Ashes to Ashes (95 page)

Among the most egregious instances of “special projects” grant recipients carrying water for the tobacco industry in these years was Carl Coleman Seltzer, a fringe member of the Harvard academic community. Trained as an anthropologist, Seltzer was a longtime “research fellow” with the university’s Peabody Museum, and though neither a medical doctor nor an epidemiologist with a specialty in public health, he wrote articles for more than thirty years, arguing that the scientific case against smoking was flawed and unproven. In 1979, the CTR gave him a “special” grant of $60,000 to continue his work on “constitutional differences between smokers and nonsmokers” and additional grants of $70,000 for each of the following two years; he later told
The Wall Street Journal
he had received “well over a million” dollars for research under CTR’s aegis in the course of his career.

Among the fruits of Seltzer’s research was an article he contributed to the September 1980
American Heart Journal
entitled “Smoking and Coronary Heart Disease: What Are We to Believe?” It had two main thrusts: (1) Research showing that those who quit smoking had a lowered coronary heart disease (CHD) risk was fatally flawed, because such studies “have made the false assumption that ex-smokers are representative of continuing smokers except for the change in the smoking habit.” In a new study of 25,000 people enrolled in the Kaiser-Permanente health-care program in the San Francisco area (on which Seltzer was a co-investigator and the CTR a prime funder), the findings were that the ex-smokers, when tested before quitting, had “a lower CHD risk to begin with,” thus contributing to their eventual CHD outcomes. And (2) claims in the 1979 Surgeon General’s report that smoking was causally related to CHD were not validated by the evidence offered, and, as Seltzer put it, “The cold reality is that the mechanisms by which smoking … allegedly enhances CHD have not been established.” The government’s 1979 report seemed to concede as much, he argued, with statements like “Relatively little is known about the mechanisms by which smoking enhances atherogenesis or increases the risk of heart attack;” indeed, the report, Seltzer charged, was filled with speculation, surmise, hypotheses, and “facile postulations”. Findings like Auerbach’s showing that smokers had more severe atherosclerosis of the coronary arteries than nonsmokers did not in and of themselves prove that smoking was the cause. Therefore, this well-paid tobacco industry apologist concluded, “For the present, then, it is reasonable to believe that stopping smoking does not reduce the risk of CHD and that there is no established proof that cigarette smoking is causally related to coronary heart disease.”

Close scrutiny of the study on which the first of these arguments was based reveals the shallowness—and false reassurance to smokers—of Seltzer’s reading of the evidence. The differences found between ex-smokers and continuing smokers, as the cited study he co-authored for the
Journal of Chronic Diseases
disclosed (but Seltzer omitted in the more widely read
American Heart Journal)
, “were quantitatively small,” and this was true even for most indices by which CHD risk was assessed. Thirteen percent of white male continuing smokers had a history of hypertension, compared with 12 percent of the ex-smokers before they quit; 15 percent of the smokers had had electrocardiograms with abnormalities, compared with 14 percent of the quitters; and the ongoing smokers had an average cholesterol reading of 229, actually a point lower than the ex-smokers’ average—and their hemoglobin ratings were the same. Even in the few “social-personal” characteristics cited in the Kaiser-Permanente study, there were scant differences: smokers consumed 3 percent more alcohol than those who later quit, for example, and 52 percent of the continuing
smokers had some college education, compared with 56 percent of the quitters. The most significant difference cited appeared to be that about 36 percent of smokers drank six or more cups of coffee a day, compared with 26 percent of the ex-smokers. While it was true, and hardly surprising, that ongoing smokers consumed perhaps 40 to 50 percent more cigarettes than those who later stopped and that 86.3 percent of them inhaled, compared with 77.5 percent of quitters—which was to say those who ultimately quit had been lighter smokers—so what? To argue as Seltzer did that all or any of this meant that smokers and quitters were fundamentally different kinds of people, with significantly different levels of physiological vulnerability to the ravages of smoking and its pathogenic mechanisms, was simply unwarranted. Commented Dr. William B. Kannel, longtime former director of the NIH’s Framingham Study, and a leading authority on the effects of smoking on CHD:

Dr. Seltzer tends to select isolated pieces of data … that appear to support his biased point of view. He also tends to ignore data sets that do not support his own vested interest. The piece of evidence he refuses to confront is that those who quit smoking have only half the risk [of heart disease] of those who continue to smoke, regardless of how long and how much they have previously smoked.

