Barbarians at the Gate (8 page)

After only a decade in New York, Johnson had achieved the pinnacle of success: CEO of one of America’s great food companies. He was a new breed of chief executive for a new age of American business. The old-timers at Standard Brands had seen themselves as corporate stewards. “Your company is the ship,” they would say, “the chief executive is only the captain.” That steady-as-she-goes ethos was fine for men scarred by the 1930s and scared to make waves. But Johnson, like many of his peers, hadn’t lived through a Depression, hadn’t fought a world war, and wasn’t about to acknowledge limits. He was no old-style team player but a Broadway Joe or Reggie Jax, an iconoclastic superstar, a cool, television-age man loyal to little but his own whims.

To outsiders, he was the same old backslapping Ross. In his early fifties, he was tall and slim and wore his silvery hair boyishly long. The only hint of Canada was in his voice: he said “bean” instead of “been,” sprinkled his jokes with the British “bloody,” and occasionally ended a sentence with “eh?”

But even as he assumed Nabisco’s throne, Johnson seemed to lose interest in running it. Glitz now fascinated him far more than Ritz. If they weren’t off with Gifford and a girlfriend, the Johnsons were on a Mediterranean vacation with Jim Robinson of American Express and his wife Linda, then an up-and-coming Wall Street public relations expert. Among the Johnsons’s closest friends were Canadian Prime Minister Brian Mulroney and his wife, Mila. Mila and Laurie Johnson would prowl Manhattan, power shopping for the prime minister’s residence. Nabisco began sponsoring the Dinah Shore women’s golf tournament, and Johnson transformed it into a star-studded affair. His growing stable of celebrity athletes, now called Team Nabisco, was paraded about at the tournament. Gerald Ford and Bob Hope graced the Pro-Am. Johnson’s friend Oleg Cassini put him on a billboard.

Johnson had always loved rubbing shoulders with celebrities, of course. But in the past there had been a sense that it stemmed from his recognizing the foibles of the upper class. He would return from an elite social occasion in Britain giggling about how the royal family was “all fucked up,” or telling tales of that crazy Maggie Thatcher: “A pisser,” he would chortle. The Merry Men, mired in cookies and crackers, loved it, even while some of them began to worry their man was becoming more an insider of the circles he ridiculed than an outsider.

If Johnson grew indifferent toward Nabisco, it was because he could
no longer see much of a future in it. The cookie wars had changed his thinking; he regarded the battle with Frito-Lay and P&G not as a final victory, but as the successful deflection of a shot fired across his bow. There would be another giant like Procter & Gamble—maybe even P&G itself—that would come after him again. Nabisco, after all, had fatal weaknesses. No amount of work was going to revitalize its aging bakeries anytime soon. Johnson, in fact, never bothered to formulate any kind of master plan for reshaping Nabisco. Years of scrambling had soured him on long-range planning. Instead he spent his time enjoying the high life, putting out corporate fires as they flared, and waiting.

Someone had once codified the Standard Brands culture into twenty Johnsonisms. Number thirteen was “Recognize that ultimate success comes from opportunistic, bold moves which, by definition, cannot be planned.”

On a spring day in 1985, less than a year after being tapped Nabisco’s chief, Johnson took a call from J. Tylee Wilson, chairman and chief executive officer of RJ Reynolds Industries, the North Carolina-based tobacco giant. Would Johnson be interested in getting together for lunch? Maybe, Wilson said, they could do some business.

Imagine you lived in this great old house. You grew up in it, and all your happy memories are in it, and you take special care of it for the next generation. Then one day, you come home to discover it’s been turned into a brothel. That’s how I feel about RJR.

On one side of the miniature Empire State is the stolid headquarters of Wachovia Bank & Trust. Its vaults stuffed with Reynolds stock and deposits, Wachovia grew to be one of the South’s preeminent banks. On the far side of the Reynolds building is a taller, more modern structure that houses the overflow of employees from headquarters. Two blocks away rises a glass-sheathed skyscraper that is the tallest in town. Its anchor tenant is Womble, Carlyle, Sandridge & Rice, North Carolina’s biggest law firm, whose practice is firmly anchored in Reynolds Tobacco.

If not for Reynolds, Winston-Salem would be like a lot of other little southern cities of 140,000 souls. Except for the demiskyscrapers, the downtown is largely scruffy—a place of tired old stores and tired old
people. Reynolds makes Winston-Salem different.

From downtown, its influence ripples out in all directions. Travel west, along Interstate 40, where every third billboard is devoted to Reynolds brands, and the Bowman Gray School of Medicine rises into view. An eminent teaching hospital and research center, it is named for the former Reynolds chairman who bequeathed it. Farther west is the exit for Tanglewood, a sprawling park donated to the county by the brother of R. J. Reynolds, William. “Mr. Will,” as he is still known forty years after his death, made it clear that Tanglewood was to be used by the
white
people of the county.

