizational managers who thrived as skillful manipulators of corporate machinery, Maxwell elected to build his empire, free of the delusion that he was the Sun-King. “Managements are paid on the basis of revenues, not profits,” according to Roy D. Burry, a veteran Wall Street financial analyst and tobacco industry specialist. For Maxwell, the challenge would be to increase both his gross and net rapidly without seriously diluting the return on his company’s invested capital.

II

A
s a corporate manager, Hamish Maxwell did not feel compelled to articulate his mastery of the house. Cordial but firm, he was at his best in front of a knowing audience, like the society of San Francisco financial analysts, whom he once addressed at the Mark Hopkins Hotel, where Paine Webber’s Emanuel Goldman, among the nation’s leading authorities on the food and tobacco industries, found himself spellbound by the Philip Morris chairman’s comforting voice, never loud or rushed, rarely reaching for striking language or imagery, “yet he had the room riveted … giving a sense he was in control but not in any grating way.”

He led not by trying to micromanage a company about to reap tens of billions in revenues a year but by managing his managers, mostly in one-on-one meetings that ran as long as necessary. He regularly bypassed the top echelon to obtain direct input from his middle management so that he would not become dependent on a handful of advisors. Maxwell’s prevailing mood was known intramurally as “constructive discontent,” another way of saying he hated smugness and preferred to see the glass as half empty rather than half full. “He never made you immortal,” one ranking company colleague remarked of the chairman’s stinginess in dispensing praise. “His encouragement was always personal and subtle, not public and blatant. It was typical of him to send a subordinate a news clipping with a note saying, ‘Since you’re doing such a fine job, I thought this item might be of interest to you … .’ You knew you were doing things well by his lights when one year your name showed up on the Maxwells’ Christmas card list.”

A hard-to-satisfy workaholic, he was also at times a hard-to-read communicator, given to cryptic suggestions like “We ought to be looking at—“ that had a way of being taken for an outright command. But missed signals were a small problem; swollen heads and exhibitionist personalities were not, and individual
ambition had to wear the seemly guise of aspiration for the company’s fortunes. Thus, Maxwell sent Shep Pollack packing—the brainy head of PM-USA was just not his type of executive—after providing him with a plump retirement package, and replaced him with a beloved company man, chemist Frank Resnik, up from a career in R&D at Richmond. Never one of the brighter stars in the company firmament and devoid of marketing skills, Resnik had strong political and professional contacts in Washington that made him a useful figurehead. He was also malleable, taking and carrying out the chairman’s instructions and not resenting the oversight of battle-tested Maxwell loyalists from the company’s international operation who were now handed key posts of power.

To fill the void left by the departure for supposedly greener fields of popular company princeling Jimmy Morgan, Maxwell gave Resnik his top marketer from PMI, William Campbell. Affable and upbeat, with a somewhat volatile temperament, Campbell was viewed as bright if not shrewd. He was also a Canadian, a nationality thought to be more acceptable to PM-USA people under renewed pressure to sustain the division’s growth in market share and not eager for directives by foreigners when the domestic tobacco operation had, by any standard, been a rousing success to that point. At the corporate level, Maxwell brought in his two key Australian aides, accountants William Murray and Geoffrey Bible, somewhat humorless men but able at their craft, fanatical workers, and undeviating in their loyalty to the chairman. A literal-minded fact-squeezer, Murray ran PMI for a time until being elevated to vice chairman in charge of worldwide tobacco operations. The little notebook he carried became something of a company joke; in it Murray was said to record with precision every instruction that Maxwell gave him—and then faithfully, at times coldly, saw to it that the orders were carried out. Bible, who took over running PMI from Murray, was regarded as a highly competent financial man with a focused mind, a thin skin, and a forceful, if not endearing, managerial style. The two Aussies, perfect conduits for Maxwell’s contained force, were the sort of men good at running a company rather than building it. A different sort of key staff man, Ehud Houminer, an Israeli who had graduated from the University of Pennsylvania’s Wharton School, probably came closer than anyone else in the organization to qualifying as a genius—a condition he did not try to hide. Having done well under Maxwell at PMI in Europe, Houminer was made top corporate planner and assigned to help the chairman figure out how best to expand the business beyond cigarettes.