by Philip Mattera
Reynolds American is the name adopted in 2004, when two of the more notorious companies in the tobacco industry -- R.J. Reynolds and Brown & Williamson -- joined forces. The company is now seeking to bring another big U.S. tobacco player, Lorillard, under the same roof. The mergers are part of the long-standing effort of Reynolds to catch up with industry leader Altria, parent of Philip Morris.
Reynolds has long been one of the more pugnacious of the U.S. tobacco giants. It fought as hard as possible against the onslaught of product liability lawsuits and regulatory initiatives that sought to address the public health problems caused by widespread nicotine addiction. Reynolds did more than its competitors to resist limitations on its marketing, sticking as long as possible to its notorious Joe Camel cartoon figure amid widespread evidence that it was helping turn youngsters into smokers.
During the 1990s evidence emerged showing that both Reynolds and Brown & Williamson had long been aware of the smoking health risks they publicly denied until a multi-state lawsuit forced the industry to end the deception.
In recent years Reynolds American has been investing more in smokeless tobacco and e-cigarettes but it still sells plenty of old-fashioned cancer sticks. It boosted its market position much closer to that of Altria with the 2015 acquisition of Lorillard.
From Chewing Tobacco to Camels
The origins of RJR can be traced to the arrival of 25-year-old Richard Joshua Reynolds in the town of Winston, North Carolina, in 1875. Winston was the center of the new flue-cured leaf that made the best chewing tobacco. For several decades Reynolds built a prosperous chewing-tobacco business, selling the plugs under dozens of brand names.
During the 1890s the company was taken over by the tobacco empire being assembled by James Duke, who controlled the rights to cigarette rolling machines. After the Tobacco Trust was broken up by the Supreme Court in 1911, R.J. Reynolds took advantage of its regained independence to charge into the cigarette business. Like many "advances" in the tobacco industry, this initiative took the form of a marketing blitz. Using a massive advertising campaign announcing that "the Camels are coming," the company succeeded in creating the first national cigarette brand.
Camels became so popular during World War I -- thanks in large part to the free samples given to American troops -- that General Pershing himself contacted the company to be sure that the doughboys would not run out of smokes. After the war the brand was etched onto the American consciousness with the famous slogan "I'd walk a mile for a Camel." That line was most conspicuous on a billboard (which emitted real smoke rings) that stood in New York's Times Square for many years.
Reynolds, like its brethren in the tobacco industry, took great pains to resist the growing realization of the hazards of smoking, an awareness that began to be created on a large scale by a 1952 article in Reader's Digest. While downplaying the significance of the evidence, the company hedged its bets in 1954 by introducing a filtered cigarette called Winston, which went on to become one of the perennially best-selling brands in the United States. Reynolds also implied that unfiltered cigarettes were healthy in ads claiming "More doctors smoke Camels than any other brand."
When the pressure on the industry became more intense in the wake of the U.S. Surgeon General's 1964 report, Reynolds began to diversify its operations. Among its purchases were Chun King foods, Del Monte, and Sea-Land shipping. In 1970 the parent company took "tobacco" out of its name and rechristened itself R.J. Reynolds Industries.
The diversification strategy was accelerated in the 1980s. The first big target was Heublein, a distilled spirits producer that also owned the Kentucky Fried Chicken fast food chain. A few years later, Reynolds gobbled up Nabisco Brands, the product of the 1981 merger of Nabisco and Standard Brands. The combined company called itself RJR Nabisco.
More dramatic change came in 1988. A bold proposal by chief executive F. Ross Johnson to take the company private through a leveraged buyout prompted an intense bidding war, as well as a great deal of public criticism of the greed and ruthlessness of the parties maneuvering for control. In the end the winner was Kohlberg Kravis Roberts & Co., which acquired RJR Nabisco for $25 billion -- the largest takeover up to that point. All this was chronicled in the 1989 book Barbarians at the Gate and in a movie with the same title.
