Tobacco Documents Online

• '. Taped 14aterlal RJR TCBACCO CO. PRESENTATION 9/2/80 C. TUCKER, D. NARR, D. FISHEL, E. JACOB C. Tucker: We are going to.share some 6f our thoughts about the issue that's facing us. We'll go right ahead, I.think. ~ - We're going to be talking about Iobacco issues today. We at R. J. Reynolds Tobacco believe that this is truly'a two-way street. Hopefuily, you will share some of your issues with us'with the result that we can make. a contribut~op. Certainly we do have a commogality of interest as it relates to excess regulation, the FTC specifically. There is mutual interest in our channels of distribution and perhaps we have similar i~terest~ in the ar6a of litter control ~nd regula- tion. I am sure, in any event, that the list can be expanded appre- ciably, Dick, and we are vitally interested in working with you. Turning to tobacco, let me start by sharing with you one of the five key issues that make up our long-range strategic plan. It states, and I'd like to quote it, ,Anti-sioking bodies are expanding their efforts to establish the belief that smoking'is harmful to"the smoker and the non-smoker and to restrict the use of tobacco products through ~ncreased legis- lation, regulation and taxation, their overriding objective is to make smoking and smokers socially unacceptable." Going b~ck in tim~_ some 20 years ago the Surgeon General de- cided, based on statistical correlation, that smoking was ha~.°rafu~ to the smoker. With-this conclusion, as ~ou know~ came federal regula- tions conkroliin~ the saIe of cigarettes, :including a ban on the use of T.V. and radio, the use of the ~¢arning statement and the listing

"of tar and nicotine numbers. Let me say at this point that it ~s not the cigarette industry's position that cigarette smoking does not cause cancer. Our position is that a causal relationship between smoking and lung cancer has not been established. By the same token, we do recognize the statistical correlations that have been built up over a period of years. And we also recognize the many anomalies involved in lung cancer which Ed Jacob will discuss with you in just a moment. At this point in time the cigarette industry alone has spent close to $i million in research. The major objective has been to try to find the Causes of some of the basic diseases that have been asso- ciatedwith smoking. And the g0vern~ent, incidentally, ha~ spent a lot mo~e than that. •The net is, however, that ~n spite of all this research, the basic question as to the causes ofthese diseases and as to whether smoking has anything to do with them or not remains unanswered." As a result,• antiCsmoki~g groups, some regulators legislators have changed direction and have turned to an effort to make smoking and smokers soc~ally unacceptable. They are using several tacts in this effort. For example: (i) attempting to prove that cigarette smoke is harmful to the nonsmoker; (2) b£oadly xest~ic-- ting smoking in public places; (3) using c~ga~ettes as a sin tax vehicle; (4) attempting to establish the rights of the nonsmoker vs. the smoker -- the airline regulation is an example of that; and (5) attempting to establish a multi-billion dollar social cost of smo]~ng, that is, medical care, absenteeism, the Joe Califano approach of a year or so ago. The other phenomenon that has taken place ~ecently is that the battle Hround ~as moved from federal level to the state and local level. This multiplies, of course, the scurmishes we f~.ght many fold. This phenomenon started ~n Arizona where one individual, through con-

