Tobacco Documents Online

know enough about something without going to a com- mittee, you haven't got any business being in it ... If you need a decision here, you can get it, and if you can't get it from anyone else, come to me and I'll make it." Pamplin stepped down as chairman in 1976 and was suc- ceeded by Robert Floweree, who joined the company in 1952 after his family sold their interest in an Oregon saw- mill to Georgia-Pacific. In 1978 Pamplin resigned from the Georgia-Pacific board in a huff because of a new pension plan adopted for salaried employees. Pamplin thought the pension provisions were too costly. The Wall Street lour- nal reported that Pamplin had "ruled with an iron hand." Adoption of the pension plan was probably the first time the board had gone against him. And the last. In the public eye In 1968, 34 Congressmen asked Georgia-Pacific not to cut a 3,000-acre stand of virgin redwood that was about to be included in a national park. Three other lumber com- panies who had received similar requests obliged, but not Georgia-Pacific. The redwoods they couldn't wait to cut amounted to about 1/1,000th of their holdings. In 1972 they ranked eighth in a field of 21 pulp and paper compa- nies measured by the Council on Economic Priorities on the adequacy of their pollution control. In 1978 the CEP reported that the company had rectified most of their problems with water pollution at their seven pulp mills. Georgia-Pacific has an all-white, all-male board of di- rectors. The only female officer is Mary A. McCravey, who is the company's secretary, a post she has held for some 20 years. About a quarter of Georgia-Pacific's U.S. employees are minority group members but they are heavily concentrated in lower-level positions. Where they're going Back to Georgia, where they will complete by 1982 a 52-story skyscraper at 123 Peachtree Street (on the site of the theater where "Gone with the Wind" premiered in 1939). They will then replace Coca-Cola as Georgia's big- gest corporation. They will keep 500 employees in Portland and have offered to move 400 to Atlanta. Julian Cheatham, brother of the founder of Georgia-Pacific and a director of the company, explained the company's move by saying that people in the South welcome industries with "open arms. ... They're glad to get you." Cheatham heads his own in- vestment company in Portland. It wasn't known whether he's planning to make the move to Atlanta. Stock performance Georgia-Pacific stock bought for $1,000 in 1970 sold for $961 on January 2, 1981. Qreorgia-Pacigc Sales: $5.2 billion Profits: $327 million SOUTH Business rank: ' Rank in forest products: 1 Rank in plywood: 1 Rank in lumber: 3 Rank in gypsum: 3 Founded: 1927 Employees: 40,000 Headquarters: Atlanta in 1982. 'IInranked because It was still headquartered In Portland, Oregon. 50 Ui' V Everybody~s Business: The Legend Behind R. J. Reynolds R ichard Joshua Reynolds, the founder of the R. J. Reynolds empire, used to foster the legend that he first rode into the twin hamlets of Winston and Sa- lem, North Carolina, as a barefoot, illiterate farm boy atop a wagon load of his dad's tobacco - a myth of an in- nocent, simple southern underdog who made good. Although still headquartered in Winston-Salem, the business named for R. J. Reynolds has grown into an enor- mously wealthy international company run by a man with a reputation for never taking a back seat to anybody. They lead the nation in sales of cigarettes and pipe tobacco. They own the biggest vegetable and fruit packer in the United States (Del Monte). They sell more packaged Ori- ental food (Chun King) than anybody else. They operate the largest container shipping operation in the world (Sea- Land). And they happen to have an oil company - Amin- oil - whose success in finding crude was triple the indus- try average in 1979 (they hit on 53% of their explorations). Profits from cigarettes made it all possible. One brand in particular - Camel - was central to their early for- tunes. For 40 years Camel was at or near the top in U.S. cigarette sales, challenged only by American Tobacco's Lucky Strike. When filter-tip and mentholated cigarettes swept the industry after World War II, Reynolds named two brands for their headquarters city and continued to lead the industry. Their ungrammatical advertising slo- gan, "Winston tastes good, like a cigarette should," gave them the kind of notoriety they didn't mind at all. They now make one out of every three cigarettes smoked in the United States. Of the top 10 smokes, four (Winston, Sa- lem, Camel and Vantage) are Reynolds brands. They also make More, Now and Doral. R. J. Reynolds does nearly half their sales outside the tobacco area, but cigarettes remain the potent profit per- formers. Only about two dozen U.S. manufacturers make more profits than R. J. Reynolds - and tobacco accounts for 80% of those profits. Contrary to the legend, R. J. Reynolds was no barefoot illiterate. After going to both college and business school, TIMS 0011804