In part to service its gargantuan buyout debt load, the company began selling off assets. KKR took a portion of the company public again in 1991, and four years later it divested entirely. In 1999, responding to pressure from investors Carl Icahn and Bennett LeBow as well as others, RJR Nabisco announced plans to sell its foreign tobacco operations to Japan Tobacco and spin off the domestic tobacco business, which later acquired Santa Fe Natural Tobacco.
In 2003 what had become known as R. J. Reynolds Tobacco Holdings made a big new bet on the domestic market by announcing plans to acquire a majority stake in the U.S. operations of British American Tobacco -- Brown & Williamson -- in a stock deal worth about $2.6 billion. Reynolds also agreed to acquired BAT's cigar and pipe tobacco subsidiary Lane Limited (later sold). All the businesses were to be put under the auspices of a new parent company called Reynolds American.
Reynolds increased its involvement in smokeless tobacco with the 2006 purchase of Conwood, and in 2014 it sought to better position itself to compete with Altria (parent of Philip Morris) by announcing a plan to acquire Lorillard, the No. 3 cigarette maker in the United States. The deal is awaiting regulatory approval.
Public Health Issues
Like other companies in the industry, Reynolds long resisted acknowledging the deleterious effects of tobacco, even after the U.S. Surgeon General issued a report in 1964 linking smoking to lung cancer and other diseases, and Congress mandated warning labels on cigarette packs. Although Congress went on to ban cigarette advertising on radio and television beginning in 1971, the industry continued marketing its products in other ways.
Reynolds was particularly egregious in trying to mislead the publi. In 1986 the Federal Trade Commission charged the company with misrepresenting the health risks of smoking in newspaper and magazine advertisements that described findings on the link between cigarette use and heart disease as an opinion but not scientific fact.
In 1990 Reynolds was forced to cancel a brand aimed at black smokers amid a wave of protest led by U.S. Health and Human Services Secretary Louis Sullivan, who assailed the company for "promoting a culture of cancer." Similar protests followed the company's introduction of a brand called Dakota targeted to young, poorly educated white women.
But the biggest controversy involved the company's use, beginning the late 1980s, of ads containing a cartoon figure called Joe Camel (aka Smooth Character) in what was seen as a blatant effort to lure youngsters. Despite calls by the U.S. Surgeon General and many others to end the campaign, Reynolds refused to do so until after the Federal Trade Commission deemed it illegal in 1997. (Documents later revealed by the Washington Post and the New York Times indicated that as early as 1973 Reynolds was targeting adolescents in its marketing.)
In 1987 the effort by Reynolds to increase its presence in foreign markets was undermined by the disclosure that a shipment of 16,000 cases of cigarettes sent to Japan contained illegally high levels of herbicides.
For years Reynolds and its competitors vigorously fought product liability suits brought by smokers claiming that cigarettes had given them lung cancer and other diseases. The industry's legal winning streak was unbroken until 1988, when a federal judge declared that the evidence brought out in a trial showed that the industry had engaged in a "conspiracy vast in its scope, devious in its purpose and devastating in its results" to mislead the country about the dangers of smoking.
The jury in the case did not, however, find the defendants -- Liggett, Lorillard and Philip Morris -- guilty of conspiracy but did find Liggett liable in the death of Rose Cipollone from lung cancer. The jury, which found that Liggett had failed to alert smokers to the health risks of cigarettes in the period before the federal warning label started to be used, ordered a modest award of $400,000 to Cipollone's husband. In 1990 a federal appeals court overturned the verdict but opened the door to suits covering the period after warning labels began to be used.
Denying the Evidence
Reynolds and the rest of Big Tobacco continued to defend their practices even after evidence began to appear indicating that the industry had blocked publication of research demonstrating that nicotine was addictive. In 1994 Reynolds CEO James Johnston appeared at a Congressional hearing with six other industry executives and all of them repeatedly expressed their belief that cigarettes were actually not addictive and that the evidence linking smoking to cancer and other health problems was inconclusive.