As to Seltzer’s reliance on the fact that science had not yet unraveled the precise nature of the mechanisms contributing to CHD, this was the same line pursued by the tobacco industry’s pet scientists with regard to the incriminating evidence of smoking’s causal links to lung cancer, obstructive pulmonary diseases, or anything else—namely, that they had not been proven beyond a scintilla of doubt. In fact, much was known, and still more was plausibly conjectured, about how smoking tipped the delicate balances of cellular biochemistry and compromised the body’s defense mechanisms. None of these observed phenomena absolutely proved that smoking was causally related to heart disease, any more than the sizable grants Seltzer received from the tobacco industry proved that he was anything other than a totally objective, suitably skeptical scientist—but in both cases there were more than ample grounds for deep suspicion. In the estimate of Boston University medical professor Thomas S. Dawber, to cite one authority queried by
Medical World News
at the time of the 1980 article on CHD, Seltzer’s conclusions were “nonsense”.

Nonsensical or not, the research of many scientists and investigators like Seltzer was paid for by the industry to advance its own well-being and fend off criticism, yet the Tobacco Institute’s 1982 pamphlet
Answers to the Most Asked Questions About Cigarettes
asked itself in query No. 12, “Do the tobacco companies control the research they sponsor?” and answered: “Absolutely not. Independent scientific advisors evaluate and fund research
proposals by individuals and institutions. Awards are made with no strings attached… .”

IX

MOST
businessmen who had achieved the financial results that Joseph F. Cullman III did during his twenty-one years at the helm of Philip Morris would have taken their bows and moved off to the wings without looking for fresh complications at the end of their performance. But from the moment Cullman announced in the spring of 1978 that he would step aside at the end of the year, it became apparent that he wanted to depart in a burst of glory.

This resolve was curious in light of the numbers. He had pushed his company from sixth to second place in its field, posting a higher net every year than in the year preceding, and for the final ten years of his tenure, that net had grown at a compounded annual rate of 20 percent. By 1978, it was earning twenty-three cents a year on every dollar of owner-invested capital, surpassing industry leader R. J. Reynolds in this critical measure of management skill. Over Cullman’s last decade as CEO, no other company on
Fortune’s
annual list of the top five hundred U.S. corporations had brought its stockholders a greater total return in the form of rising dividend payments and enhanced value in the stock market. And in 1978, things were looking better than ever. Philip Morris USA had 28 percent of the American cigarette market and was closing in fast on RJR. Marlboro was outselling Winston by more than 2 million packs a day, and Merit had surpassed Vantage as the best-selling lowered-tar brand. Philip Morris International was now grossing three-quarters of the PM-USA total and twice as much as RJR, runner-up in foreign cigarette revenues.

And Cullman’s major move to diversify out of tobacco was finally paying off; Miller Brewing’s sales had shot up 482 percent over the last six years of his reign to gain 19 percent of the U.S. beer business and give PM, as in the cigarette trade, a strong No. 2 position. In the view of most financial analysts, Philip Morris was the smartest, best-run, and most sophisticated outfit in its industry.

Still, Cullman, at the age of sixty-six, remained driven; as he would later recount his final major move, “We were under a lot of pressure from the board to diversify further.” How much pressure any corporate board could apply to a chairman with Cullman’s track record was uncertain; what was clear was that in light of his earlier frustrations in trying to diversify profitably, Cullman relished Miller’s growing success and saw it as a base for building a major beverage empire as an adjunct to Philip Morris’s soaring worldwide tobacco business. Merger talks were arranged between Philip Morris and PepsiCo, another New York-based consumer goods outfit with superior marketing skills
and a strong No. 2 position in its field. “We got pretty far into it,” Cullman said, before both parties agreed that the deal was certain to be attacked on antitrust grounds and so backed away.