tinued effort, was able to achieve substantial legislativ@ restriction in that state as it regards smoking. The result of this increased anti- smoking and anti-tobacco activity, and the local and state government effort to ban or restrict smoking has created an increasingly negative attitude towards smoking on the part of the public. We haven't been able to measure its impact, but we know it has impaired our ability to do business and it certainly has dampene~ the sales growth of this tobacco industry. As a result of this trend, the tobacco company : management and corporate management has mandated a far more aggressive posture for the tobacco company in speaking out. on these issues~- Obviously the most important base we. have is'that made up of our own ... company and corporate employees -- some 80,000 in all. Unfortunately in the past information on tobacco issues has come to our corporate employees p{imarily from the press. Our goal now is to fully in- form those employees so that they can make knowledgeable decisions regarding tobacco issues. The result is the Employee Col~u~unications Program that we want to talk to you about today just for a few minutes. The objective of this program is 3-fold with primary emphasis on the first objectivg, and that is to fa~tually inform RJR.employees that there is another point of view to the smoking and health contro- versy. Secondarily, number two, to encourage employees to take appropriate action on behalf of tobacco if they are so i~,clined. And (3) to provide direction and support for our employees activities. Again our primary mission is to inform, and please let me emphasize that we are not here to talk people ~nt,- smoking and we are not here ~ .- to train people to become tobaccolobbyists. That is not ou~ mission. In the presentation today, Dave Narr, ~;ho is manager of the '-" Tobacco Company's Pub].ic Affairs Plar.ning and Progras~ing, wi].l give

you a brief overview of the social and political environment for to- bacco. ~e will be followed by Ed Jacob of Jacob & Medinger, who will discuss medical, scientific, and legal issues. I might,just digress and say, as you might suspect, Ed is a lawyer, and you might wonder, therefore, why is a lawyer talking about medical and scientific issues. Ed joined forces with RJ Reynolds some 27 years ago in the first cancer case that we fought. }~e probably knows as much today about the ~cientif~.c'and medical side of this ~uestion as anybddy in the United States as a result of that association. Finally, Dave Fishel, who is R~ynolds Indhstrie~' Public Relations Director, will outline some of the next steps in the Employee Communications Progrm~. And Dick, following that and at your direction, we'll be happy to a~swer any questions you all may have. I'll turn it over to Dave Narr. David Narr: Thanks Tuck. What I'd like to do in about 20 minutes is look at five subjects which relate to the social and political environment for tobacco. First, historical trends in smuking acceptability; second, current attitudes towards cigarettes and ~moking and how those attitudes translate into current legislative ~hreats including smoking bans, taxation, operating restrictions of var~.ous ki~,ds; fo~rth, we'll look at the ~mpact of these issues on the tobacco company and other elements of Reynolds Industries; and fifth and final].y, see what the future environment for tobacco looks like. Now, let's" lo0k at the history of smoking acceptability. As this slide indicates, that history includes many ups and down. That's

not meant~to be an exac~ representation, but just for illustrative purposes. In 1604, King James I of England issued what he called a "counter blast" to tobacco." He concluded that smoking ,was a custom loathsome to the eye, hateful to the nose, harmful to the brain, dan- gerous to the lungs, and in the b]ack stinking fume thereof nearest resembling the horrible stingient smc'- of' the pit that is bottomless. He had some specific problems with tobacco, also. }{e said, "morally ~peaking," tobacco is a sinful and shameful lust; ~ specles of dr6nk- enness. ~t disables its users physically so that at times of stress they cannot serve King and cohnt~y. Some ~f-the gen£ry bestow 300 or ~ " the use of 400 pounds a year upon this precious weed~ he went on, +~obacco ~mitates the barba.rous and beastly, manners of the wild godless and slavish indians. Finally, the sweetness of a man's breath ~s corrupted by stinking smoke." The reason I recite these is to make a point that, really, ali of the~e are current arguments againsh tobacco. If you talk to any dedicated anti-smoker today, you can hear them say pretty much the same thing. Well, ~espite all that, smoking ~n the U.S..and certainly other parts of the world was fashionable by the time of the Revolutionary War. Then some observers say it started to goout of fashion a little bit by the mid to th~ end of the 19th century, during the Victorian Period. Well, th.en it turned around againand by the end of World War I it became fashionable and ext,:emely popular again. This coincided with a period of manufacturing and marketing innovation, but more importantly perhaps, great changes ~n lifestyles and social values, 'the upheaval of Wor.ld War I, social mobility aided by-the automobile, and new social roles for wom¢:n, such as in wor;<ing and voting. Well, by the early '60's .].ifestyles ~.:ere changing again. Social scientists explained this change by the