A few weeks later, the New York Times published an investigation showing that executives at Brown & Williamson, whose CEO spoke at the hearing, had privately discussed the hazards of smoking as early as 1963. The Times later obtained 4,000 pages of documents from the archives of B&W (which would later merge with Reynolds), exhaustively showing that the company had long been aware of the health risks it publicly denied. Subsequently, FDA Commissioner David Kessler accused B&W of developing a genetically engineered form of tobacco with higher nicotine levels and using it in five U.S. brands, including three labeled "light." The company's CEO Thomas Sandefur was hauled before a Congressional committee and confronted with the incriminating documents, but for hours he denied the allegations of nicotine manipulation and simply repeated his "opinion" that nicotine was not addictive. (Similar internal documents from Reynolds were disclosed in 1998.)
The industry's legal problems grew more grave when state governments began filing suits seeking to hold the companies liable for public healthcare costs relating to smoking. The first action was brought in 1994 by Mississippi, whose attorney general stated: "The lawsuit is premised on a simple notion: you caused the health crisis; you pay for it."
There was also consumer pressure. Boycotts of Reynolds and Philip Morris were launched in 1994 by the activist group INFACT, now known as Corporate Accountability International, which is still campaigning to rein in Big Tobacco.
Reynolds sought to suppress or discourage negative research and reporting. In 1995 the company, following the lead of Philip Morris, filed a defamation lawsuit filed against ABC News, which had televised a report alleging that the two companies had altered nicotine levels in cigarettes to foster addiction (the cases were later settled out of court).
The United Front Crumbles
The industry's united front began crumbling in 1996, when Liggett Group, the smallest of the five major companies, agreed to settle lawsuits brought by four states as well as a class action of individual smokers. Liggett's final settlement with 22 states included an admission by the company that smoking is addictive and causes cancer.
By 1997 the potential liability from the state government lawsuits reached a point that even Reynolds had to compromise. In June of that year it and four other major cigarette companies reached a settlement requiring them to pay out $368 billion to the states over a period of 25 years. Under the tentative agreement, the companies also agreed to new restrictions on their marketing and the regulation of nicotine as a drug by the U.S. Food and Drug Administration, though the later provision included some limitations on the FDA that were rejected by the Clinton Administration.
While the final settlement was being ironed out, some states struck their own deals with the tobacco giants, while Congress debated an alternative resolution of its own making and the Justice Department pursued a criminal investigation of the industry. All this prompted the states to negotiate a new settlement with the industry in November 1998 that included a reduction in the 25-year payout to $206 billion and omitted marketing restrictions but provided no protection against private lawsuits. Four states -- Florida, Minnesota, Mississippi and Texas -- stuck with their individual settlements totaling $40 billion.
Cigarette makers had a mixed record in the ongoing private cases but then faced a higher legal hurdle when the federal government, having ended its criminal investigation of the industry, filed a civil fraud suit in September 1999 against Reynolds and its competitors. While that case was pending, the U.S. Supreme Court ruled that the FDA did not have the authority to regulate tobacco.
Reynolds and the rest of Big Tobacco fought hard against the U.S. government lawsuit, in which federal prosecutors were demanding that the industry forfeit $289 billion in profits. In 2005 an appeals court ruled against the forfeiture effort. Federal prosecutors then sought $130 billion from the industry for a massive anti-smoking campaign, but senior Justice Department officials ordered them to drastically reduce the demand to $10 billion.
Ultimately, the federal judge hearing the case ruled in 2006 that Reynolds and the other companies were guilty of racketeering and had caused "an immeasurable amount of human suffering," but Judge Gladys Kessler said she had no authority to impose financial penalties on the companies. She did, however, order the industry to stop labeling cigarettes as "low tar" or "light" or "natural."
