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Under An Hour: My Time at the 2015 Altria Group, Inc. Annual Shareholders Meeting

Monday, June 1st, 2015

By Edward L. Sweda, Jr.

There are 8,760 hours in any given year (excluding leap years). The management of Altria Group, Inc. used just under one of those 8,760 hours to conduct its 2015 Annual Shareholders’ Meeting at the Greater Richmond Convention Center in Richmond, Virginia on the morning of May 20th. The meeting began precisely at 9:00 A.M. and was adjourned at 9:57 A.M.

In his business presentation, Altria Group, Inc. Chairman, CEO and President Martin J. Barrington reported that “2014

Altria’s Barrington

was a very strong year for Altria and its shareholders,” that “Marlboro achieved record retail share of 43.8%, larger than the next ten brands combined” and Altria “delivered shareholder return of over 34%, far outpacing the S&P 500 and the S&P Food, Beverage and Tobacco Index.” Addressing an important concern in Washington, Mr. Barrington stated that Altria believes that the U.S. Food and Drug Administration “has an unprecedented opportunity to advance public health goals by recognizing that some types of tobacco products may have significantly lower risk compared to cigarettes.”

During the Question and Answer session, I asked the following question:

 “According to Altria Group’s most recent form 10-K filed with the SEC ‘an unfavorable outcome or settlement of pending tobacco-related or other litigation could encourage the commencement of additional litigation. Damages claimed in some tobacco-related or other litigation are significant and, in certain cases, range in the billions of dollars.’ Just last month, the Boston Globe reported on an upsurge of tobacco product liability lawsuits that have been filed in Massachusetts, spurred on by a recent ruling from the state’s Supreme Judicial Court that is favorable to plaintiffs in those cases. Moreover, Altria’s Form 10-K also states on page 67 that ‘after exhausting all appeals in those cases resulting in adverse verdicts associated with tobacco-related litigation since October of 2004, PMUSA has paid in the aggregate judgments (and related costs and fees) totaling approximately $144 million as of December 31, 2014.’ So my question is ‘Why shouldn’t Altria’s shareholders and investors expect the company to continue to pay judgments in the hundreds of millions, if not billions, of dollars in the years to come?’”

Mr. Barrington answered that litigation “presents risks to this company and to others. But it is also true that we have considerable experience in managing that risk. And I think if you look at the track record for Altria, and fill it more so over the years, you see that it has been extremely well managed. The approach we take is to defend the cases strongly and vigorously and you overwhelmingly see that from time to time, a matter may present itself in which we have a unique opportunity to resolve the matter. And if we think it’s in shareholders’ best interest to do that, we will go ahead to do that, but I think actually if you look at the curve of tobacco litigation over the last, I don’t know, 7 to 10 years, you will see that it is not up at all. In fact, it’s sharply down. And I think that’s because we have managed it and we have addressed the challenges that we have had in litigation that you are pointing out.”

Father Michael Crosby of the Province of St. Joseph of the Capuchin Order in Milwaukee addressed the issue of forced labor in tobacco fields. After Mr. Barrington had stated that Altria opposes illegal cigarette smuggling, Fr. Crosby commented that Altria “does not seem to be that much against illegal trafficking in human beings who are coming into our fields to produce and harvest the tobacco. You called the trafficking of tobacco products criminal behavior, for me it’s criminal behavior when this company is aware of the illegality of having so many undocumented workers, some people say up to 70% of all farm workers in the United States are undocumented, that means this company is involved in illegal behavior maybe not directly but indirectly it knows it’s going on and doesn’t do anything, so there’s culpability. This is the elephant in the board room. This is the elephant in the shareholders meeting that our dividends are coming on the back of illegal activities.”

In response, Mr. Barrington stressed that “we oppose exploiting labor on the farm or elsewhere.” He added that, as opposed to doing nothing, the company “have put it in our supplier code of conduct. We tell the growers that they should not be using forced labor or exploitive labor in our work.”

Officials from the AFL-CIO’s Farm Labor Organizing Committee addressed concerns about child labor in tobacco fields as well as the effort to get substantive change in the conditions, wages and housing for tobacco farm workers.

Cathy Rowan, on behalf of Trinity Health as well as Catholic Health Initiatives , the Sisters of St. Dominic of Caldwell, New Jersey, the Sisters of Charity of St. Elizabeth and the Sisters of St. Francis, supported a resolution asking the Altria Board of Directors to “initiate efforts to develop materials informing tobacco users who live below the poverty line or have little formal education about the health consequences of smoking our products along with market-appropriate smoking cessation materials.” The proposal “speaks to the high prevalence of smoking among people living in poverty, people with disabilities and minority populations. Many of these are fellow citizens who are people who have the fewest resources, the least amount of social support and the least access to cessation services.” The company’s opposition to this resolution claims that the company “believes the wide variety of current communication programs sponsored by multiple parties addresses the objectives of this proposal.” This resolution was defeated.

Two other shareholder resolutions were presented. One, sponsored by the AFL-CIO, called on Altria Group, Inc. to prepare a report on the steps it has taken to reduce the risk of acute nicotine poisoning (or “Green Tobacco Sickness”) for farmworkers in the company’s supply chain for tobacco. The other resolution, sponsored by the Province of St. Joseph of the Capuchin Order in Milwaukee, requested the company’s Board of Directors to “create a policy that all its suppliers throughout its tobacco procurement supply chain verify (with independent monitoring) their commitment and compliance regarding non-employment, directly or indirectly, of laborers who have had to pay to cross the U.S. border to work or, once here, to work on U.S. farms.”   Just as at the Reynolds American Shareholders Meeting two weeks earlier , both of these resolutions were defeated.

 

 



R.J. Reynolds’ Shareholder’s Report from Winston-Salem: A “Good Year,” a Proposal to Merge and a Death Toll that Must Not Be Acknowledged

Monday, May 18th, 2015

By Edward L. Sweda, Jr.

Like clockwork, the 2015 Reynolds American (RAI) Annual Shareholders Meeting started precisely at 9:00 A.M. on Thursday May 7, 2015 at the company’s headquarters in Winston-Salem, North

Ed Sweda

Carolina.  Seventy-five minutes later, the meeting was adjourned.

Before I could attend the meeting, I had to proceed through intense security, with machines provided by Security Detection, empty my pockets and hand over my camera to the RAI staff.

Wajnert

The meeting was held again in the company’s main auditorium that seats around 200 people.  On the dais were the following representatives of RAI management: Thomas C. Wajnert, the Non-Executive Chairman of the Board, who ran the meeting; Dara Folan, Senior Vice President, Deputy General Counsel and Secretary; Mark Holton, Executive Vice President and General Counsel; Andrew Gilchrist, the Chief Financial Officer and Executive Vice President; and Susan M. Cameron, RAI’s President and Chief Executive Officer.  After announcing the rules of conduct for the meeting and potential penalty for violation of the rules, Mr. Wajnert turned to Ms. Cameron for an overview of the company’s business performance for 2014.  Curiously, Ms. Cameron began by noting that 2014, while being a “good year” for RAI, “seems a long time ago.”  She cited some specifics of RAI’s 2014 performance, including Camel’s high market share and VUSE’s “successful national expansion.”  She described RAI’s plans to acquire Lorillard Tobacco Company as the “Right Decision at the Right Time” that is still awaiting regulatory approval by the U.S. Federal Trade Commission.  She also called on the U.S. Food and Drug Administration to adopt different regulations for e-cigarettes than for combustible cigarettes.  Ms. Cameron made no mention of any of the company’s customers who died during 2014 from smoking-caused diseases.