went into that business in 1959 to supply the chemicals needed in their plywood plants - resins, for example, to make the glue that holds the plywood layers together. They now make a bunch of basic chemicals for their lumber and pulp and paper plants as well. They're now producing a billion pounds of formaldehyde a year - plus polyvinyl chloride, ammonia and chlorine, among others. They use 28% of the chemicals they produce and sell the rest to other manufacturers. Their chemical sales are $400 million a year. Unlike many of the big players in the forest products industry started with a strong base: they owned a lot of tree-filled lands. That wasn't the case with Georgia- Pacific. Owen Cheatham, who claimed to be a descen- dant of Benjamin Franklin, founded the Georgia Hard- wood Lumber Company in Augusta, Georgia, in 1927 on an investment of $12,000. He didn't own any land. He simply bought lumber from southern mills and resold it. He was a good salesman. During World War lI his com- pany was the largest supplier of lumber to the armed torces. By that time he was also operating five sawmills, but he still didn't own any timberland. In 1947, when the company was 20 years old, they bought a plywood mill in Bellingham, Washington. Sales were still only $24 million a year. It was in plywood that the company was to make their mark. While veneers (thin layers of wood) had been used by furniture manufacturers for nearly a cen- tury, it took two discoveries of the 1930s to make plywood possible. These were synthetic resin adhesive and the so- called "hot press process;" which compressed thin layers of glued wood together under heat. These developments made water-resistant plywood a reality. The new product was composed of alternating sheets of veneer tightly glued together, with the grain of each adjacent ply running in a different direction. The result was a wood product that resisted both warping and split- ting and was relatively easy to shape. It also had greater structural strength than steel of the same weight. After World War II plywood became a big hit in the construc- tion trade - and Cheatham's company was the first to recognize its potential. They bought additional plywood mills in Washington and Oregon in 1948, and in that same year changed their name to the Georgia-Pacific Plywood Lumber Co. Head- quarters were still in Georgia. And the company was still landless. It was not until 1951 that Cheatham embarked on the timber-buying program that was to stand the in- dustry on its ear. Cheatham and his sidekick, Robert B. Pamplin, were not only plywood innovators, they were fi- nancial innovators. They charged into banks and insur- ance companies and persuaded them to finance the com- pany's purchase of forestlands, pointing out that with an aggressive program of harvesting they would get their money back quickly. Between 1951 and 1957 they borrowed $160 million and bought timberland in the West and in the South. They increased their assets nine-fold during that period. In 1953 they moved headquarters nearly 3,000 miles to Olympia, Washington, near one of their plywood mills. A year later they set up headquarters in Portland, Ore- gon, a state in which they had acquired significant amounts of timberland. Cheatham and Pamplin continued to follow this strategy: they borrowed heavily to expand their opera- The Big Ton Paper Companies 1979 Sales (in billions) 1. GEORGIA-PACIFIC $5.2 6. CROWN ZELLERBACH $2.8 2. INTERNATIONAL PAPER $4.5 7. MEAD $2.6 3. WEYERHAEUSER $4.4 8. ST. REGIS PAPER $2.5 4. CHAMPION INTERNATIONAL $3.8 9. KIMBERLY-CLARK $2.2 5. BOISE CASCADE $2.9 10. SCOTT PAPER $1.9 tions in the West and the South. They bought timber- lands and manufacturing facilities. Overnight they be- came a giant of the industry. Between 1955 and 1965 they increased their size by seven times. Once they were a nothing in the forest products business. Suddenly, as the 1970s dawned, only two companies were bigger: Weyerhaeuser and International Paper. In fact, Georgia-Pacific became so big that they were forced by the Federal