In the meantime, Reynolds was facing other legal challenges. In 2002 a state judge in California found that the company had, in violation of the multistate agreement, indirectly targeted youths in its magazine ads and ordered the company to pay a $20 million penalty (overturned on appeal but Reynolds then settled for $11 million). Shortly thereafter, a federal judge in Kansas imposed $15 million in punitive damages against Reynolds, saying the company had engaged in "nefarious" behavior by denying that cigarettes are addictive. In 2006 Reynolds settled a case brought by the attorneys general of 40 states by agreeing to stop selling cigarettes marketed as having candy, fruit or alcoholic beverage flavors.
In 2006 a federal judge granted class action status to a suit alleging that Reynolds and its competitors had deceived tens of millions of smokers through the marketing of "light" cigarettes, but that certification was later overturned at the appellate level. Other class action and individual lawsuits are pending.
While maneuvering on various legal fronts, Reynolds was also trying to shape public policy. For example, it worked hard to block anti-smoking ballot initiatives at the state level. In 2006 the company admitted that it was spending some $40 million on these efforts, often by funding front groups.
In 2009 Congress finally enacted legislation giving the FDA the power to regulate both the content of cigarettes and their marketing. The law specifically mandated more prominent warning labels and banned the use of flavors meant to attract young smokers. The marketing restrictions were challenged in a suit brought by Reynolds and several other tobacco companies. In 2012 a federal judge struck down FDA plans to display graphic images as part of the warning labels.
In the past few years, Reynolds has joined other tobacco companies in introducing their versions of the increasingly popular e-cigarettes. They surprised industry critics by including strong warning labels, a move variously interpreted as a legal precaution or an attempt to project a more responsible image.
Even after the federal lawsuit was resolved, Reynolds and Philip Morris sparred with federal officials over access to the trove of internal documents the companies had to disclose in the course of the case. In 2011 the companies settled the dispute with the Justice Department by agreeing to pay $6.25 million into a fund earmarked for the online Legacy Tobacco Documents Library operated by the University of California-San Francisco.
In 2015 the FDA halted the sale of four Reynolds products, saying they raised new public health concerns.
In 1998 a unit of what was then called RJR Nabisco pleaded guilty to federal criminal charges stemming from a scheme to smuggle cigarettes into Canada through an Indian reservation in upstate New York in order to evade excise taxes. The subsidiary, Northern Brands International, agreed to pay a fine of $15 million. In 2010 Reynolds agreed to pay $324 million to settle a related suit brought by the Canadian government.
In the early 2000s there were reports alleging that Reynolds was making it easy for its cigarettes to be smuggled into Iraq in violation of the economic embargo that was in place against the government of Saddam Hussein, whose son Uday was reportedly involved in the smuggling. The reports were prompted by a lawsuit brought in federal court in New York by the European Community. The racketeering case, which accused the company of being involved in a global money laundering scheme involving drug as well as cigarette smuggling, has slowly made its way through the courts. In April 2015 an appeals court cleared the way for the case to proceed, but the following year the U.S. Supreme Court limited the scope of the case.
After its formation in 1899, the Tobacco Workers International Union set out to organize workers at R.J. Reynolds and the other three companies that dominated the industry. The Big Four strongly resisted unionization, and the industry remained largely unorganized until 1937, when the U.S. Supreme Court ruled favorably on the constitutionality of the National Labor Relations Act. After that, the TWIU succeeded in organizing Liggett & Myers, Philip Morris and American Tobacco, but Reynolds continued to resist.
Reynolds has remained completely non-union to this day, causing the TWIU (which later merged with the Bakery and Confectionery Workers) to keep the company on the AFL-CIO boycott list for more than 50 years, where it still remains.
In 2005 the Machinists union tried to organize Reynolds production workers in North Carolina, but the union lost an NLRB election by a vote of 1,185 to 618. The following year, the Machinists joined with the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union to form the United Tobacco Alliance, which tried to organize about 2,000 Reynolds workers in Winston-Salem, NC. The unions hoped that workers who had been transferred from a Brown & Williamson union shop in Macon, Georgia to Winston-Salem after Reynolds merged with Brown & Williamson would be inclined to vote union.
