Tobacco Documents Online

On'R,e Web: inflean<eonline.net b July Z5. 2001 Neanderthal, that's not being recalcitrant. So they say, 'Regulate us, but do it responsibly in ways that are fair to us"' It's also a very long-term strategy. `°Chey can't do this up $580,600, according to the nonpartisan Center for Responsive Politics. Philip Morris rivals call Davis' sponsorship payback. Scruggs says its "merely an interesting correlation." instrumental in drafting the FDA section of the unsuc- cessful omnibus tobacco legislation sponsored by Sen. John McCain (R-Ariz.). But so far Frist has just two co-sponsors-Sen. Christo- pher Bond (R-Mo.) and Sen. Zell Miller (D-Ga.) on his bill. Despite his public confi- dence, Scruggs knows the uncertainties that lie ahead. He is no political naif. Scruggs entered politics 23 years ago as an intern for a member of the House Rules Committee. There he met then-Rep. Trent Lott (R-Miss.) and later became his floor assistant in the House. In the Reagan White House legislative shop, Scruggs worked the Hill with, among others, B. Oglesby, who went on to run RJR's D.C. lobby shop. Scruggs joined Philip Morris in November 1998 as head of its tobacco lobby shop after 13 years as a contract lobbyist with what later become Black, Kelley, Scruggs & Healey (now BKSH & Associates). Last year he was named chief lobbyist for its Kraft Foods and Miller Brewing Co, units as well. Since taking over at Philip Morris, he has made several adjustments among his score of outside lobby- ists, adding Mattoon, Kes- sler, Prange, and Madigan while not renewing the con- tracts of former members James Stanton and Charlie Rose, among a handful of others. "I'm not afraid to break some china;" Scruggs has said, according to one person close to the company. Tobacco companies have always hired some of the best lobbyists on K Street, and Scruggs hardly has a monopoly on firepower. RJR's in-house shop is run by the former legisla- tive director for Rep. John Boehner (R-Ohio), John Fish, who has three other in-house lobbyists and a longstanding team of six outside lobbyists. Brown & Williamson, which recently downsized its D.C. lobby office, gets by with just one in-house lobby- ist, Sissy Pressnell, and four outside lobby firms. Lorillard does not have a Washington office; it uses outside consultants instead. If Philip Morris does suc- ceed in passing the FDA bill it wants, it is almost certain to take several con- gressional seasons. One rival Republican tobacco lobbyist says many GOP members of Congress are still angry over the 1998 tobacco deal. "If you scratch beneath the surface, there's a lot of resent- ment toward Philip Morris in Congress;' he says. The tobacco deal, he notes, took money out of the pockets of smokers, gave some of it to the GOP's sworn enemy-the trial lawyers-and helped in- crease the appetite for state govemments to spend even more money. "They sued for peace and sacrificed the WHERE THERE'S SMOKE: Rep. Thomas Davis III (R-Vo.) introduced o tobacco regulation measure last month that has spurred intense lobbying. in three months of commer- cials-it may take a decade- but they will turn themselves into a Monsanto or an ADM;' says another industry lobby- ist, referring to two compa- nies that have also engaged in sustained efforts to rebuild their reputations after public relations debacles. So far, Philip Moais is try- ing to walk through the con- gressional underbrush with a delicate step. For example, the company says it's not sup- porting the Davis bill. But, at the same time, it concedes it is actively seeking co-spon- sors for the legislation. Scruggs has also met with some of his biggest Democratic detractors, in- cluding Sen. Edward Ken- nedy of Massachusetts, Sen. Richard Durbin of Illinois, and Rep. Henry Waxman of California. That the bill is being sponsored by NRCC Chair- man Davis has already given the bill's opponents plenty of easy ammunition. During the last election cycle, Philip Morris was the largest corporate contribu- tor to the NRCC, ponying Davis says he has plenty of reasons to sponsor an FDA tobacco bill. "My wife's a doctor. My dad died of emphysema. And I'm on the committee of jurisdiction," says the four-term member from Fairfax County. Although there are two other FDA bills in the House, they are far more restrictive. Davis says that since he introduced his bill on June 14, "all these peo- ple are talking about the issues. I could make a dif- ference," he says proudly. Lobbying over the bill, which so far has 13 co- sponsors, has been intense, he notes. "I'm certainly tak- ing on some of the big boys on this one." Philip Morris was also the largest corporate contributor in the 2000 cycle to the National Republican Sena- torial Campaign Committee, which, coincidentally or not, is chaired by Frist. Virtually no one, though, questions Frist's motivation. A heart transplant surgeon, he also introduced the same bill last Congress and, in 1998, was Scruggs' lobby team is far larger than those at rival tobacco firms RJR, Brown & Williamson, and Lorillard. interests of the Republican Party and conservatives." Still, nobody is counting Philip Morris out, not by a long shot. "It's a massive lift," he adds, referring to the FDA bill. "But Philip Morris is a major player." 

