Authors: Richard Kluger
Chief among those suspected, both within and outside the company, of being unthrilled with its double identity was its nonsmoking CEO. Press speculation that Miles was, as he himself phrased it, “not a champion of the most profitable product in the house,” was fed by his failure to defend it publicly and his near-invisibility as a prominent global industrialist. He had given no press interviews during a year in which the cigarette business was in tumult on both the political and marketing fronts, and rarely did he address Wall Street analysts on the company’s financial performance. PM-USA President William Campbell, several notches below the top in company authority, was assigned to joust with tobacco industry critics, while Miles came to be perceived as a remote figure, uncommunicative with his subordinates as well as the outside world. He would on occasion reply to cracks about his seeming aloofness and cold-fish personality by saying he thought of himself as “businesslike,” and would, in retrospect, explain why he had not thought it seemly to play “the media hound—maybe I should have.” He attributed his minimal public presence to the conviction that “a corporation should speak with its results—its profits—not through press releases and interviews,” which, at any rate, he felt were often misreported or distorted. He insisted that he was never discomforted by the health charges against smoking, which to him were not different in kind from those against cholesterol-rich cheese, the bellwether product of Kraft, of which he had been president. But such a view failed to acknowledge that dairy products had high nutritional value and that the danger from their fat content
could be readily mitigated by moderate use; the same could not be persuasively said for smoking.
Miles’s unease over the perception of tobacco as a rogue industry and the difficulty of meeting the ultimate public-relations challenge it presented was detectable in his response to a request by
The New York Times Magazine
for access to Philip Morris executives for an article that appeared in the March 20, 1994, issue by trenchant social commentator Roger Rosenblatt and entitled “How Do Tobacco Executives Live with Themselves?” According to knowledgeable insiders, Miles had to be talked into letting Rosenblatt interview the company’s executives on so sensitive a topic. Most notably missing from the roster of PM officials with whom Rosenblatt met—and large photographs of whom appeared with the text—was CEO Miles. The article, which dealt only with Philip Morris, was notable for the access granted to Rosenblatt, its length—on the order of 10,000 words, certainly the most extensive (and likely the first) printed examination of the inner moral struggle of the industry’s executives—and its curious effect, perhaps the opposite of the writer’s intention, of letting his subjects portray themselves as not entirely insensitive human beings rather than as a den of fanged merchants of death. In answering the question of “[h]ow good, smart, decent individuals manage to contribute to a wicked enterprise,” Rosenblatt, who made no secret of his antismoking attitude, wrote that “in dealing with these Philip Morris executives, I felt the presence of the company within the person. In the end, I felt that I was speaking with more company than person, or perhaps to a person who could no longer distinguish between the two.”
But in the extraordinarily long quotations from the PM executives, perhaps interpretable by antismoking advocates as self-satirizing, their blameworthiness was cast into doubt by seeming candor, such as that exhibited by PM-USA general counsel Steven Parrish, who told how upset he had become one Sunday upon returning home from church with his family and turning on his television set to hear commentator Sam Donaldson say on “This Week with David Brinkley” that he didn’t understand how any tobacco executive could look himself in the mirror every morning. Parrish went on to narrate how his daughter had come home from school and asked him, in preparation for a classroom assignment on drugs, what he thought about cigarettes.
And I told her that a lot of people believe that cigarette smoking is addictive but I don’t believe it. And I told her the Surgeon General says some 40 million people have quit smoking on their own. But if she asked me about the health consequences, I would tell her that I certainly don’t think it’s safe to smoke. It’s a risk factor for lung cancer. For heart disease. But it’s a choice. We’re confronted with choices all the time. Still, I’d have to tell her that it might be a bad idea. I don’t know. But it might be.
More argumentative but no less reasonable-sounding were remarks by David Dangoor, executive vice president of Philip Morris International:
You know, actually, it sounds crude and simplistic, but ultimately it’s not up to the tobacco industry to deal with the cigarette issue. The final solution to the cigarette issue, that’s up to society. If they want to ban cigarettes, you know, we live in a democracy, it should be done in a democratic way and discussed how the hell to deal with the economic consequences, and that’s not meant as a threat. It’s just a fact.
Not until the closing section of the very long article, dealing with the confession of guilt by a former Tobacco Institute lobbyist who later contracted throat cancer, was the ravaging effect of the cigarette business dwelled upon. And yet Michael Miles told subordinates that he felt the Rosenblatt piece reflected badly upon the company and chided those who had prevailed upon him to go along with it.