Travel north along Reynolda Road toward the estate of R. J. Reynolds himself—“Mr. RJ,” he is called, seventy years after his death. His sprawling mansion, Reynolda House, holds one of the nation’s finest collections of American paintings. Its grounds are host to the city’s most exclusive country club, Old Town. There’s room left over on the estate for the campus of Wake Forest University, which the Reynolds family brought to Winston-Salem from 100 miles away in the 1950s. Along Reynolda Road, the model farm that R. J. Reynolds’s wife—“Mrs. RJ”—once set up has been converted into a collection of toney boutiques, along with the offices that administer the public service component of the Reynolds family fortune. The Z. Smith Reynolds Foundation gives millions each year for good works in North Carolina, as does the Mary Reynolds Babcock Foundation. A fine French restaurant called La Chaudière is housed in the Reynolds farm’s old boiler room and offers Winston and Salem cigarettes to its customers gratis. Many people accept. This is, after all, a town where the occasional sign says, “Thank you for smoking.”

The Reynolds influence ripples into the poor side of town as well. Mister Will may have better remembered the white people, but he also donated money to start the Kate Bitting Reynolds Hospital for the blacks. (The hospital no longer exists, but the Kate B. Reynolds Trust distributes one-quarter of the income from its 2.4 million RJR shares to the city’s “poor and needy.”) R.J. Reynolds High School, in a rich neighborhood, provides the city’s best secondary education. But James A. Gray High School—named for a former RJR chairman—for years provided good schooling for the lower strata. On its grounds now stands the North Carolina School of the Arts. RJR donations help maintain this well-regarded fine arts training institute.

On a humid summer morning, when there’s no breeze to carry it away,
the pungent smell of tobacco still hangs over downtown Winston-Salem, wafting from the company’s oldest tobacco factory, still in operation down the hill from the little Empire State Building. It serves as one constant reminder why there
is
a Winston-Salem. A few blocks away, in front of City Hall, stands another: the statue of Richard Joshua Reynolds riding into town on horseback.

Although R. J. Reynolds had grown up in the Old South—as a child he hid family horses in the woods to escape marauding Union troops—he was a creature of the emerging New South: less agrarian and more entrepreneurial, less rooted and more restless. The day he rode into town, Reynolds had big plans. He knew the flue-cured leaves in the nearby fields were increasingly popular with tobacco chewers. He knew the town had an auction house that would give him access to supply. And he knew a railroad line there could connect him with markets. Within days he bought a plot of land from the Moravian church for $388, and began building a factory. A year later, in 1875, the RJ Reynolds Tobacco Co. was in business, along with its share of competitors: In this bustling town of 2,500, there were already fifteen tobacco companies.

Even in this crowded field, R. J. Reynolds distinguished himself. He innovated, becoming the first to devise a way to make chewing tobacco sweeter, by blending in saccharin. He expanded aggressively, always keeping the capacity of his factory well ahead of current production, and he
worked hard, for years living above the factory floor. He played hard, too, drinking deeply, gambling heavily, squiring around different women. He literally drove himself hard, making his way through the countryside with a double team of horses for extra speed. (At an 1890 meeting of the Reynolds board, directors authorized spending $240 a year for Reynolds’s horse team, the equivalent of today’s corporate jet.) The only thing R. J. Reynolds did slowly was speak, in an effort to overcome a lifelong stutter.

The combination of Mr. RJ’s business acumen with the area’s tenacious Moravian work ethic laid the foundation of the Reynolds corporate culture for decades to come. The Moravians had arrived here in 1753 to settle 100,000 acres of land they bought from Lord Granville of England. These Czechoslovakian immigrants sought not only religious freedom, in the Piedmont region of central Carolina, but also economic self-sufficiency. They were a stubborn, industrious people, skilled at manufacturing and trading and making do. They made Salem important enough that by the 1800s a railroad line ran westward to it from the larger town of Raleigh.

To a great extent, the policies of Reynolds Tobacco mirrored strong Moravian values. The Moravians believed in the individual subsuming himself for the good of the community, in being conservative in personal bearing as well as in finances. They founded a solid bank called Wachovia, named after a region in the old country, and, when the two towns merged a few years later, gave Winston-Salem a feeling unlike that of other Bible Belt towns. It was more progressive, for the Moravians were great believers in education. They established Salem Female Academy, the first women’s college in the region. R. J. Reynolds and his Moravian workers made a great team, and by the 1890s their company was the clear leader among the area’s many tobacco companies.