Much of the remainder of the meeting dealt with farm labor issues.  Many members of FLOC (the Farm Labor Organizing Committee of the AFL-CIO) were in the audience; they dominated the 30-minute question-and-answer session.  While Mr. Wajnert admitted that “bad conditions exist” on tobacco farms in North Carolina, he claimed that “we are working with our growers” to try to remedy those conditions.  FLOC representatives cited ongoing violations of child labor laws in the tobacco fields and emphasized that many of the farm workers were doing extremely hard and dangerous work for a minimum wage salary of $7.25 per hour.  Another major grievance was the fact that RAI, despite its claims of transparency, continues to refuse to provide FLOC with a list of tobacco growers with which RAI has contracts to provide it the tobacco for its cigarettes.

During the question-and-answer session, I asked the following question on ongoing tobacco litigation.

“During last month’s RAI First Quarter Earnings Conference Call, Chief Financial Officer and Executive VP Andrew Gilchrist said that ‘a significant portion of our legal budget at this point is being spent on Engle.’  The Engle verdicts in Florida keep on coming.  Just last week, a Florida jury returned a verdict of over $6 million for a plaintiff.  Meanwhile the Boston Globe last month reported on an upsurge in tobacco product liability lawsuits being filed in Massachusetts – an upsurge that was spurred on by a recent state supreme court ruling that is favorable to plaintiffs.

“I have a two-part question.  Would you clarify that when Mr. Gilchrist or other executives refer to the company’s legal budget, that it includes not just salaries of company lawyers and payments to local counsel but also the payment of judgments in cases where plaintiff verdicts have survived all appeals?

“Secondly, instead of using broad adjectives like ‘significant,’ would you give shareholders the specific dollar amount of the company’s legal budget and a breakdown by category of cases?”

In response, Mr. Holton said that the amount paid in judgments is not included in the “legal budget” category.  He also said that the company provides overall amounts for the legal budget, though not broken down by category of cases, to the U.S. Securities and Exchange Commission.

Two shareholder resolutions were defeated.  The first, supported by the North Carolina AFL-CIO, called on RAI’s Board of Directors to prepare a report “on the steps the Company has taken to reduce the risk of acute nicotine poisoning (‘Green Tobacco Sickness’) for farmworkers in the Company’s supply chain for tobacco.  The report should include a quantitative summary of the results of the Company’s inspections of its suppliers.”  The supporters of the resolution noted that children “who are under age 18 work as tobacco farmworkers in the United States and are exposed to Green Tobacco Sickness as an occupational risk.  A 2014 Human Rights Watch report described symptoms of Green Tobacco Sickness in nearly three-quarters of 141 child tobacco workers, ages 7 to 17, who were interviewed and worked in North Carolina, Kentucky, Tennessee and Virginia in 2012 or 2013.”

The second resolution, which dealt with issue of forced labor in tobacco fields, was sponsored by the Province of St. Joseph of the Capuchin Order in Milwaukee, Wisconsin.  Specifically, the proposal noted that, “with U.S. immigration reform stymied, undocumented workers (often the main workforce in many agricultural areas) can be exploited.  In their country of origin they often must pay contract labor brokers thousands of dollars to cross our borders; once here, they often are under the control of other labor contractors in order to work on U.S. farms.  This practice results in forms of forced and compulsory labor on many, if not most, U.S. farms, including tobacco farms.”

The proposal called on RAI’s Board of Directors to “create a policy that all its suppliers throughout its tobacco procurement supply chain verify (with independent monitoring) their commitment and compliance regarding non-employment, directly or indirectly, of laborers who have had to pay to cross the U.S. border to work or, once here, to work on U.S. farms.”

Father Michael Crosby presented the proposal and noted that currently RAI is financially benefitting from forced labor.  That is a fundamental moral issue that must be addressed, he added.

In seconding this resolution, I noted that RAI’s opposition statement that the issue of forced labor is “an issue that should be addressed in a comprehensive manner as part of immigration reforms and policies at the national level” was technically true but amounted to an excuse to pass the buck since there is no likelihood that the current Congress will allow a comprehensive immigration reform bill to be voted upon, given the track record of the House majority in the last Congress.

So, in this regard as in so many other aspects of Reynolds American’s business, the status quo continues.

 



The Reynolds American, Inc. 2014 Annual Shareholders Meeting: Change of CEO, change of demeanor, “Transformation” to the status quo.

Tuesday, June 24th, 2014

By Edward Sweda

          As I entered the Reynolds American Corporate Offices (photo) at 401 North Main Street in Winston-Salem, North Carolina just after 8 A.M. on Thursday, May 8, the company’s “Welcome Shareholders” sign was perched directly above the building’s main entrance.  Having cleared through the metal detector, I proceeded to the registration table, where I received my admission ticket to the 2014 Annual Shareholders Meeting of Reynolds American, Inc. (RAI).

           Since the doors to the meeting room would not be opened until 8:30, I had a few minutes to observe my surroundings inside RAI headquarters.

 Banners touting Camel, Pall Mall, American Spirit, Grizzly Long Cut, and ZONNIC (the company’s nicotine gum).

Another banne012r with the alliterative slogan “Transforming Tobacco,”

One more banner, entitled “Living Our Core Values,” with four adjectives: principled, creative, dynamic and passionate.”

           As I proceeded toward the men’s room, I encountered RAI’s cafeteria, which is named the “Golden Leaf Cafe” and contains black plastic chairs.  The back of each of those chairs has a cutout in the shape of a camel.  Prominently positioned in the lobby was a large portrait of Richard Joshua Reynolds (whose statue can be found a few blocks south on Main Street — see photo), the company’s founder.

I entered the meeting room just after 8:30 and sat in an aisle seat near one of two microphones.  After having been personally greeted by several RAI employees, I got a chance to read a two-sided blue handout entitled “Rules of the Annual Meeting.”   The closing part of the tenth of the twelve rules caught my attention: “Failure to observe the rules is cause for expulsion from the meeting.  Shareholders and their representatives who refuse to leave the meeting upon request could be arrested and charged with criminal trespassing.”  I remembered my experience at the 2013 RAI Annual Shareholders Meeting.

          Hardly welcoming.