Convinced by then that cigarettes had been stigmatized beyond repair and that, as he later put it, “the food side of the business might do better on its own” in terms of Wall Street’s valuation, Miles discussed the split-up idea openly with current and former PM executives. Although his espousal of the move was taken as further evidence “to the smoking side of the house … to doubt even more” the CEO’s comfort level with tobacco, Miles noted, “at the end of the day Hamish himself was pretty reconciled to the split-up.” And, according to Maxwell, so were most of the other Philip Morris executives on the company’s nineteen-member board, “but the rest of them needed convincing.”
The subject of the internal debate but little of its substance was reported in the press during the spring of 1994, with some accounts placing Miles and Maxwell on opposite sides of the issue. But probably the major barrier to that giant step was advice from PM lawyers that it was just too late to try to break off the food assets from the tobacco side because plaintiffs who had already filed class actions and multimillion-dollar suits against the company would surely press additional suits to block the split-up and prevent major corporate assets from eluding their claims—a prospect that could involve the company in a long, distracting set of lawsuits beyond its already weighty caseload. After a six-and-a-half-hour meeting late in May, the board issued a statement that the breakup proposal had been taken off the table “for the foreseeable future.” As the 1994 annual report later elaborated, splitting the food from the tobacco business would have proven “very complicated, both legally and structurally … and the resulting uncertainties would be very disruptive” without clear, compensating gains. Shareholder groups, disgruntled at the time with the performance of PM stock, still languishing in the 50s, and tantalized for months by their anticipated enrichment from a split-up, howled.
Four weeks later, over a weekend and without making a public appearance, Michael Miles resigned. His only explanation was that “I thought it was better to return the company to lifetime executives with tobacco juice in their veins.”
Some at corporate headquarters had heard that Miles was feeling heat from his old set of Chicago friends who were appalled that he had sold his soul to the devil in his capacity as the world’s leading private purveyor of cigarettes. Some speculated that, having come to regret that sellout to Satan, Miles saw in the breakup of Philip Morris a way to escape from tobacco and resume his career as a leader in the food business, an industry he loved and understood—and if he could thus regain control of a much enlarged food enterprise from the tobacco predators who had seized Kraft six years earlier, the retribution would be sweet. Still others supposed there was just too much on his plate that was unpalatable: irate stockholders, a ceaseless din from antismoking activists, never-ending lawsuits, and the likelihood that he would soon have to engage the whole issue of smoking and health in person and probably on the national stage, before congressional committees—“something he really didn’t want to do,” a fellow PM director said.
Whatever his precise reasons, just a few months shy of three full years at the helm, Miles left 120 Park Avenue and went home to Illinois—and peace.
VII
THE
Philip Morris board lost little time in reaching past the company’s second in command, William Murray, to elevate his quick-witted, energetic countryman, Geoffrey Bible, to chief executive officer. Thirty-five years after leaving his hometown of Canberra, the Australian capital, at the age of twenty-two, Bible attained a pinnacle of corporate power beyond his dreams.
Lacking Joseph Cullman’s social advantages and self-assurance, George Weissman’s charm and presence, Hamish Maxwell’s savoir-faire and cunning, and Michael Miles’s American rootedness, Bible had parlayed his training as a chartered accountant into a career as a peripatetic troubleshooter for PM, willing to take on any assignment and expedite it handily if not brilliantly. A short, peppery man who had had to work at mastering interpersonal skills, he most resembled Cullman in mold and manner among his modern predecessors as PM chairman. He shared Cullman’s dynamism, decisiveness, capacity to absorb and retain information, and, when he needed to, the knack of making subordinates sweat. But he was just as capable of sending an underling a congratulatory bottle of champagne with a warm note for a job well done. More to the point, Bible was an unapologetic, pack-a-day smoker, and if, as a churchgoing Catholic, he had any qualms about the cigarette business, he likely resolved them on Sundays. “None of us has weak knees about the product,”
he remarked to an interviewer soon after becoming CEO. “We manufacture and market it in the most honorable way … . We break no rules or laws.” He thought the company had “a wonderful spirit and marvelous camaraderie,” and told the press from the first, “It is our intention to defend our industry and our customers briskly and strenuously.”