Trade Commission in 1972 to sell 20% of their assets. Thus was born Louisiana-Pacific. At birth Louisiana-Pacific ranked as the nation's sixth- largest lumber manufacturer. One competitor griped: "It's bad enough having one Georgia-Pacific for competi- tion, let alone having two." These fears have been borne out. Louisiana-Pacific started off with sales of $270 mil- lion; by 1979 sales had climbed to $1.3 billion. Georgia-Pacific is still buying up others. In 1979 they bought Hudson Pulp & Paper, adding more than 500,000 acres of timberland in Florida and Maine to their resource base. Georgia-Pacific built a 30-story headquarters building in Portland in 1970. It's the second-tallest building in the city. But in 1978 they decided they would move back to the South in 1982. The decision angered many people in Portland. One resident told the Los Angeles Times: "There's a feeling that they came up from the South, liked our trees, cut them down and now they're going back." Reputation Georgia-Pacific is regarded as the tough guy of the for- est products industry. They blame conservationists and government agencies for timber shortages. But they're beloved on Wall Street for their moneymaking ability. What they own They own 4.8 million acres of timberlands in the United States, Canada and Brazil, with exclusive cutting rights on another 1.3 million acres in the United States and Indonesia; over 200 plants and mills in the United States, Canada, the Philippines, Brazil and Indonesia; a 66-year supply of gypsum quarried and mined in seven states and Canada; 92 billion cubic feet of natural gas and 3.3 million barrels of oil in the Gulf of Mexico. Who owns and rnns the company For their first 49 years of life Georgia-Pacific had only two leaders. The first was their founder, Owen Cheatham, who built up the company in the South and then moved the headquarters across the country. Cheatham retired as chairman in 1967 and died in 1970. His successor, Robert Pamplin, joined Georgia-Pacific as an accountant in 1934. Both were known as autocratic managers who were also risk-takers. "We don't move by committees," Pamplin once told a reporter for Finance magazine. "If you don't ~ 49 TIMS 0011805

he borrowed money from his family to build a factory in Winston in 1874. By 1887 he was marketing 86 brands of chewing tobacco, some named for favorite girlfriends. Reynolds liked pretty women, liquor, horses, and busi- ness, but probably he liked business best. So when James B. (Buck) Duke of the American Tobacco trust used the fi- nancial panics of the 1890s to force R. J. to sell out, Rey- nolds was furious. Their confrontation, as told by grand- nephew R. S. Reynolds, Jr., was recounted by Forbes. Said Duke: "I'll give $1 million for two-thirds of your company or I'll break you." Retumed Reynolds: "Buck, my price is $3 million. Otherwise I'm going to walk out of here, and for every dollar you cost me, I'm going to cost American Tobacco a hundred." Duke paid the $3 million and Rey- nolds wired his brothers: "Prepare for good living." But even though Buck Duke could buy practically any- thing, he couldn't run it all. Reynolds not only got his $3 million, but he continued to be active in the business, us- ing Duke's money to build new, well-equipped factories. When the Supreme Court broke up Duke's monopoly in 1911, Reynolds regained his company, ready to lead to- bacco users from chewing to smoking. Mulling over package designs for his new Kaiser Wil- helm cigarette shortly before the First World War, he had second thoughts: "I don't think we should name a prod- uct for a living man. You never can tell what the damn fool will do." So he named it Camel, to play up its Turkish tobacco content, and illustrated the pack with a portrait of 01' Joe, a camel in the Barnum & Bailey circus that passed through Winston-Salem at the time. Their most famous advertising slogan was created on a golf course in 1921 when the golfing partner of an R. J. Reynolds ad executive ran out of cigarettes. "I'd walk a mile for a Camel," he said. Camel was an early radio and television advertiser, sponsoring the Camel Pleasure Hour on the radio in the 1930s and the Camel News Cara- van, with John Cameron Swayze, on TV starting in 1948. R. J. Reynolds's cigarettes may have gained the loyalty of millions of American smokers, but his business didn't hold the loyalty of his own family. After he died in 1918 his three sons went their separate ways, and his favorite nephew, Richard S. Reynolds, went off to start a foil fac- tory, which