           The 2014 meeting started precisely at 9:00 A.M. and featured the return of Susan Cameron as CEO.  Tom Wajnert, the Non-Executive Chairman of the Board, began by citing his desire for a “productive and orderly meeting” and his opposition to disruptions under the “guise of points of information.”  He then turned to Tom Adams, Executive Vice President and Chief Financial Officer, for a report on business.  Mr. Adams noted that 2014 marks the tenth anniversary of RAI and that the company had made “much progress since 2004.”  Key phrases from his report included: “leading the transformation of the tobacco industry”; “Stronger than ever”; “shareholder return of 27%”; “record profits”; “brand milestones”; and “highest market share for Camel since 1967.”  Mr. Adams made no mention of any developments in tobacco litigation over the past decade (see, e.g., http://www.phaionline.org/2010/02/19/all-parties-seek-supreme-court-review-of-racketeering-trial-us-v-philip-morris/  and  http://www.phaionline.org/2012/03/26/supreme-court-rejects-key-tobacco-industry-appeal-leaving-massive-liability-with-no-end-in-sight/  ).  The premature deaths of millions of the company’s customers and bystanders to the use of the company’s tobacco products were once again excluded from RAI’s business presentation.

           The Question and Answer session’s allotted time was increased slightly from the 25 minutes at the 2013 meeting to 30 minutes.  As it turned out, Mr. Wajnert twice extended the period for shareholders’ questions and everyone who had lined up at the microphones had the opportunity to ask a question.  The Q&A session lasted 45 minutes, from 9:40 to 10:25.

           My question, which dealt with the ongoing Engle Progeny litigation in Florida, drew the meeting’s only mention of tobacco litigation from RAI.  I called attention to the fact that, in February 2014, the website Law360.com reported that a leading litigation finance company — Law Finance Group — “has decided to throw its weight behind the plaintiffs in what experts say is the latest sign that the scales may be tipping toward eventual settlement.”  Law Finance Group is offering appeal funding in Engle Progeny cases and advancing payment to plaintiffs of an appealed award.  In October 2013, the U.S. Supreme Court declined to consider ( http://www.phaionline.org/2013/10/07/us-supreme-court-deals-devastating-blow-to-the-cigarette-industry-and-settlement-value-of-nearly-8000-pending-engle-cases-rises-dramatically/ ) the tobacco companies’ appeal of the Florida Supreme Court’s March 2013 ruling in the Douglas case ( http://www.phaionline.org/2013/03/18/big-victory-at-florida-supreme-court-is-bad-news-for-cigarette-manufacturers/ ).  This development was a significant factor in Law Finance Group’s decision to support the Engle Progeny plaintiffs.  My question to the RAI Board was: “What, if anything, has management  done to inform its shareholders about this important new development regarding the Engle Progeny litigation?”

           In response, Mr. Wajnert turned to Martin L. “Mark” Holton III, Executive Vice President, General Counsel and Assistant Secretary.  Mr. Holton chose not to address whether RAI had ever informed shareholders of the Law Finance Group’s decision.  Instead, he declared that he and the company are “comfortable” with RAI’s litigation position, including at the appellate level, with regard to these cases in Florida.  [Just a month later, the U.S. Supreme Court gave RAI another major setback when it refused to consider the company’s appeal of several plaintiff verdicts in the Engle Progeny litigation in Florida.

           Dr. Sharon Brown, who had been ejected from the 2013 RAI Annual Shareholders Meeting, noted that RAI had resumed cigarette advertising in certain magazines, including Glamour, and expressed additional concern that a Spanish-language version of the company’s “Right Decisions, Right Now” program could help introduce Spanish-speaking youth to RAI’s tobacco products.

           Many of the questions dealt with farm labor issues, especially the working conditions of workers who toil for companies that supply tobacco to RAI.  Mr. Wajnert refused tIMG_4354 (2)o answer a direct question as to whether he believed a farm worker’s minimum wage of $7.25 per hour is a fair wage.  Many supporters of the Farm Labor Organizing Council, AFL-CIO (FLOC) (see http://www.floc.com/wordpress/ ) attended the meeting while others demonstrated outside company headquarters.  (photo courtesy of Dr. Sharon Brown).

           Two shareholder resolutions were defeated.  The first, calling for more transparent reporting to shareholders of the company’s lobbying expenditures, received 47.7 million “Yes” votes compared to 393.9 million “No’ votes.  The second resolution, calling for an end to virtually all animal testing, received 3.3 million “Yes” votes and 433.8 million “No” votes.

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Statue of R.J. Reynolds



An hour with Altria Group, Inc.

Tuesday, June 24th, 2014

By Edward Sweda

Opening the company’s 2014 Annual Shareholders Meeting at precisely 9:00 A.M., Martin J. Barrington, Chairman and Chief Executive Officer of Altria Group, Inc., had plenty of good news to report to shareholders who had assembled at the Greater Richmond Convention Center on the morning of Wednesday, May 14.  During his report on business, Barrington said that 2013 was a “strong year” for Altria, that dividend growth was positive and that total shareholder return was 28.6%.  Marlboro’s share in 2013 was 43.7% — greater than the next ten brands combined.  Altria’s Copenhagen and Skoal brands combined for a 50.7% share of the smokeless tobacco market in the United States.

The company also pledged to continue to follow its four “core strategies”:

  1.                 Invest in Leadership (“We will invest in excellent people, leading brands and external stakeholders important to our businesses’ success.”)
  2.                 Align with Society (We will actively participate in resolving societal concerns that are relevant to our businesses.)
  3.                 Satisfy Adult Consumers (“We will convert our deep understanding of adult tobacco and wine consumers into better and more creative products that satisfy their preferences.”)
  4.                 Create Substantial Value for Shareholders (“We will execute our business plans to create sustainable growth and generate substantial returns for shareholders.”)

But there was also bad news for Altria and its shareholders.  Just fifteen days earlier, a panel of Illinois’ Fifth District Court of Appeals had unanimously reinstated a $10.1 billion bench verdict in a light cigarette class action, the Price case.    Barrington did bring up this ruling during his business presentation, but only after claiming that Altria had had “success in managing litigation” during 2013.  While acknowledging that “substantial litigation challenges” remain, Barrington expressed satisfaction over two company victories, the rejection of a light cigarette case in California, the Brown case, and a New York Court of Appeals ruling against the plaintiffs in a medical monitoring case, the Caronia case.

During the question and answer session, I cited the recent ruling in Price.  “In 2005, the Illinois Supreme Court overturned the $10.1 billion bench verdict on what we now know is the false premise that the U.S. Federal Trade Commission (FTC) had authorized the conduct that was the basis for the company’s liability.  Subsequently, the FTC itself and the U.S. Supreme Court in its 2008 ruling in the Good case both made that clear.  While the company will appeal that April 29th ruling by the Fifth District Court of Appeal, my question is: What steps has the company taken to prepare to pay this multi-billion dollar judgment if the appeal to the Illinois Supreme Court is unsuccessful?”

In response, Barrington did not identify any specific steps that company may have taken.  He expressed confidence that the ruling would eventually be overturned.  He also told the shareholders that Altria prepares for all possible outcomes but that we are “a long way” from the point where a final judgment in the case would have to be paid.”