concept of the ':Me Generation", an inward orientation they'say many people are pre-occupied with their own selves. By the late '70's, this emphasis on health, f~tness, we~l-being, all was to be attained by moderation in eating, drinking, exercise and what's clear is that smoking is perceived not to fit in this lifestyle. Well, that brings us to the present. But, before looking.atthe current attitudes towards smoking, let's take a look at anti-smokers. These organized groups are another key element in anti-tobacco activities. It's important to note that only a very small proportion of ~onsmokers ~re anti'smokers. Most nonsmokers, are" neutril. But what anti-smokers lack in numbers, as Tuck noted a minute ago, they mike up in 9olume and commitment. What's their motivation? Many of the same things that motivated King James 350 years ago -- moral ferber, feeling a of superiority,/puritanlcal view of pleasure sensed somehow that enjoyment is wrong. What's their objective~ "T~ objectiv6 has been constant over the years -.- to end smoking. Now, in th~ period of up to the late '60s as the slide indicates, anti-smokers' first strategy was to educate smokers to the dangers of smoking. The result was hill. Cigarette consumption continued to increase ~n that period if, fo~ ho other reason, than demographic reasons. ~gell, when the anti-smokers saw that their medical and scientific strategy had failed, they appeared to turn to a legal and political strategy to achieve their objectives. And this gets ns ~nto the second phase, and the one ~e're still in today. Anti-smokers attack smokers' sense of respon- sibility, they accuse of discourtesy and seek to h,~miliate and ashame smokers. Some reI.~te.smoking to pollution and the qualiky of life thag has ~o do ~ith khe passive smokin~ issue, and on a praek~cal a~tempt ~o ban or restric~ smokifig. ~esul~s: combined

changes, there appears to have been some impact on consumption. Now what about the future? Well, we think we have a pretty good notion of what the future holds for us in terms of anti-smoking ~ctivitles. It appears that there'll be a focus on two areas: (I) on the working class and the poor, and the reason is that smoking appears to be more prevalent upon blue-collar workers and growing faster in many third- world areas. In the third world anti-smokers criticize a waste of resources and the a~l.eged health problems a~sociated with use. 0f" tobacco. In thearea of social costs, that's the idea that all societies pay for ~he behaViorof smokegs. Anti-smoking groups siy" that the burden of costs associated with smoking is wasteful and unfair, and the bohtom line aga{n is ~that smoking should be banned. Well, now let's take a look at some current public attitudes toward tobacco companies and their products. These results are from recent surveys~. B~t fi~t some background. As you know, overai~ " public attitudes towards business have been highly negative. All surveys show a decline in public confidence in business over the past ten years. Pretty much the same for other major social institutions. But business, in particular, has been criticized for its performance in the social responsibility a~-ea. We~ll see how that's defined in a moment. What this slide shows is that tobacco and energy are rated at the bottom of the l%st of those industries toward which the public has very or mostly favorable attitude~. Opinion Research Corporation, O which provided this data, shows 21% and 17% favorability respectively towards the tobacco and oil industry. As you see, food ranks much higher with about ~9% favorability, in fact up Dear the top of the list. "" For the public, however, the primary problems with the tobacco ~ndu-- stry have to do with smoking and health, product safety and advertising credibility.