The unions, however, lost the election by a vote of 1,228 to 862. In a press release issued after the vote, the Alliance charged that “in the weeks leading up to the union election, Reynolds launched a vicious anti-union campaign designed to intimidate employees into voting against union representation. Reynolds’ well-funded, coercive drive to instill fear in workers included threats to shut down the plants and move production overseas, to take away current benefits, conducted captive audience meetings and played streaming daily anti-union videos in the workers’ lunchrooms.”
In 2007 the Farm Labor Organizing Committee launched a campaign to organize migrant tobacco workers by putting pressure on Reynolds, which the union hoped would in turn bring growers to the bargaining table. It took five years of pressure before the company agreed to talk to the union. Reynolds made only limited concessions, so the campaign continues.
In 1976 Reynolds Industries vice chairman David Peoples and two other executives were forced to resign when it was disclosed that they had been involved in funneling up to $90,000 of corporate funds into an account for making illegal campaign contributions. Later that year, the company admitted to the Securities and Exchange Commission that it had made a total of $25 million in questionable payments at home and abroad, mostly by its Sea-Land shipping subsidiary. In 1979 Sea-Land was fined $1 million after pleading no contest to charges of price fixing.
Other Information Sources
Violation Tracker summary page
Watchdog Groups and Campaigns
Corporate Accountability International (formerly INFACT)
Key Books and Reports
A Question of Intent: A Great American Battle with a Deadly Industry by David Kessler (PublicAffairs, 2001).
Ashes to Ashes: America's Hundred-Year Cigarette War, the Public Health, and the Unabashed Triumph of Philip Morris by Richard Kluger (Knopf, 1996).
Barbarians at the Gate: The Fall of RJR Nabisco by Bryan Burrough and John Helyar (Harper & Row, 1989).
Big Tobacco's Attempts to Derail the Global Tobacco Treaty: Cases from Battleground Countries (Corporate Accountability International, 2005).
Cigarettes: Anatomy of an Industry from Seed to Smoke by Tara Parker-Pope (The New Press, 2001).
Civil Warriors: The Legal Siege on the Tobacco Industry by Dan Zegart (Delacorte Press, 2001).
Cornered: Big Tobacco at the Bar of Justice by Peter Pringle (Henry Holt, 1998)
Merchants of Death: The American Tobacco Industry by Larry C. White (William Morrow, 1988).
Smoke in Their Eyes: Lessons in Movement Leadership from the Tobacco Wars by Michael Pertschuk (Vanderbilt University Press, 2001).
Smokescreen: The Truth Behind the Tobacco Industry Cover-up by Philip Hilts (Addison-Wesley, 1996).
The Cigarette Papers, edited by Stanton Glantz et al. (University of California Press, 1996).
The Gilded Leaf: Triumph, Tragedy and Tobacco by Patrick Reynolds and Tom Shachtman (Little, Brown, 1989).
The People vs. Big Tobacco: How the States Took on the Cigarette Giants by Carrick Mollenkamp et al. (Bloomberg Press, 1998).
The R.J. Reynolds Tobacco Company by Nannie Tilley (University of North Carolina Press, 1985).
The Smoke Ring: Tobacco, Money and Multinational Politics by Peter Taylor (Pantheon Books, 1984).
The Tobacco Industry in Transition by William R. Finger (Lexington Books, 1981).
They Satisfy: The Cigarette in American Life by Robert Sobel (Anchor Press, 1978).
Tobacco: A Cultural History of How an Exotic Plant Seduced Civilization by Iain Gately (Grove Press, 2002).
Tobacco's Hidden Children: Hazardous Child Labor in United States Tobacco Farming (Human Rights Watch, May 2014).
True Greed: What Really Happened in the Battle for RJR Nabisco by Hope Lampert (New American Library, 1990).
Last updated June 30, 2016