4 On 1he tieb: inftuenceanline.net J ly ZS ?001 ~ I by T.R. GOLDMAN Philip Morris at a Fork in Tobacco Road T he Philip Morris Cos. has always wield- ed one of corporate America's most sophisticated lobbying operations, and its chief lobbyist, John Scruggs, is widely rec- ognized as one of the city's most savvy. But these days, Scruggs and his score of outside lob- byists are fighting more than the usual assortment of and- smoking groups and mem- bers of Congress. They are up against their fellow ciga- rette manufacturers as well. On the table are a hand- ful of bills that would give the Food and Drug Adtnittm istration power to regulate tobacco, something the Supreme Court last year said the agency could not do without explicit authori- ty from Congress. Philip Morris publicly supports the idea, and is soliciting sponsors for a tobacco-regulation bill sponsored by Rep. Thomas Davis III (R-Va.)_ As the industry leader, the $63 billion company (No. I 1 in the Fortune 500) carries unusual clout. It's bolstered by one of the biggest, most sophisticated campaign finance operations in corpo- rate America and by Scruggs' wel]-oiled lobby machine, which he has finely tuned for the coming battle. Scruggs recently added a Davis cohort to his team of outside consultants: Dan Mattoon. The PodestaMat- toon principal was executive director of the National Republican Campaign Com- mittee during the 1999-2000 election cycle. Davis has been NRCC chairman since then. One member of Scruggs' five-person in- house tobacco lobby team, Abigail Perlman, was the NRCC finance director dur- ing the last election cycle, although she has not been assigned to the FDA bill. Scruggs has also brought on Phillip Prange, who works for the Wisconsin- based lobby shop Gateway Ventures Inc. and was the top political fund-raiser for Health and Human Services Secretary Tommy Thomp- son when Thompson was governor of Wisconsin. Another recent addition is Rick Kessler of Kessler Century Government Rela- tions, whose connections with the Ripon Society give him close ties to various moderate Republicans in the House. And Peter Madigan, a for- mer Reagan and elder Bush White House official, is a newcomer to the tobacco lobby team at Griffin, Johnson, Dover & Stewart, which Philip Morris has long had on retainer. Philip Morris has a dozen other outside lobby- ists, each with certain key connections. There's one major hitch for Philip Morris, however. The industry's four other top manufacturers, which together account for about half the cigarettes sold in the United States, as well as MARLBORO MAN: Philip Morris b66y chief lahn $cruggs has hired top talent to help the cigarette maker plot an unusual course on FDA regulaBon. the smokeless tobacco lob- by, have all lined up against government regulation. So has the powerful Cam- paign for Tobacco-Free Kids and its ubiquitous president, Matthew Myers, who, bizarrely, now finds himself aligned with the R.J. Reynolds Tobacco Co., Brown & Williamson To- bacco, the Lorillard Tobacco Co., the Vector Group (the parent company of the Liggett Tobacco Co.), and the U.S. Smokeless Tobacco Co. in his opposition to the Davis bill. Less than three years after the industry's four big cigarette makers sat down together and brokered a deal to pay the states some $250 billion over the next 25 years, Philip Morris' support of the Davis FDA bill has riven the industry. Its rivals are adding some lobbying firepower of their own. In the past three months, Bennett LeBow's Vector Group has retained Patton Boggs and former Philip Morris lobbyist Bergner, Bockorny,Castag- netti, Hawkins & Brain. UST, meanwhile, has brought on Wallace Hender- son of Public Strategies Inc. °All of us are opposing this in every way possible," says Lorillard lobbyist Andrew Zausner of Dickstein Shapiro Morin & Oshinsky. Though cigarette makers are outwardly operating with the same siege mentality that allowed them to cooperative- ly forge their agreement with the states, now, says one industry lobbyist, "if you get to the right levels, you will find thcm bad-mouthing each other right and left." You needn't travel any farther than K Street to get a whiff of the vitriol. The arguments divide up rather neatly. On the one hand, Philip Morris consid- ers itself the far-seeing visionary that realizes that the current legislative and regulatory environment is about as tobacco-friendly as it will ever get. Since future government regulation of its highly lucrative product is inevitable, the argument goes, the company is merely facing the future head-on. "They're at bat now with a pitcher who's throwing meat- baJs," notes one indusvy iob-