Two shareholder resolutions were considered at the meeting.  The first, filed by Trinity Health, noted that the World Health Organization has said that tobacco and poverty “have become linked in a vicious circle, through which tobacco exacerbates poverty and poverty is also associated with higher prevalence of tobacco use.  Several studies from different parts of the world have shown that smoking and other forms of tobacco use are much higher among the poor.”  The resolution called on Altria to initiate efforts “to prepare appropriate materials… informing poor and less formally educated tobacco users of the health consequences of smoking our tobacco products along with market-appropriate cessation materials.”  Father Michael Crosby introduced the resolution and stressed that Altria is financially benefitting on the backs of the poor at the front end of production (noting that many tobacco farm workers are undocumented and perform grueling work at the minimum wage rate of $7.25 per hour) and at the back end of sales since so many people who are addicted to nicotine are poor and have less formal education.  Fr. Crosby also brought up a major concern about child labor on tobacco farms.  See http://www.hrw.org/news/2014/05/14/us-child-workers-danger-tobacco-farms

Management opposed the resolution, alleging that “the matters raised in this proposal currently are being addressed and that the actions requested by the proponents are neither warranted nor in the best interests of shareholders.”  The resolution was defeated, having received 3.72% of the votes.

The second shareholder resolution, which was submitted by the Province of St. Joseph of the Capuchin Order in Milwaukee, dealt with the issue of disclosure of lobbying policies and practices.  This resolution called on Altria to prepare a report, to be updated annually, that would disclose four items: “1. Company policy and procedures governing lobbying, both direct and indirect, and grassroots lobbying communications.  2. Payments by Altria used for (a) direct or indirect lobbying or (b) grassroots lobbying communications, in each case including the amount of payment and the recipient.  3. Altria’s membership in and payments to any tax-exempt organization that writes and endorses model legislation. 4. Description of the decision making process and oversight by management and the Board for making payments described in sections 2 and 3 above.”

Proponents of the resolution noted that, while Altria currently makes some disclosure, there is still incomplete disclosure about lobbying spending at the state level.  As proponents noted in the presentation in support of the resolution: “Lobbying is shareholders’ money that is being spent.  Does our company stand behind its spending?  Why should Altria intentionally keep us in the dark about how they are spending shareholder money?  What does Altria have to hide?  These are reasonable questions to ask.”    Also, Altria serves on the private enterprise board of ALEC, the American Legislative Exchange Council.  While the company has listed its involvement with ALEC, shareholders have no way of knowing how much Altria is contributing.

Management opposed this resolution as well, claiming that preparing and maintaining the report requested by proponents “would impose additional and unnecessary burdens and costs and would not be in the best interests of Altria and its shareholders.”  The resolution was defeated, having received 6.46% of the votes.

Altria’s 2014 Annual Shareholders Meeting was adjourned at 9:55 A.M.



2013 Altria Group, Inc. Annual Shareholders Meeting: Politely conducting business as usual

Friday, May 24th, 2013

By Edward L. Sweda, J.D.

Altria VA Headquarters

In sharp contrast to the manner in which management at Reynolds American, Inc. conducted its annual meeting of shareholders a week earlier,  Altria Group, Inc.’s Chairman and Chief Executive Officer Martin J. Barrington treated everyone at the May 16th meeting in Richmond, Virginia with courtesy and politeness.

Barrington began his presentation by commending the Altria Board of Directors’ “strong leadership and oversight.”  He touted “strong results in 2012” and declared that the company’s “main brands did well.”  Citing the company’s 9000 employees, Barrington praised the company for being a founding member of the Farm Labor Practices Group, supporting the arts and investing in communities. He admitted that “more needs to be done to discourage youth tobacco use” and, without giving any data showing how the program discourages youth tobacco use, praised Altria’s “We Card” program.

Barrington reported increased market share for Marlboro (in red, green, gold and black) cigarettes and progress for Black & Mild (tipped cigarillos) and the two major smokeless tobacco brands of Skoal and Copenhagen.  He informed the audience that the company would introduce NuMark, a brand of e-cigarettes, in the second half of 2013.

Altria’s CEO also assured shareholders that the company’s outlook for 2013 is good; he noted that Altria had increased dividends six separate times since 2008.  Also, Altria’s shareholder returns had increased by 84.2% during the span of 2008 to 2012.

On the topic of tobacco litigation, Barrington declared that the company had “success in managing litigation,” mentioned the ongoing Brown case in California dealing with light cigarettes and said that Altria has “strong defenses” as it continues to defend Engle Progeny cases in Florida.

A shareholder resolution,  submitted by the Province of St. Joseph of the Capuchin Order in Milwaukee, dealt with the issue of disclosure of the company’s lobbying policies and practices.  Specifically, it called on the Board of Directors to prepare a report, to be updated annually, for shareholders disclosing the following:

  1. “Company policy and procedures governing lobbying, both direct and indirect, and  Grassroots lobbying communications;
  2. “Payments by Altria used for (a) direct or indirect lobbying or (b) grassroots lobbying communications, in each case including the amount of the payment and the recipient;
  3. “Altria’s membership in and payments to any tax-exempt organization that writes and endorses model legislation; and
  4. “Description of the decision making process and oversight by management and the Board for making payments described in section 2 above.

Fr. Michael Crosby presented the resolution.  He stressed that, while Altria has disclosed its payments to political candidates, it has kept largely secret the details about its spending on lobbying and making contributions to third-party organizations such as ALEC, the American Legislative Exchange Council.  The resolution’s supporting statement pointed out that “Altria spent approximately $21.37 million in 2010 and 2011 on direct federal lobbying activities” but that these figures “do not include lobbying expenditures to influence legislation in states.”

This author then spoke in support of the “modest, pro-transparency resolution” and described the opposition to the resolution by Altria’s management as “short-sighted.”  The company had described the reports required by the proposal as imposing “additional and unnecessary burdens and costs on the Company and would not be in the best interests of the Company and its shareholders.”

The results of preliminary voting were reported that the resolution was defeated with supporters garnering 21.82% of the votes cast.

During the question and answer session, to which thirty minutes were allotted, this author noted that Altria had suffered a major setback in mid-March when the Florida Supreme Court ruled 6-1 that the way dozens of Engle Progeny trials have been conducted since February 2009 does not violate the tobacco companies’ due process rights.  I concluded my observations about this litigation with the question: Why shouldn’t shareholders believe tobacco company attorneys who have warned about “massive liability” with thousands of Engle Progeny cases still in the pipeline with “no end in sight,” rather than believing the optimistic assurances from management?

Barrington’s response was to acknowledge that litigation is a “challenge” and to refer shareholders to the company’s 10-Q report (PDF), which covers litigation in detail.

Fr. Crosby noted that heavy users of cigarettes are often those who are at the lowest rung of the economic ladder.  “What steps will Altria Group take to reduce consumption of its tobacco products by the poor?” Rev. Crosby asked.  Mr. Barrington simply cited the company’s programs to reduce youth consumption without addressing low-income adult smokers.  Even after a follow-up question by Fr. Crosby, Barrington refused to commit any company resources to trying to discourage tobacco consumption among low-income adults.

After the 67-minute meeting had been adjourned, Altria Group, Inc., with its Marlboro brand having increased its market share of cigarettes by two-tenths of a percentage point in the first quarter of 2013, continued to conduct its business as it so usually does.   During the course of the meeting, approximately 56 people died in the United States from smoking-caused diseases.

 



The 2013 Reynolds American, Inc. Annual Shareholders Meeting: orders, points of order, “out of order” and ordered out!

