Barbarians at the Gate (11 page)

He soon rubbed the genteel Sticht the wrong way. Wilson was a cold tactician and technician, a straight-ahead tank of an administrator who rolled over everything between him and his current objective. As a young man, he had been an Army instructor, and he brought that blunt, Prussian style to the executive suite. Wilson had a humorless laugh and a knack for tortured syntax. A Wilson sentence might begin, “I would opine that…”

Sticht’s succession, it was clear, would be a horse race. The second entry in that race was Edward A. Horrigan, Jr., president of Reynolds’s main tobacco business. Ed Horrigan, who would leave his own indelible mark on Reynolds, was a combative fireplug of a man who liked to brag he was “born in a three-point stance.” Horrigan was typical of the new-generation executive Sticht had brought in; he ran a tobacco business without ever having smoked in his life. He had made his career marketing
liquor, joining Reynolds in the seventies and, unlike many of the New Guard, fitting in well in Winston-Salem.

He was born in Brooklyn, the son of an accountant who was hard-pressed to find work during Horrigan’s Depression-era childhood. He got into the University of Connecticut on a football scholarship; although only five foot seven, by his own admission he “liked to hit people.” Horrigan got through UConn working summer construction jobs, then joined the army. In Korea, Horrigan led a platoon of 200 men at the battle of Old Baldy. The North Koreans were dug in on a hill, mowing down Americans as they tried to take it. But the young lieutenant kept regrouping and finally led his decimated unit on one final assault. Horrigan took out a machine-gun nest by himself, and his platoon took the hill. He won a Silver Star for valor, but his wounds knocked him out of combat for the duration.

After Horrigan came home, he marched through a succession of marketing jobs, until being lured to Reynolds by Tylee Wilson after heading the Buckingham liquor unit of Chicago conglomerate Northwest Industries. At Reynolds the two old soldiers were natural allies, at least at first. Together they commiserated over drinks about Reynolds’s plodding ways. Horrigan chafed at Reynolds’s gentlemanly, Southern work ethic. “We need a stronger sense of urgency here,” he told his troops. Horrigan was brimming with pep talks for the troops: They were going to fight Philip Morris on the beaches, in the air, at the convenience-store racks, everywhere. When they began to make progress, Horrigan got a good measure of the credit. Subordinates didn’t question him without risking a tirade; behind his back, they called him “Little Caesar.” These were not the gentlemanly qualities Sticht preferred. Nonetheless, Horrigan was a contender.

A third candidate for Sticht’s crown was Joe Abely, the suave chief financial officer recruited from General Foods. Abely most looked the part of a chief executive, with a distinguished silver mane. He also had the best pedigree, with law and business degrees from Harvard. He was on the Council of Foreign Relations, which appealed to the statesman side of Sticht. But Abely had a personality that made Wilson seem warm. While he didn’t meet the gentility test, Abely worked closely with Sticht on acquisitions and performed the useful task of bringing financial systems out of the dark ages. (Sea-Land’s accounting system, it was discovered, consisted of stuffing invoices in shoe boxes.)

After a century of “one-for-all,” the Sticht succession scramble split Reynolds into warring camps. No longer did people pull together for the company. Now they looked after the interests of the executive they hitched their star to: Wilson, Horrigan, or Abely. Preparing for a financial analysts’ meeting, Wilson and Abely quarreled over who would speak first, a squabble Sticht finally had to settle. At a rehearsal for presentations to a companywide conference, Abely had run over his allotted time when Horrigan stomped into the room. “What’s that cocksucker doing up there?” he stormed. “It’s my time.” Abely ordered a feasibility study on spinning off Sea-Land. Wilson, to whom Sea-Land reported, got wind of it and confronted John Dowdle, the treasurer, who was doing the study. “I’m sorry, I can’t tell you about that,” Dowdle said. “Abely will fire me if I tell you.” Horrigan hired a public relations firm to get him nominated for the right kinds of business and humanitarian awards to enhance his résumé. Horrigan’s big score: a Horatio Alger Award.