n uence 0 ~n9"'m9 ~~~'akaa`~..'x~ E:P~7 ~..~~r,~'o°~9~6~ influenceanline.net A IEGAt TIMES PUBIICATION Setting Money Aside A few lobbyists took big hits by joining the administration, but for most the financial drop-off was not too drastic. te allure of a high-level political appointment is undeniable: pres- tige, expertise, and enough con- tacts to sustain a career back in the private sector. The downside, of course, is that the money just can't compete. For a few top Washington lobbyists, taking a post in the Bush administration has meant sacrificing income of hundreds of thousands of dollars-millions in at least two cases. But surprisingly, many of the lobbyists tapped by the president saw only modest decreases in their paychecks. These figures come from an Influence review of financial disclosure documents filed by nine lobbyists who took high- level federal jobs. The forms were sub- mitted earlier this year to the Office of Government Ethics. Mark Weinberger, a former partner at Washington Council Ernst & Young, abandoned a $2.15 million salary and partnership draw to become assistant treasury secretary for tax policy, where he makes roughly $125,000 a year as a Level f V executive employee. Howard Baker Jr., a name partner at Baker. Donetson, Bearman & Caldwe0, earned roughly $1.65 million between his firm salary, outside consulting fees, and ~ corporate directorships in the 15 months before he became ambassador to Japan. He now banks only $133,700 a year. Beyond the elite lobbying ranks, the numbers aren't so striking. Three assis- tant secretaries at the Commerce Department-Brenda Becker, James Jochum, and Bruce Mehlman-are now in the $120,000 to $125,000 range. Becker made $190,000 over 13 months at the Blue Cross Blue Shield Associa- tion; Jochum brought in $170,000 from Accenture over 15 months; and Cisco Systems Inc, paid Mehlman around $196,000 over 16 months. Mary Waters, the former ConAgra Foods Inc. senior counsel, took a similar- ly miJd hit. As assistant secretary for con- gressional relations at the Department of Agriculture, she makes about $122,000-down from a reported $174,000 over a 15-month period. Patrick Pizzella raked in $175,000 a year at Preston Gates Ellis & Rouvelas Meeds and is eaming roughly as much as Waters in his post at the Labor Depamnent. Dan Brouillette is pulling in about $125,000 as an Energy Department assistant secretary. Over the previous SEE SALARIES, PAGE 3 Tobacco Turncoats? Philip Morris Cos. lobbying chief John Scruggs and his expanding team of outside lobbyists are battling more than their usual foes. As "Inside Story" explains, they're also fighting their fellow cigarette makers. Page 4 Jutv 25, 2001 Wilmer's Big Trade  Wilmer, Cutter & Pickering this week picked up two of the Clinton administration's top trade officials: U.S. Trade Representative Charlene Barshefsky and USTR 4Vecord General Counsel Robert Novick. Both joined as partners. "If you look back at what we've done over the last year," says managing partner William Perlstein, "we have added what we think is a whole new generation of people with high-level government and agency expertise" That includes former Justice Department antitrust chief Joel Klein and ex-Solicitor General Seth Waxrnan. "We've tried to bolster several key areas where there is an intersection of business and law and public policy," Perlstein says. Lone Ranger  As part of the recent shake-up at Hooper Owen & Winburn, now the Palmetto Group, former Rep. Charles Wilson (D-Texas) and the firm have severed business ties. Wilson is staying in the office, however, and has set up his own See Pagr 2 KIVOW NAMES: Experts believe that naming your lobby shop may be the most important business decision you may ever make. Good, that takes the pressure off. See "Endgame.' Page 11 C\ grt ur 2001 by NLP IP Company

July 25, 2001 On "Ihc Web: inFlueneeonline.net 5 Lobbyists Representing Tobacco Companies Ph'li orris Cos. BKSH & Associates Charles Black Jr., Mark Dlsler, and Katherine Friess; Gateway Ventures Inc. Phillip Prange: Griffin, Johnson, Dover & Stewart Peter Madigan and Joe Stewart; Hall, Green, Rupli John Green and G. Stewart Half; Kessler Century Government Relations Richard Kessler; Palmetto Group John Winbum; Paul Laxalt Group Paul Laxalt and Tom Loranger; Laxalt Corp. Michelle Laxalf: PodestaMattoon Dan Mattoon; McGlotten & Jarvis Robert McGlotlen; Michael Tiner Michael Tiner: R.B. Murphy & Associates Rick Murphy; Susan Platt Consulting Susan Platt; Ryan, Phillips, Utrecht & MacKinnon Thomas Ryan; Swidler Berlin ShereH Friedman Gary Slalman; Tallon & Associates Robin 7allon Brown & WilliamsonTobacco Corp. Barbour Griffith & Rogers Lanny Griffith; Hecht, Spencer & Associates Timothy Hecht and William Hecht; Public Private Partnership Arthur Collins; R. H. White Public Affairs Consulting Richard White Note: Frrms highlighted in blue were hired in 2001 byist, referring to the Bush administration. They should, he says, "use this cessation of hostilities to their benefit. "The government regula- tion Philip Morris helps draft will be better than one imposed on it ° Besides, the argument continues, govemment reg- ulation provides the indus- try with the reliability shareholders crave: "a more stable business environ- ment, [bringing] reduced- risk products to market, and uniformity in regulation," says Scruggs, ticking off the Davis bill's benefits. And what does the rest of the tobacco industry think about Philip Morris' strate- gy? Thinly veiled, self- serving nonsense. For starters, they counter, once you open the Pandora's box of congressional legisla- tion-especially volatile when you factor in underage smoking-even the world's best lobby team will lose the ability to set the political agenda. "From a legislative, tacti- cal standpoint, why create that opportunity to blow yourself up?" says an exas- perated outside RJR lobby- ist. "You don't create a leg- islative or regulatory move- ment if you have absolutely no control. Their attitude is ' We will cut deals before it's brought to the floor,' but there you're in stupid land." Secondly, while Philip Morris might talk about the stability of the marketplace, its real motivation, say com- peting tobacco lobbyists, is solidifying its market domi- nance and eventually squeez- ing its competitors out of the business altogether. And Philip Morris is clearly the dominant indus- try player. Its tobacco oper- ating profits rose 9 percent in the second quarter of 2001 to $1.38 billion. Profits at RJR, which manufactures Camels and Winstons and is the coun- try's second-largest tobacco company, were up just as much. But RJR's second- quarter net income weighed in at just $127 million. Meanwhile, market share for Philip Morris' flagship R.J. Re.ypoldsTobacco Co. Potomac Group G. Wayne Smith; Shaw Pittman Thomas Spulak; Washington Council Ernst & Young Bruce Gates; McGuiness & Hotch Kevin McGurness: Venable Jake Seher; Vern Clark Vern Clark Lorillard Tobacco Co- Barbour Griffith & Rogers Haley Barbour and Lanny GriBith; Dickstein Shapiro Morin & Oshinsky Andrew Zausner UST Public Affairs ({1 S SmokeleccTobacco Co ) Advocacy Group Robert Dotchin; BKSH & Associates Mark Disler and Katherine Friess; Hall, Green, Rupli John Green; Public Strategies Inc. Wallace Henderson; Venable Thomas Quinn VectorS',roun t_td. (Liggett Tobacco Co.) Bergner, Bockorny, Castagnetti, Hawkins & Brain Jeffrey Bergner; Patton Boggs Robert Jones and Darryl Nirenberg; Brownstein Hyatt & Farber William Brack, Michael Levy ask for Kleenex," explains an in-house lobbyist at a Philip Morris competitor. "If you want a cigarette, you ask for a Marlboro." Adds Bruce Gates, a part- ner at Washington Council Ernst & Young, who has lobbied for RJR for six years: "If you can't advertise to consuming adults, it makes it kind of tough to get them to switch brands:" - Snickers another outside RJR lobbyist: "We call it the Philip Morris Private Relief Act" Whatever the merits to these arguments, it's clear that Philip Morris has em- r barked on a tough and unde- niably risky course of action. In part, its congressional push fits in with the compa- ny's corporate goal: to re- cast its identity from a pur- veyor of death to a model corporate citizen facing up to the responsibility of its past behavior. Says one lobbyist familiar with Philip Morris strategy: "The thinking is, here's an industry giant that's not a 1ae~~. Marlboro brand is now at 38.2 percent, up more than half a percentage point from a year earlier. There are an estimated 45 million cigarette smokers in the United States, who spend $70 billion a year, so even the smallest percent- age gain is significant. "With the possible ex- ception of Windows, Marl- boro is the most valuable thing in the world," notes one envious industry lobbyist. Under both the Davis bill and its Senate counterpart, sponsored by Sen. William Frist (R-Tenn.), the FDA could impose further mar- keting, advertising, and promotion restrictions on cigarettes if it believed such moves would cut down on underage smoking. Walk into a 7-Eleven and instead of signs promoting a particular brand, you will see a public service statement waming that clerks will card cigarette buyers. That's fine if you're the dominant brand. But it makes it awfully tough for others to increase their market share. "If you want a tissue, you influence 2085575550