Tuesday, May 14th, 2013

By Edward L. Sweda, J.D.

                As the hour of 9:00 A.M. approached on May 9, 2013, the date of Reynolds American, Inc.’s (RAI) Annual Shareholders Meeting in Winston-Salem, North Carolina, the atmosphere seemed more contentious than in previous years.  In addition to the tight security that included the wanding of shareholders for anything metallic in their possession, the removal of suit jackets and the emptying of all pockets, Reynolds American management had arranged for the presence of four uniformed Winston-Salem police officers inside the meeting room.  That contingent of police supplemented several officers stationed outside the Reynolds American building at 401 North Main Street.

                Running the meeting was the Chairman of RAI’s Board of Directors, Tom Wajnert, who pleasantly wished the audience a good morning and commented on the beautiful, sunny weather outside.  Mr. Wajnert’s pleasant demeanor lasted less than a minute when, after addressing “points of information” by two shareholders who asked about the tardiness of the company’s response to written questions submitted at the 2012 Annual Shareholders Meeting, he declared that a third shareholder who began to raise a point of information was engaging in “silliness’ and was “out of order.”

After Mr. Wajnert proclaimed from the podium that he would “not tolerate disruptive behavior,” he turned the forum over to RAI President and Chief Executive Officer Daan Delen,  who provided a report on the company’s activities in 2012.  Delen trumpeted his company’s increasing endeavors in the field of tobacco harm reduction and boasted about RAI’s “innovation,” noting that Camel snus has 80% of the snus market.  Delen also touted Zonnic, a nicotine gum, and Vuse, a brand of e-cigarettes whose distribution will be expanded in 2013.

FLOC Protesters

–Farm Labor Organizing Committee protesters–

In the presence of many shareholders who are concerned about the deplorable conditions under which migrant farm workers toil in tobacco growing fields, Delen praised the audit of North Carolina farms his company conducted since the 2012 Annual Shareholders Meeting and R.J. Reynolds’ “Good Manufacturing Practices” program, as well as its health and safety training DVDs.  [Members of the Farm Labor Organizing Committee (FLOC) demonstrated outside the building throughout the morning.

Finally, Delen, mentioned the increased transparency of the company’s disclosure of its political contributions on its website.  This decision had followed the submission by the Province of St. Joseph of the Capuchin Order in Milwaukee and Rev. Michael Crosby, of a proposed shareholder resolution calling on the company to do so.  That proposal was withdrawn by the sponsor following RAI’s disclosure.

What Mr. Delen did not give shareholders – for the first time in this author’s lengthy history of attending tobacco company annual shareholders meetings – was any comment about any aspect of tobacco litigation.  Delen’s silence on this issue came less than two months after the Florida Supreme Court resoundingly rejected the tobacco industry’s legal argument that the way Engle Progeny trials have been conducted since 2009 violates the industry’s due process rights.

During Senior Vice President Dara Folan’s report on an advisory vote for compensation to board members, a shareholder from the audience attempted to make a point of order.  Mr. Wajnert immediately declared that shareholders should “stop playing a stand-up game,” and, without knowing the issue the shareholder was trying to raise, determined that person to be “out of order” and declared that he “won’t tolerate interruptions.”

After a supporter and a seconder of an AFL-CIO-backed shareholder resolution calling for the annual election of board members to replace the current three-year staggered terms made their presentations (the resolution was defeated), the next order of business was the question-and-answer session.

In its agenda distributed to attendees, RAI informed the audience that it had allotted all of 25 minutes to consider questions from shareholders.  As soon as the meeting’s Q&A session was declared open, Dr. Sharon Brown, a grandmother and a shareholder from Pennsylvania, who was seated second from the aisle where the company’s sole microphone for audience members was situated, stood up and attempted to get to the microphone.  Sitting to her right was a male employee of RAI who neither rose to allow Dr. Brown to get by, nor moved his legs sufficiently to allow her by.  This author, who had been seated immediately to Dr. Brown’s left and was intending to follow her to the microphone, instead saw Dr. Brown fall to the floor after she attempted to get by the RAI employee.  By the time Dr. Brown was able – without any assistance whatsoever from the RAI employee who was at the microphone or from the RAI employee who had been sitting to her right – to get back onto her feet, approximately fifteen people had formed a line leading to the lone microphone.  The RAI employee at the microphone ordered Dr. Brown to go to the end of the line.

After the allotted 25 minutes had expired and with eleven people still standing in line to ask a question, Mr. Wajnert announced that he would take two final questions.  After those two final questions had been asked and answered, Dr. Brown went to the microphone and, noting that the day before she had attended  the Philip Morris International Annual Shareholders Meeting in New York City, a meeting where more than an hour was allotted for questions, asked that more time be allowed for shareholders’ questions.

Mr. Wajnert emphatically denied that request.  When Dr. Brown then noted that she had been tripped while attempting to approach the microphone and that she had been similarly tripped at the company’s 2011 Annual Shareholders Meeting, Mr. Wajnert’s response was to call on security, including the Winston-Salem police officers, to remove her from the meeting room on the grounds that she was “out of order.”

The meeting was adjourned several minutes after the ejection of Dr. Sharon Brown.



Altria’s Annual Shareholders Meeting in Richmond, Virginia: Retirement provides no change in the company’s conduct

Thursday, June 7th, 2012

By Edward L. Sweda, Jr.

In January 2012, Altria Group, Inc. announced that CEO Michael E. Szymanczyk  would retire after the completion of the company’s Annual Shareholders Meeting in Richmond, Virginia on May 17.  Mr. Szymancyk worked for the company in various capacities for 23 years.  Michael J. Barrington was named to succeed him as Chairman and CEO, while Dave Beran was selected to take over as President and Chief Operating Officer .

While Mr. Szymancyk can take advantage of generous compensation – a pay package valued at $10.2 million for fiscal year 2011  for his work as the CEO of America’s largest cigarette manufacturer, there are many others who are not in a position to enjoy retirement.   These include the hundreds of thousands of Americans who annually die prematurely due to smoking-caused diseases, as well as from exposure to secondhand smoke.

As usual, the biggest portion of time at the Annual Shareholders Meeting was devoted to the CEO’s business report on the prior year.  During this presentation, Szymanczyk said that Altria had “successfully managed” the external challenges of litigation.

However, during the question-and-answer session, this author noted that, in late March 2012, the U.S. Supreme Court had declined to consider Altria’s appeal in the Campbell case and Reynolds American’s appeal in the Martin case.  In its petition for certiorari filed in December 2011, the attorneys for Reynolds American alleged that “in their conduct of Engle Progeny litigation, the Florida state courts are engaged in serial due process violations that threaten the defendants [including Altria] with literally billions of dollars of liability.”  The attorneys also warned that if the U.S. Supreme Court did not provide “prompt review,” then “the massive liability imposed on the Engle defendants – which currently stands at over $375 million in adverse judgments – will likewise steadily increase as Engle progeny trials continue with no end in sight.”  So, this doomsday scenario outlined by tobacco company attorneys is on track to occur, thanks to the U.S. Supreme Court’s refusal to hear the appeal.  Therefore, I asked Mr. Szymanczyk: “Why shouldn’t investors and shareholders rely on what tobacco company  lawyers said to the U.S. Supreme Court, rather than what you are telling us today?”