started out making wrappings for R. J. Rey- nolds cigarettes and grew into Reynolds Metals. Management of the tobacco passed into the hands of Bowman Gray, a salesman and protege of the founder. The Grays did very well indeed, but at the beginning of the Depression they made one mistake. Thinking people would rather smoke than eat, they raised prices. That opened the door for price-cutting smaller tobacco compa- nies. Philip Morris was one that came through the door. When researchers started to establish clear links be- tween cigarette smoking and lung cancer in the 1960s, R. J. Reynolds began to move into other businesses, as did other tobacco makers. They picked up Chun King in 1966 and Patio Foods in 1967. In 1969 they paid $115 million for McLean Industries, the owner of the huge Sea-Land shipping company, founded by a native Winston-Salem boy named Malcom P. McLean. In 1970 they spent $55 million for American Independent Oil (Aminoill, which had wells in Kuwait and Saudi Arabia. To herald their new businesses, they changed their name to R. J. Rey- nolds Industries in 1970. Some Reynolds family members, who didn't run the company but still owned a lot of it, thought it was rub- bish. "What do they know about ships or oil"' com- plained one grandson to Forbes in 1971. "They look like country boys with too much cash in their pockets." By 1979 they had an extra $618 million burning holes in their pockets, so they plunked it down for Del Monte, the San Francisco-based company that produces one out of every six cans of fruit and vegetables that pass through the nation's supermarket checkstands. Reputation The South is their bailiwick: they are the biggest com- pany headquartered in the South, they are based in the biggest tobacco growing state, and their cigarette brands are strongest in southern rural areas. Juanita Kreps, for- merly a vice president at North Carolina's Duke Univer- sit }- (founded on tobacco money), was a director of Rey- nolds from 1976 to 1977 before becoming secretary of com- merce. After leaving the cabinet in 1979, she returned to the Reynolds board. In 1980 Atlanta-born Vernon E. Jor- dan Jr., president of the National Urban League, was elected a director. What they own R. J. Reynolds Industries is the parent company of R. J. Reynolds Tobacco; R. J. Reynolds Tobacco International; Aminoil; Sea-Land Service (with a fleet of close to 50 con- tainerized vessels); Del Monte; RJR Foods ~including Ha- waiian Punch; Patio, the nation's number one brand of fro- zen Mexican food; Chun King, the leader in canned Chinese food; Brer Rabbit molasses; and Vermont Maid syrup); and RJR Archer (plastic film packaging for supermarket meats and foil wrapping for grocery products such as margarine). Who owns and runs the company No descendants of the founder sit on the board, al- though as recently as 1971 Forbes reported that some 40 Reynolds family members owned a total of 7% or 8% of the stock. In 1979 the New York research outfit, Corpo- rate Data Exchange, reported that the Z. Smith Reynolds Foundation owned 5% of the stock and the McLean fam- ily (Sea-Land~ had another 1.5%. Once known as a "feudal barony," Reynolds went through management upheavals during the 1970s. The key role was played by J. Paul Sticht, who engineered whatBusiness Week called "a bloodless coup." Sticht was president of Federated Department Stores, the nation's largest department store chain, when he joined the Rey- nolds board in 1968. In 1972 a longtime Reynolds execu- tive, David S. Peoples, was slated to become chairman, but Sticht opposed that appointment - and threatened to quit as a director if Peoples got the top position. Sticht then won over other directors who weren't company ex- ecutives, and in a showdown vote in the board of direc- tors he was named president and Colin H. Stokes, a vet- eran of 41 years at Reynolds, was elected chairman. The two ran the company as "partners; " although Sticht said he made it clear at the start that "I was never going to work for somebody else." Sticht was elected chief execu- tive officer in 1978. He has recruited many managers from outside the company. One, J. Tylee Wilson, came from Chesebrough-Pond to run the floundering foods di- vision. He's now president. »> 53 Z'Il`l4S 0011806