The succession mess would have a lasting effect on the business, fueling an insidious practice known as “loading.” Loading wasn’t unique to Reynolds; every tobacco company did it to some extent. Just prior to its regular semiannual price hikes, Reynolds regularly offered huge volumes of cigarettes to its customers—wholesalers and supermarket chains—at the old prices. Customers loved it because they could sell low-cost cigarettes at the new, higher prices. Reynolds loved it because it cleared away unwanted inventory, kept the factories humming, and, most important, produced large, artificial, end-of-quarter profits.

The problem, of course, was that loading was as addictive as nicotine. In order to top profits aided by loading, the company had to load even more—and so on,
ad infinitum.
It created huge inventories in the hands of wholesalers and retailers. When those inventories couldn’t be sold, one of two things happened, neither of them good. The cigarettes could be shipped back to Reynolds for credit, forcing the company to swallow the expense of reprocessing the tobacco into fresh cigarettes and, likely as not, reloading them. Or they could sit around for a few months, growing stale. As Reynolds grew more and more addicted to loading, more and more smokers were drawing on stale Winstons. Many would switch over to Marlboro.

With Reynolds gripped in bitter political squabbling, Sticht struggled to find a successor he could recommend to the board. A director named Ronald Grierson came to him with an idea. Grierson was a distinguished
Briton, vice chairman of British General Electric. In Europe, Grierson told Sticht, companies often went to handwriting experts when confronted with tough decisions like this. And so an oracle on such matters in Switzerland was consulted. She looked at writing samples of the successor candidates and shook her head morosely at each: not competent…couldn’t be trusted…and so on down the line.

Sticht stalled. Some believed he didn’t want to make a decision. He was in his mid-sixties, but felt as if he were in the prime of his late-blooming career. Then, just as those inside the company held their breath waiting for his final decision, Sticht made an even more startling announcement: He had agreed to buy a company named Heublein for $1.2 billion. What he got was a good liquor business (Smirnov, Inglenook Wines), a mediocre fast-food business (Kentucky Fried Chicken), and Heublein’s chief executive, Hicks Waldron, a fourth succession candidate. Waldron had spent most of his career at General Electric, a breeding ground for modern managers, and had a patina of polish Sticht found lacking in the others. Waldron wasn’t unmindful of the succession war gripping Reynolds. There were only a few key terms to Heublein’s sale, as far as Waldron was concerned: a price of $63 a share and a promise that Tylee Wilson wouldn’t be made chief executive.

Now the succession situation grew even more complex. In October 1982, Sticht turned sixty-five and told the board he couldn’t yet recommend a candidate to replace him. Instead he asked for and received permission to stay on an extra year. There was little doubt his request would be approved: Since the mid-seventies, Sticht had been packing the board with his supporters.

In an era when many American companies favored weak-willed, rubber-stamp boards, Reynolds directors were unusually strong-minded. Among their most outspoken members was John Macomber, chief executive of Celanese, the chemical company. Macomber was chairman of the board’s compensation committee, which was looking after the succession matter. He was Eastern Establishment through and through—Yale undergraduate, Harvard Business School, Lincoln Center board, International Chamber of Commerce—and close to Sticht. Sticht was on the Celanese board and had been on the search committee that installed Macomber in his job.

As far as the Reynolds succession went, Macomber was an anybody-but-Wilson man. Celanese did $25 million of business a year with Reynolds,
selling it material for cigarette filters. But Reynolds bought twice as much from Eastman Kodak, and when Macomber lobbied Wilson for more business, Wilson—no corporate politician—bluntly told him: “You’re our secondary supplier for two reasons: quality and service.” Macomber simmered. “I will
not
be on the board of a company run by Tylee Wilson,” he declared.

Vernon Jordan, the former Urban League president, was another director tight with the Macomber-Sticht axis. He, too, served on the Celanese board. As a partner in the Washington law firm of Akin, Gump, Strauss, Hauer and Feld, Jordan was well disposed to any chairman who put him on his board. Sticht would often have Jordan along as his guest at Bohemian Grove, the exclusive northern California corporate retreat, a superb place for the lawyer to do some rainmaking.