In response, Mr. Szymanczyk referred the audience (which included people listening to a webcast of the meeting) to the company’s latest 10-Q report, which contains 32 pages of information on tobacco litigation.

Returning to the theme of retirement, Anne Morrow Donley, a Virginia shareholder, addressed  CEO Szymanczyk directly.  “With your retirement, I’m sure you look to your legacy.  Certainly you and the company have a passion for success.  I’m not sure about satisfying your customers’ and their preferences unless they all have a death wish,” she said.  “One of every two of your tobacco customers dies from using your tobacco products, often from a debilitating illness.   At some point in the future, you and the company may indeed be charged with crimes against humanity – I look forward to that,” she concluded.

After the question-and-answer session, the next order of business was the consideration  of a shareholder resolution, submitted by the Province of St. Joseph of the Capuchin Order in Milwaukee.  The proposal, which dealt with Altria’s lobbying activities, called for on the Board of Directors to prepare a report that would disclose, on an annual basis:

  1. “Company policy and procedures governing the lobbying of legislators and regulators, including that done on our company’s behalf by trade associations.  The disclosure should include both direct and indirect lobbying and grassroots lobbying communications.
  2. A listing of payments (both direct and indirect, including payments to trade associations) used for direct lobbying as well as grassroots lobbying communications, including the amount of the payment and the recipient.
  3. Membership in and payments to any tax-exempt organization that writes and endorses model legislation.
  4. Description of the decision making process and oversight by the management and Board for
    1. Direct and indirect lobbying contribution or expenditure; and
    2. Payment for grassroots lobbying expenditure.”

The key goal of the resolution is transparency.  Father Michael Crosby, a Capuchin Franciscan, endorsed the proposal, noting that his order and “eight other members of the Interfaith Center for Corporate Responsibility have submitted the resolution that has received the support of one of the biggest institutional advisor groups in the United States. ISS, Institutional Shareholder Services.   When they analyzed what we are asking for, and what the company’s response is, they said that it was not adequate enough to support the company, so they are basically supporting us.”

Father Crosby continued, contending that Altria has a “culture of connivance.”  Citing the election battle in California over Proposition 29, a proposition would, for the first time in 14 years, raise the state cigarette excise tax by $1 per pack to help fund cancer research.  Father Crosby noted that Altria “has contributed two thirds of the $40 million trying to undermine” support for the proposition.  On the “main web site  of this group in California that is against” Proposition 29, it says it is supported by small business.  “There is no mention that two thirds of all the money going into this is from a big business like” Altria, Father Crosby said.  [Initial reports on the June 5, 2012 vote in California show a very narrow defeat for the proposition, by a margin of 50.8% against versus  49.2% in favor].

Father Crosby also condemned Altria’s support for the American Legislative Exchange Council, noting that the company has a seat on ALEC’s board of directors.  “It isn’t democracy.  It’s corpocracy, and it’s hypocrisy when there is this connivance,” Father Crosby told the audience.

In seconding the proposal, this author noted that “this modest shareholder proposal comes at a time of unprecedented public concern and pushback about the excessively pervasive and powerful influence that corporations have in the American political system.  In the wake of the January 2010 U.S. Supreme Court decision in the Citizens United case,… in which right-wing judicial activism has transformed the landscape of the American electoral process, certainly this resolution addresses a subject of utmost importance.”

I also noted that Altria had donated $50,000 to ALEC’s annual meeting for drafting legislation for Florida and other states that adopted the so-called “Stand Your Ground” legislation which has garnered international attention after the February 2012 fatal shooting of an unarmed 17-year-old, Trayvon Martin. “ Altria’s association with ALEC should have been disclosed to shareholders” long before now, I concluded.

In its opposition to the proposal, Altria claimed that it “provides extensive information on its website describing its public policy activities” and that the “additional report sought by this proposal is not necessary and would not provide meaningful additional insight into the Company’s activities in this area.”

The proposal was defeated with a preliminary result of 20.5% of shares in favor, with 79.5% of shares opposed.

So, after the meeting, Michael Szymanczyk did indeed retire as Altria’s CEO.  His successor is expected to proceed with business as usual – as deadly as that business will be for untold millions of people.



Reynolds American Inc. in 2012: “Progress” in tobacco litigation is alleged five weeks after U.S. Supreme Court leaves the company with “massive liability…with no end in sight.”

Friday, May 25th, 2012

Welcome Shareholders sign

By Edward L. Sweda, Jr.

Three key issues were taken up at the 2012 Reynolds American Inc. (RAI) Annual Shareholders Meeting in Winston-Salem, North Carolina on May 3rd.

First, the issue drawing the most public attention was the company’s dealings with groups representing farm workers who toil under dangerous conditions and provide the tobacco that brings prosperity to the company and its key executives. At least 20 individuals who attended the meeting dominated the question-and-answer session, urging the company to meet directly with the Farm Labor Organizing Committee (FLOC)  after many years of failing to achieve such a meeting. Reynolds American CEO Daniel M. Delen publicly pledged that he would be willing to participate in such a meeting. Dozens of protestors outside the building underscored the message of the supporters of the human rights of tobacco farm workers.

RAI demonstrators

Tobacco workers demonstrate

Delen also touted an April 2012 “multilateral” meeting in Raleigh as a first step in addressing issues of inadequate worker safety in the tobacco fields of North Carolina. [See Oxfam America’s report: “A State of Fear: Human Rights Abuses in North Carolina’s Tobacco Industry”]

A second issue was contained in the shareholder resolution that called on RAI to establish a special ethics committee to examine the company’s marketing practices. The purpose of this special committee is “to ensure shareholders that its products and product promotions, as far as is possible, not undermine efforts of governments at any level to adopt laws and practices that will free Americans from the negative consequences of use of our tobacco products.”

In addition to commenting on the text of the resolution, Father Michael Crosby denounced RAI’s heavy-handed campaign to oppose California’s Proposition 29, which would raise that state’s cigarette excise tax by $1 per pack and increase taxes on cigars and pipe tobacco from 31.73 percent to 54.89 percent. If passed by the voters, the proposal would raise about $735 million annually, most of which would go toward cancer research.

Fr. Crosby also cited the company’s support of the right-wing political organization ALEC, the American Legislative Exchange Council, whose stealth activities have come under increased scrutiny following public disclosures of ALEC’s drafting of and advocacy for Florida “Stand Your Ground” law and several states’ anti-immigrant legislation.

The shareholder resolution was defeated, according to the preliminary tally reported at the meeting, with 6.4 million shares in favor, 418 million shares opposed and 6.3 shares abstaining.

The third key issue was litigation, specifically RAI’s “litigation progress” – or lack thereof – in dealing with the Engle Progeny cases in Florida. During the business presentation by Mr. Delen, RAI’s CEO stated that, since 2010, RAI had been “successful” in two-thirds of the Engle Progeny trials. Such “successes” included not only defense verdicts but also – for the first time publicy stated in this author’s memory at any tobacco company’s shareholders meeting – mistrials (such as when a jury is deadlocked without being able to reach a verdict).