In the public eye David Peoples and two other top Reynolds managers - Charles B. Wade Jr., and William S. Smith - were forced to resign as officers and board members in 1976 when it was disclosed they had been involved in funneiing $65,000 to $90,000 of corporate funds into a secret ac- count used to make illegal domestic political contribu- tions. Three and one-half months later, still in 1976, Reynolds disclosed that their domestic political contribu- tions were more like $190,000. They also reported then to the Securities and Exchange Commission that they had made some $25 million in questionable corporate pay- ments in the U.S. and overseas since 1968 - some $19 million of which were possibly illegal rebates made by their shipping company, Sea-Land. In 1978 Sea-Land was fined $5,000 for this violation of the Shipping Act. R. J. Reynolds has long been an important financial re- source in the southern communities where they operate. In 1956 they were instrumental in having Wake Forest University relocate from Wake County, North Carolina, to Winston-Salem. They continue to be one of the na- tion's largest contributors to independent colleges and universities. In the late 1960s, when riots struck many cities (and Winston-Salem had disturbances), they contrib- uted $1 million to the establishment of a local citizens' co- alition to improve housing and public transportation. They were the first company to create a pastoral coun- seling program for employees, and they have sponsored one of the largest HMOs - Health Maintenance Organi- zations - in the nation. Called the Winston-Salem Health Care Plan, it delivers total health care for 35,000 employees of R. J. Reynolds and has been hailed as a mod- el for other organizations seeking to combat the rising costs of Blue Cross-Blue Shield plans. Minorities make up 22%, of the Reynolds work force. Where they're going To China, the world's biggest cigarette market. Rey- nolds announced in 1979 that they would start selling Winston there, accompanied by ads on Chinese televi- sion. In 1980 they signed an agreement under which Cam- mel cigarettes will be made and sold in China. Also in 1980 Sea-Land inaugurated the first regularly scheduled containerized shipping runs between the People's Repub- lic and North America. Maybe the Chinese can teach the Chun King folks how to make a better chow mein. Stock performance R. J. Reynolds Industries stock bought for $1,000 in 1970 sold for $2,056 on January 2, 1981. R. J. Reynolds Industries Sales: $7.1 billion Profits: $551 million SOUTH Business rank: 1 Rank in cigarettes: 1 Rank in container shipping: 1 Rank in canned fruits and vegetables: 1 Founded: 1875 Employees: 80,000 Headquarters: Winston-Salem, North Carolina 54 Everybody's Business: Holidaq Inns Isn't Afraid to Gamble T hirty years ago Memphis real estate developer and devout Baptist Kemmons Wilson figured that American families wanted clean, reliable and eco- nomical places to stay when they motored across the coun- try. Today, Holiday Inns has 296,000 rooms that say Wilson was right. With 1,741 hotels in 54 countries around the globe, Holiday Inns, now the world's largest innkeeper, has changed the concept of a motel from a sleazy roadside lovers' rendezvous to a family lodging place. Holiday Inns has also taken the motel business out of the hands of mom-and-pop operators and turned it into a high-rolling growth industry. In 1979 the Holiday Inns rang up about $7 million a day just in room rentals. They rented 74% of their rooms at an average rate of $32.65 per room. But that's only part of the business; the Holiday Inns' restaurants are second only to McDonald's as the biggest feeders in America. What the average traveler may not know is that 1,495 of the units in the chain are operated as franchises, with some of the franchisers owning highly successful mini- chains within the system. To get a franchise to operate a Holiday Inn in the United States, you must make a down- payment of $5,000 plus $150 per room (the total mini- mum downpa}-ment is $20,0001• On top of that you must pay a 4% royalty on room sales and kick in another'2% of gross room sales for marketing and reservation services. The reservation services - the Holidex communication lines - are important. From one Holiday Inn you can reserve a room in another Holi- day Inn anywhere and get a confirmation in minutes. If one inn is fully booked, the computer automatically seeks out the nearest available Holiday Inn and offers it. You can also reach Holidex through a toll-free number and through airline reservation systems, travel agents and the travel departments of 200 big companies. Holidex is used by 30% of the travelers who stay in Holiday Inns. And incidentally, it's the largest private communica- tions network in the world. »> TIMS 0011807