Now with regard to smoking and health, the public holds these opinions: more than nine out of ten Americans believe that smoking is hazardousto a smoker's health, and about 70% say When a someone smokes near you, it's bad for your health. This concentrated anti-smoking campaign has made a real impression on Americans. Almost half believe that lung cancer would be less common or non-existent if nobody smoked. Ed Jacob will address the fact~~ of the matter a little later. .. Now let's look at credibility -- for us that means.tru~h in advertising and advertising ~xecution. This data is from Yankelovich._ .and it shows that only 8% of the public, down from 31%.in 1976 feel that the tobacco industry has done a good job.complying with Truth in Advertising Laws and Guidelines. Energy and packaged foods are also ranked at t~e bottom. T6rning £o p~oduct safety~ this is'a factor bn which the public and government policy makers place great emphasis in °assessing whether a company is socially responsible, a~nd therefore .. acting in hhe public interest. About ~wo-thirds of the public say that a good socially responsible company is committed to product safety. As seen earlier, more than nine out of ten of the public say that cigarettes pose significant hazards to users, .so there's our problem..Product safety,, credibility seem to be ~eclining some.- what in importance, but still only about 8% of hhe public say that the tobacco industry is socially responsible. Food, again, ranks much higher on this measure, with 22%. That's down about 4 points from 1978. ~qell, that's a'look ~t the bad news. But; there's also some good news. The good news is that there's a difference between o thought and action. The public isn't r~ady to put us out of business. In fact, a large majority of the public think that the goverm~ent should tell. people about the alleged dangers ef a product and then let them decide for themsel~es ~;hether they want to use

'those products. The public clearly favors warning labels, not bans, to deal with alleged hazardous products. Finally, smoking and being around people who smoke are relatively low on the list of things that the public is concerned about. That'~ certainly tru~ when compared to economic issues like inflation and unemploymont, other major national issues like energy, national defense. Well, now let,s take a look at ~ow these public attitudes or issues translate 'into specific legislative and regulatory problems~ Again, here's an outline representation. Basically, our model is • that we believe negative public attitudes lead to adverse government a~tion. On the left you see some of our m@jor issues detailed, smoking and health (that's the idea that smoking harms smokers)~ social a6ceptability, two el~ments there, one is that s~oking harms nonsmokers, the other is that smoking is a dirty, messy habit and maybe more imporhant, that it's ].ow class, not thdthing to do. Both of those hnve some practical problems for us, one is anti-smoking education as undertaken by the federal g~vernment and some private anti-smoking groups, mostly at the federal level, national level should say, smoking bans and restrictions are really a state and local problem for us. Taxation needs no explanation, I think. Operating problems, we have a variety of them ranging from the leaf area where the tobacco support program is very important to us all the way through to marketing where there have been attempts at the local leve~ again to restrict our ability to sample, that is, to provide free samples of oun products to adult smohers. ~ell, all of th~s has a bottom-line ~mpact, and here's what ~ge think it is. Increased tobacco legislatio~ leads to increasingly negative attitudes and so on. It's a downward spiral for us. So far ~e bare been able to hold the line, but n~mber in severity of anti-tobacco legislation is

increasing every year. For ~xample, in the area of smoking bans: in 1980 we faced 103 bills in the various states. We were Dretty success- ful in defeating all of them, but in 1981 we expect to have to face about 120 or 125. In the area of taxes, in 1980 we only had two states increase taxes, one county, Cooke County in Illinois, but in 1981 we think we'll be facing about 13 state tax increases and plus the possibility of an increase in federal excise tax. Well, the bottom line is-that a].l of this has an impach on sales growth and .. profitability. The implications area readily apparent to all of us. Let's take a look at the outlook for. tobacco over the next few years.. "Basically it's a mixed picture. We know that tobacco will remain relatively lower in priority than many, economic and international issues. We feel that th~e will be continued h~gh pressure for tax increases that will reduce our pricing flexibility. We here a feeling that smoking and health and" social~acceptability will continue to be a major p~oblem for us. There will be slow population growth, ~ifestyles will continue to e~phasize individual health, well-b~ng, moderation and personal habits. We feel there'll be a continued high level of anti-tobacco activity by government at all levels and anti-smoking activists, continued negative attitudes towards smoking, and some increase in private industry problem3. However, roughly i/3 of the population will continue to smoke, we feel, and our ace in the hole will be continued resistance to additional broad gouer~,ment actions to curtail smoking. Essentially that's what defeated Prop. 5 in California two years ago. Again, it's a mixed picture, but we feel we need your understanding and support to help us combat these threats in our future. N6~ l~d like to turn it over to Ed Jacob for some o discussion of the medical, scientific and ].egal issues.