In 2009, a Florida jury awarded $3.3 million in compensatory damages and $25 million in punitive damages against Reynolds American in a case involving the death of Benny Ray Martin, the husband of Mathilde Martin. Her case is one of thousands of “Engle Progeny” lawsuits in Florida, cases that followed the landmark 2006 ruling by the Florida Supreme court in Engle v. Liggett Group, Inc., 945 So. 2d 1246 (Fla. 2006). After losing on appeal at every stage in the Florida’s state court system, RAI filed a petition for certiorari with the Supreme Court of the United States.

In arguing in December 2011 that its petition for a writ of certiorari should be granted, Reynolds’ attorneys (Paul D. Clement of Bancroft PLLC, Gregory G. Katsas of Jones Day and Eric E. Murphy of Jones Day) claimed that in “their conduct of Engle progeny litigation, the Florida state courts are engaged in serial due-process violations that threaten the defendants with literally billions of dollars of liability.” (emphasis added) Moreover, “the massive liability imposed on the Engle defendants – which currently stands at over $375 million in adverse judgments – will… steadily increase as Engle progeny trials continue with no end in sight.” (emphasis added).

RAI’s attorneys’ description of doomsday for the company became reality on March 26, 2012 when the Supreme Court announced that it would not consider RAI’s appeal in the Martin case. As I described at the time, “At long last, Reynolds American and the other major tobacco companies will be held accountable for their massive and reprehensible misconduct that harmed thousands of Florida smokers. As Reynolds’ own lawyers have concluded, denial of its cert petition is a very big deal indeed.”

Citing the question I asked at the 2011 Reynolds American Shareholders Meeting about the Martin case, the response I received from Mark Holton, RAI’s Executive Vice President and General Counsel, that he was “confident that the Engle process violates due process” and that the company’s legal arguments were strong and would ultimately prevail, and the fact that on March 26, 2012 the U.S. Supreme Court refused to consider RAI’s appeal of the $28 million verdict, this RAI shareholder from Massachusetts asked the following question:

“Given how Mr. Holton got it wrong last year about this important case, why shouldn’t investors and shareholders be skeptical when they hear pronouncements by Reynolds American management about tobacco litigation?”

In response, Mr. Holton acknowledged what the Supreme Court had done regarding the Martin case, but cited what he called “encouraging” developments with two appeals of plaintiff verdicts in the state court system in Florida. This included a March 30th ruling by Florida’s Second District Court of Appeal affirming a $2.5 million wrongful death verdict against Reynolds American and Philip Morris USA. In that appeal of the Douglas case, the Court of Appeal also certified the following question to the Supreme Court of Florida: “Does accepting as res judicata the eight Phase I findings approved in Engle v. Liggett Group, Inc., 945 So. 2d 1246 (Fla. 2006) violate the tobacco companies’ due process rights guaranteed by the Fourteenth Amendment of the United States Constitution?”

Mr. Holton notably did not address the doomsday scenario outlined by his company’s attorneys who filed the writ for certiorari. So, in a span of just five months, this RAI shareholder received from the company diametrically polar opposite predictions concerning the future of tobacco litigation, depending on which side of the Reynolds American corporate mouth was talking.

Demonstrators at RAI Shareholder Meeting

Demonstrators at RAI Shareholder Meeting



Shareholder meeting report – Altria Group CEO Michael Szymanczyk: An artful dodger

Thursday, May 26th, 2011

By Edward L. Sweda, Jr., Senior Attorney

RICHMOND, VA. – Just eight days before the Altria Group, Inc. 2011 Annual Shareholders Meeting in this historic city,  Altria Group’s former Chief Executive Officer, Louis Camilleri, complicated matters for his successor.  At the Philip Morris International Annual Shareholders Meeting in New York City on May 11, 2011, Camilleri answered a question from a shareholder who is also a nurse who has treated many smokers with serious diseases.  While admitting that smoking is addictive, Camilleri added the comment that “it is not that hard to quit” using tobacco products.  That comment made international headlines after the Associated Press reported it.

So, when Altria Group’s Szymanczyk gave management’s report at the meeting in Richmond on May 19th, he specifically, on page 10 of his prepared remarks stated: “Because tobacco use is addictive and it can be very difficult to quit, our tobacco companies help connect adult tobacco consumers who have decided to quit with cessation information from public health authorities.”

During the question and answer session, shareholder Rev. Michael Crosby of the Interfaith Center for Corporate Responsibility and I both pressed Szymanczyk to state whether, as Altria Group’s CEO, he disagreed with Camilleri’s comment and, if so, why.  Refusing to do so, he stated that “I would simply say that what I said is on our website.  There is nothing new here.”  The juxtaposition between the public statements of two tobacco executives just six days apart was the central focus of the Richmond Times-Dispatch article on the meeting.

I also pressed Szymanczyk on the issue of the ongoing Engle Progeny trials taking place in Florida.  Noting that 30 out of 43 (now, as this report is written, 32 out of 46) such trials resulting in verdicts have seen jurors return plaintiff verdicts, I asked whether Altria Group, for the sake of its shareholders, would abandon its no-settlement policy regarding the thousands of  Engle Progeny cases remaining throughout Florida.  His response was simply to refer shareholders to the company’s 10Q form, which restates its standard policy of refusing to settle these cases.

Virginia shareholder Anne Morrow Donley, citing studies from March 2011 which showed that a fetus subjected to secondhand smoke is at a higher risk of stillbirth, lower birth weight and lower birth length , asked Szymanczyk whether he would publicly advise smokers not to smoke around women of child-bearing age.  His response was to acknowledge that pregnant women should not be exposed to secondhand smoke, but he refused to broaden that recommendation to include women of child-bearing age.

Cathy Rowan, representing shareholder Trinity Group, noted Altria Group’s willingness to address concerns about implementing internally agreed upon code upholding the human rights of tobacco farm workers and about ensuring that the company’s suppliers are enforcing those rules.  Altria Group’s cooperation with shareholders following a 2009 vote of shareholders where 25% supported a resolution to protect the human rights of farm workers stands in contrast to the rigid opposition by the management of Reynolds American, Inc.  to similarly worded resolutions.

In his prepared remarks, Szymanczyk also bragged about Altria Group’s donations to various charitable and civic organizations, including the Boys and Girls Clubs, 4H, as well as the Virginia Museum of Fine Arts, the Kennedy center and the National gallery of Art.  He boasted that “Altria made nearly $50 million in cash and in-kind corporate contributions to non-profit organizations” in 2010, without noting that the $50 million figure represented just 0.205% of the company’s net revenues ($24.363 billion) in 2010.

A shareholder resolution was offered, calling on the Board of Directors to move “to ensure that Altria stops the production of any of its tobacco products with characterizing flavoring added, as well as their distribution and marketing, unless and until it can be proven by independent and evidence-based research that such added characterizing flavors do not contribute significantly to youth initiation of tobacco use.”   That resolution was defeated, with 97.5% of shares voting NO, with 2.5% voting YES.