Juanita Kreps also owed Sticht. A longtime professor and administrator at Duke, Kreps was the token woman on Reynolds’s board even before attaining modest fame as Jimmy Carter’s secretary of commerce. Sticht had gotten her on the board of Chrysler, where he was a director. Sticht had Reynolds make handsome contributions to the Duke University Endowment, of which Kreps was a trustee. Kreps got credit at Duke for the gift; Sticht’s name got attached to the largesse. At Duke there was a J. Paul Sticht chair for international studies and a J. Paul Sticht fellowship for graduate business-school study, for a deserving alumnus of his alma mater, Grove City College.

Another Sticht supporter was Grierson, who Sticht also maneuvered onto the Chrysler board. Sticht could also count on Albert Butler, of Winston-Salem, who headed a family textile business and, for many years, a Moravian good-works foundation. Butler was a creature of the local establishment who summered at Roaring Gap, golfed at Old Town, and sat on the boards at Wachovia and Wake Forest. Butler had been thrilled to be tapped for Reynolds’s board and was utterly passive once on it.

Bill Anderson, chairman of NCR Corporation, was the kind of international businessman that Sticht could only pretend to be. Anderson had grown up in Shanghai and spoke several Chinese dialects. He had spent four years as a Japanese prisoner of war during World War II, and afterward was chief witness at a war crimes trial that sent thirty of his Japanese captors to prison. He had seen heavier scenes than the succession mess, at which he seemed slightly bemused.

It was a powerful board and squarely in Sticht’s pocket. But if the
directors pampered Sticht, they felt no obligation to treat his subordinates—or his successors—the same. Reynolds executives seethed at the way board members put them through the second degree. “Paul had his own bevy of directors; they knew everything and management knew nothing,” Ed Horrigan recalled years later. “He and they were using the company as a vehicle for self-aggrandizement.” Horrigan’s hostility was apparent to all—some board members called him “that trigger-happy whiskey salesman”—hurting his chances for the top spot. “Always remember, they’re only in it for themselves,” the personnel chief, Rodney Austin, told colleagues. “They’re mostly whores, pimps, and panderers.”

The succession scramble had been dragging on for two years when, in the wee hours of a Saturday morning in early 1983, Austin awoke Horrigan with a phone call to pass along a tip from one of the directors. Stuart Watson, the former chairman of Heublein and now a Reynolds director, had gone before the succession committee and made a case for his man, Hicks Waldron. The committee had bought it, Austin said; it looked like Waldron, the dark horse, had the job.

As Horrigan raged at the development, Austin suggested it wasn’t too late to recover. “But your only hope is to get together with Ty and Jerry Long [tobacco’s number-two man] right now and stop it from happening.”

That weekend Horrigan, Long, and Wilson met and agreed: Waldron had to be stopped. The best way to do that, they reasoned, was to use themselves as leverage. If they could bury the hatchet and form a united front behind either Wilson or Horrigan, they could derail the Waldron express.

On Monday, Wilson met with Sticht and delivered him a handwritten letter. “We cannot accept Hicks Waldron as chairman or as CEO,” Wilson wrote on behalf of the three men. “We believe the selection of Waldron as your successor would be an unnecessary sellout. We assume the committee believes the retention of the proven successful principal executives of this company is vital to its future. However, the selection of Waldron would result in the three of us leaving the company.” It wasn’t right that someone with no tobacco experience should get the job, the letter went on. Especially because the best candidate was right under the board’s nose. “We respectfully conclude that I am the most qualified candidate to succeed you,” Wilson wrote.

As much as Sticht detested their demands, the trio had him in a corner.
He couldn’t lose his top three tobacco executives, not with Philip Morris poised to pass Reynolds as the nation’s top tobacco company. Sticht sent the succession committee copies of what was already being called, by the few who knew of it, “the midnight letter.” The directors were also furious, and they were also in a corner.

As they thrashed about for an answer, Macomber was even advanced as a possible compromise candidate; it wouldn’t be the last time he would do so. Debate ran on for weeks. During a marathon parley after the April annual meeting, there was still strong sentiment for Waldron. Finally in May, at a Saturday meeting of the succession committee in Winston-Salem, Sticht made his recommendation. The board reluctantly consented. Sticht flew to Heublein headquarters in Hartford, Connecticut, to break the news to Waldron. “Hicks, I’m going to do something that I’m afraid isn’t in the best interests of the shareholders, but I’ve got to do it,” Sticht said. “I’m naming Ty chief executive.”