The change from his predecessor’s above-the-battle style became apparent almost at once. The company was soon running full-page ads challenging the EPA’s ruling that secondhand smoke was lethal, and pressed a suit against the agency for applying dubious science and exceeding its statutory powers. It was also pursuing court actions against Capital Cities for its ABC Network’s “Day One” charge that PM and other tobacco companies spiked their cigarettes, against the city of San Francisco for unreasonably restrictive smoking regulations, and against the state of Florida for a new law that would allegedly strip the company of due process in defending liability claims by the government to recover its medical outlays for sick smokers. And when New York City considered adopting the severest smoking restrictions in the nation, PM hinted that it might have to abandon the metropolis that had always been its American home if the antitobacco environment grew too oppressive—and did not discourage the cultural institutions it had funded from leaning on city officials with pointed reminders of just how vital Philip Morris was to the artistic life of the Big Apple.
Wall Street was relieved that an unabashed tobaccoman was back at the helm, and felt still better later, when, based on the steadily improving results in its domestic cigarette business, PM boosted its dividend rate nearly 27 percent and announced a two-year, $6 billion resumption of its stock buyback plan. By year’s end, the company’s per-share earnings had made up the ground lost during the 1992–93 tumble in cigarette market share and the profit squeeze from the resulting price cuts; PM-USA’s market share was at a record 47 percent, Marlboro had nearly 30 percent of the total, and Philip Morris was selling four out of every five full-priced cigarettes bought by Americans. The company extended its dominance into 1995, posting a gain in units as well as revenues while the rest of the industry tailed off; little talk was heard now of a company breakup as PM’s stock price pushed over 70 by mid-spring and soon soared toward 90, past its pre-“Marlboro Friday” level. Even a voluntary recall of 8 billion units, at first attributed to contaminants in the plasticizer used in its cigarette filters and expected to cost the company more than $100 million, did little to slow PM’s advance. Indeed, the action had the salutary effect of making the manufacturer appear to be a zealous watchdog of its customers’ well-being, as Alan Blum sniped, “They’ve taken a product that kills you and have recalled it because it makes you dizzy.”
To strengthen his hand in areas where he was least accomplished, Bible advanced James Morgan, his most passionate and gifted marketer, to the presidency
of PM-USA, and gave general counsel Murray Bring, the house intellectual and chief legal tactician, the added title of executive vice president in charge of worldwide regulatory issues and public relations, thus recognizing the company’s likely long-term entanglement in the political and legal realms.
By the close of his first season running the company, Bible’s career as an international executive stood him in good stead. Increasingly, Philip Morris needed a global outlook, for while the home cigarette business remained its corporate profit center, the company was selling almost three times as many cigarettes overseas, international tobacco profits had nearly caught up to the domestic net, and the United States, as Bible saw it, was “beginning to look like an island of extremism” due to the smoking control measures Americans were adopting. On top of a 20 percent annual growth rate in foreign tobacco profits, PM’s share of the cigarette business was surging almost everywhere abroad: 37 percent, for example, in reunited Germany, Europe’s biggest and most lucrative tobacco market; a similar share in Bible’s homeland, Australia, where it had regained first place; 88 percent in Turkey; 46 percent in Mexico; 29 percent in France; and close to 14 percent of the world’s No. 3 cigarette market, Japan. While per-capita cigarette consumption had fallen off 10 to 12 percent in the lucrative Western European market, where PM reigned in the 1985–1995 decade, and tougher tobacco control regulations were being adopted, some 34 percent of the adult European Union population continued to smoke—more than one-third higher than the 25 percent figure for the U.S. Enforcement of the new antismoking rules, morever, tended to be lax in France, Italy, and Spain, where the national governments still ran the tobacco business, and in Greece and Germany, where cigarettes accounted for 5 to 6 percent of all tax revenues. In Eastern Europe and the dismantled Soviet Union, Philip Morris was sweeping ahead unstoppably by late 1995, at a pace exceeding the combined sales of its two largest rivals, RJR and BAT, and amounting to nearly 60 percent of its U.S. unit volume—and this was largely with imported merchandise and before newly built or renovated local factories had come on stream. Beyond that, PM vigilantly awaited political and economic breakthroughs in other vast markets where it as yet sold few or virtually no cigarettes, like China, India, Pakistan, Indonesia, and Nigeria. By late 1995 the first Marlboros to be made in China were being produced in Shanghai.