But Cullman was enamored with the soft-drink industry as a natural complement to the tobacco and beer businesses, and his eyes came to rest on Seven-Up, maker of the lemon-lime drink that held 7 percent of the U.S. soda market and occupant of a very distant No. 3 position in market share behind Coca-Cola and PepsiCo. The two giants had all but a fraction of the cola business, which made up some 65 percent of the soft-drink market, while cola-less Seven-Up puttered along with sales of $250 million that netted about 10 percent. That the relatively small St. Louis-based soda maker faced a possible mauling from a pair of leviathans if it tried to move well beyond its niche did not much faze Cullman, who, after all, had come from far to the rear of the pack to challenge leviathans RJR and Anheuser-Busch for leadership in the tobacco and beer industries.

Early talks with the Seven-Up people proved fruitless; the soda company was not interested in a stock swap, only a buyout, and had been shopping the business widely. While the negotiations were inching along, though, Cullman began to encounter internal opposition to the idea of buying Seven-Up. PM’s president, Ross Millhiser, believed that the company’s moves out of the tobacco business had served to dilute company earnings and strain its credit rating. He had a powerful ally in Clifford Goldsmith, then running PM-USA, who retained little faith in Cullman’s turnaround philosophy of diversifying. Even the Miller Brewing victory had been achieved only with a massive infusion of fresh capital, and its margins remained well below those of PM’s cigarette operations. Goldsmith told Cullman he thought it a serious mistake to enter the soda business “with a minority-preference product,” even if it could be bought for a modest price; in the long run, it would cost a great deal to make it competitive with the market leaders.

There were serious structural problems as well with a Seven-Up takeover, Jetson Lincoln, PM’s chief corporate planner, pointed out to the boss. The owners of the brand essentially just manufactured the syrup; it was the bottlers who sold the soda. This was entirely different from the beer business, in which the wholesalers had cancelable arrangements and only distributed the product. Soda bottlers, on the other hand, had long-term franchise agreements with precisely defined territories, and it was they who made the major capital investment to buy the syrup, mix the beverage, and bottle, sell, and advertise it. Most big bottlers were affiliated with either Coke or Pepsi and carried Seven-Up as a noncompetitive fill-in of their line. That meant that if Philip Morris ever intended to go big-time in the soda world by bringing out its own brand of cola, most of its regular bottlers would be unable to carry it. And if Coke and Pepsi got into a price war in the supermarket, Coke’s modest lemon-lime entry,
Sprite, would also get involved, putting a heavy squeeze on Seven-Up’s sales and margins, so a rough road could be expected if PM journeyed into soda. Buying Seven-Up thus struck PM’s chief financial officer, Shepard Pollack, as “a bad idea.”

For all this naysaying, Cullman had the strong backing of the other leading candidate to replace him at year’s end—Vice Chairman George Weissman. He more than Cullman had closely monitored Philip Morris’s overseas tobacco and domestic beer ventures, and as their earnings steadily improved, so had Weissman’s confidence grown in the company’s ability to move beyond its core business. Though few products on earth, he fully understood, were more profitable than cigarettes, tobacco was under a cloud, and the cloud was growing larger and stormier-looking. The soda business, moreover, had much in common with cigarettes and beer, Weissman argued to Cullman: all three were agriculturally based consumer products, low-priced and thus relatively recession-proof, and their marketing responded to imaginative advertising, packaging, and merchandising—all strong suits for Philip Morris. And the company already had an executive on hand who had displayed effective leadership in building a beverage business—the joyfully combative John Murphy.

Cullman decided to plow ahead, ordering his planning aide Jet Lincoln to put aside his own misgivings and prepare a favorable presentation on the proposed Seven-Up acquisition for the directors’ meeting to be held the day before the annual stockholders’ meeting, the last over which Cullman was to preside. The company overseers were divided as they had never been on a major decision during Joe Cullman’s tenure. The tobacco executives on the board—Millhiser, Goldsmith, and marketing chief Jack Landry—remained steadfast in opposition, as the argument swayed back and forth. But in the end, no one had the strength to buck the still potent Cullman at the end of his spectacular career. Two months later, Philip Morris bought out Seven-Up for $514 million, its largest purchase ever.