In fact, Reynolds Tobacco grew fast enough that it came to be coveted, as it would a century later, by a ravenous Northern suitor. The 1890s saw the rise of James B. (“Buck”) Duke’s national tobacco trust, which grew by gobbling up regional tobacco companies like RJ Reynolds. Buck Duke’s roots were down the road in Durham, North Carolina, but he had moved his American Tobacco Company to New York to develop the financial contacts that would enable him to expand nationwide. As he became more successful, Duke modeled his tobacco trust after John D. Rockefeller’s Standard Oil and soon effectively controlled the nation’s fledgling cigarette
market. Buck Duke then turned his attention to taking over the chewing-tobacco business.

R. J. Reynolds saw the threat and vowed to fight. “If Buck Duke tries to swallow me he will have the bellyache the balance of his life,” he vowed. Then, inexplicably, Mr. RJ made a secret trip to New York in 1899 and cut a deal that gave Duke’s trust a two-thirds stake in Reynolds Tobacco for $3 million. Apparently Reynolds agreed to sell out because he felt he needed more capital to grow and because he was guaranteed operating control of his company. Buck Duke might think R. J. Reynolds was working for him, but Mr. RJ had other ideas. Under the trust’s control, he went on a buying spree, snapping up a host of local competitors and becoming the biggest employer in North Carolina. The price of that expansion was a regimen of quarterly trips northward to report to Buck Duke’s people, the detested “New York crowd.”

R. J. Reynolds may have hated Yankee control, but there was no question he thrived under it. He now dreamed up the idea of a nationally distributed pipe tobacco. After supervising its secret mixture, he picked a name for it—Prince Albert, after the popular prince of Wales, who had become the British monarch, Edward VII—and personally hunted down a suitable picture of the prince (at a tea party with Mark Twain) to be used as the model for the label. For the first time, the company retained a big New York agency, N. W. Ayer, to conduct a national ad campaign. In
The Saturday Evening Post, Collier’s,
and other magazines, Prince Albert was proclaimed as the “Joy Smoke” that “can’t bite your tongue.” In a full-court press on distributors and retailers, Reynolds offered sweet discount incentives for them to load up on Prince Albert and threatened dire consequences if they didn’t. Customers would be very unhappy if they didn’t stock it, the company warned, because “we control the process that takes the tongue blistering bite out of tobacco—so there can’t be even a near substitute.” Much like Nabisco’s experience with Uneeda Biscuit, Mr. RJ’s plan to go national was a huge success. Annual production of Prince Albert grew from 250,000 pounds in 1907 to more than 14 million by 1911.

But the far bigger news that year was the demise of the carpetbagger, Buck Duke. After years of attempting to break Duke’s stranglehold on the tobacco industry, Teddy Roosevelt’s “trustbusters” finally succeeded. When a U.S. Appeals Court granted Reynolds Tobacco its independence, there was unrestrained joy in Winston-Salem. Reynolds salesmen were
told of the trust’s dissolution in a letter headed “News of Freedom.”

“Now watch me,” a gleeful Mr. RJ told his Moravian executives, “see if I don’t give Buck Duke hell.” A few days later, just as darkness fell over Manhattan, a giant new electrical advertising display was switched on. There, towering over the city, was Prince Albert himself in a great glow, with these words at his feet: “The Nation’s Joy Smoke, R.J. Reynolds Tobacco Company, Winston-Salem, N.C.”

Free from the grip of Northern interlopers, Mr. RJ immediately moved to ensure that his company would never again fall into the hands of “the New York crowd.” He began force-feeding Reynolds stock to its employees. “You should have an interest in this company,” he told them as he arranged for bank loans to buy stock. Never mind that many workers didn’t want to go into hock; Mr. RJ said he knew what was best, and he did. As the value of Reynolds stock ballooned in coming years, Winston-Salem came to be known as “the city of the reluctant millionaires.”

Soon Mr. RJ went even further, creating a “Class A” stock—known locally as anticipation stock—designed to put all voting power in the hands of the workers. It paid an extraordinarily rich dividend: 10 percent of all profits in excess of $2.2 million. Workers clamored for the new issue, and many used their salaries to buy all the Class A they could. The annual dividend payment became a kind of local holiday, a time local car dealers and luxury purveyors eagerly awaited. The story was told of a Winston-Salem tyke who received a horde of presents on Christmas morning, only to begin weeping uncontrollably. He said he’d had his heart set on Class A stock. From the early 1920s until the IRS disallowed the Class A in the 1950s, Reynolds employees controlled the majority of the company’s stock.

In return for its security, Reynolds took special care of its workers. The company loaned employees up to two-thirds the value of their property, operated lunchrooms at cost, and always had ice water on hand in the steamy tobacco factories. It provided day care for the children of women workers—one for the whites, of course, and one for the blacks. Reynolds even ran a supervised rooming house for country girls who came to Winston-Salem to work, and provided housing for another 180 families at cost. Many of these reforms were personally orchestrated by Mr. RJ’s young wife, Katharine.