“]Shareholders

At a Richmond restaurant after the 2011 Altria Group, Inc. Annual Shareholders Meeting. From left to right: Anne Morrow Donley, Rev. Michael Crosby, Cathy Rowan and Edward L. Sweda, Jr.



Reynolds American, Inc. “takes step” and remains rigid at shareholder meeting

Tuesday, May 17th, 2011

By Edward L. Sweda, Jr., Senior Attorney

WINSTON-SALEM, N.C. —  On Thursday, May 5, 2011, I made my way to this historic city via the Winston-Salem Express.  Friday morning at 9:00 A.M. sharp was the scheduled start of the 2011 Annual Meeting of Shareholders of tobacco giant Reynolds American, Inc.  (RAI).

Beautiful sunny skies greeted everyone in Winston-Salem on Friday morning.  Having just walked into the lair, i.e. RAI’s corporate headquarters, I noticed an intriguing sign by the registration desk: “As a courtesy to non-smoking guests, the Annual Meeting will be a non-smoking event.”  Not in any way a matter of health but, rather, a “courtesy.”

A Corporate Shift?

The 2011 Annual Shareholders Meeting of Reynolds American, Inc. (RAI) took place on a day when Daniel Delen, who took over as chief executive and president of the company in March, made what was billed as a major pronouncement.  Noting the findings of a major study entitled “A State of Fear: Human Rights Abuses in North Carolina’s Tobacco Industry,” by Oxfam America and the Farm Labor Organizing Committee, AFL-CIO (FLOC)  of the conditions under which tobacco farm workers in North Carolina do their work in the fields, Mr. Delen proposed that a multi-party council be formed to address these labor issues.  Additionally, he publicly pledged to use an independent, third-party monitor to analyze the issue of the conditions under which these workers labor at U.S.-based farms that supply essential product to RAI.

A front-page article in the May 7, 2011 edition of the Winston-Salem Journal, entitled “Reynolds American Takes Step,” quoted Rev. Michael Crosby of the Interfaith Center for Corporate Responsibility: “I see a glimmer of hope on an issue we have been raising for a number of years.  For your willingness to participate with stakeholders, I sprinkle holy water on you.  Yet, because these discussions are going on at the highest levels with Altria and Philip Morris International, I would urge you to take the same level here.”

Mr. Delen’s promises, which will be put to the test in the upcoming weeks and months, stand in contrast to the public position of previous C.E.O. Susan Ivey, who insisted that RAI had no responsibility to take steps to improve working conditions of farm workers who labor under often unsafe working conditions on farms run by Reynolds’ suppliers.

Response to Litigation – More of the Same

However, on the litigation front, RAI management is as rigid as ever.  During the question and answer session, to which RAI allotted all of 25 minutes – fully ten minutes more than at the 2010 Annual Shareholders Meeting – I addressed the major legal problems that R.J. Reynolds Tobacco Co. is facing in the Engle Progeny litigation in Florida.  Shareholders are allowed up to two minutes to ask a question (a video board at the front of the meeting room featured a large numeric countdown from “2:00” once a shareholder began to speak); I mentioned that since February 2009, there have been 43 Engle Progeny trials that have reached a verdict and that 30 out of those 43 have been plaintiff verdicts.  Just a week before the shareholders meeting, a jury in Jacksonville, where a disproportionately large number of the remaining 8,000 to 9,000 lawsuits yet to be tried are located, hit RAI with a $17 million punitive damages award.  Furthermore, the company is appealing its multi-million dollar loss in the Martin case and must prevail in an uphill climb to convince the Florida Supreme Court to reverse its own 2006 landmark ruling in the Engle class-action case.

I concluded my remarks by asking whether the company, for the good of its shareholders, would move away from its current policy of refusing to settle these Engle Progeny cases.

Mark Holton, RAI’s Executive Vice President and General Counsel, responded by reiterating the company’s stated opposition to settling any of these cases and said that he was “confident that the Engle process violates due process” and  that the company’s legal arguments are strong and would ultimately prevail.  Though no follow-up questions are allowed, I commented that “the risk [for the company] is there.”

Shareholder Resolutions

Two important shareholder resolutions called on the company to address concerns regarding tobacco flavoring and to create human rights protocols for the company and its suppliers.

Flavorings

Noting that the U.S. Food and Drug Administration has found that the smoking of flavored cigarettes is more popular among youth than among adults, the proponents offered  this resolution “that, because youth initiation of tobacco products is influenced by the flavoring, shareholders request that, within six months of Reynolds American Inc.’s annual meeting, the Board of Directors move to ensure that RAI stops the production of any of its tobacco products with such flavoring added, as well as their distribution and their marketing, unless and until it can be proven by independent and evidence-based research that such added flavors do not contribute to youth initiation of tobacco use.”  Father Michael Crosby introduced the resolution while Anne Morrow Donley of Virginia seconded it (their remarks were limited to two minutes each).

RAI management, of course, opposed the resolution, falling back on the contention that the “flavorings utilized on our operating companies’ tobacco products are legally permitted.”  The resolution was defeated with 3 million shares being voted “Yes” with 397 million “No.”

Human Rights

A major threat to the health of tobacco farm workers is Green Tobacco Sickness (GTS), which occurs when the skin absorbs nicotine after touching the tobacco plants.  Another significant concern regarding Reynolds American, Inc. is that it receives leaf from Malawi, a country in which child labor in tobacco fields takes place.

This resolution stated that “shareholders request Reynolds American Tobacco Inc. Board of Directors to commit itself to create effective procedures to implement protocols ensuring basic worker rights consistent with internationally agreed-upon human rights conventions in the countries which supply its tobacco and to find ways to ensure, through truly independent monitoring, that its varied suppliers are enforcing these protocols as well as all other pertinent laws of the nations in which its suppliers operate.”

Father Crosby introduced the resolution while I seconded it.  RAI’s opposition to this resolution attempted to pass off any responsibility on this issue onto the already overburdened regulatory apparatus of state and federal governments in the United States.  Management also claimed that “RAI and its operating companies strive to comply with all laws and regulations.”  In my allotted two minutes, I noted that, as an individual, I do not “strive to comply with laws, I comply with laws.”  I noted that, while there would be serious consequences for me if I failed to comply with laws, there seem to be no consequences for RAI or its suppliers failing to comply with basic laws and regulations governing worker health and safety.

The resolution was defeated, having received 39 million shares voting “Yes”, with 361 million “No.”

Company Propaganda

Outside the auditorium where the meeting took place, RAI provided shareholders with copies of the company’s publications, one of which is a 33-page brochure entitled “Our Continuing Commitment,” the 2010 Corporate Social responsibility Report.  On page 23 of the report, RAI informs its shareholders that “[d]uring the past four years, the American Snuff Co. Charitable Trust has contributed $40,000 to a campaign by Methodist Healthcare Foundation to build a 30-patient hospice residence for terminally ill people of all ages…”     ,

Smoke-free facilities and public places

I was encouraged to see signs such as this one on the front door of the hotel in which I was staying in Winston-Salem.

and this one at a public park in Greensboro

As mentioned above, the shareholders meeting was entirely smoke-free.

To cap off my trip to North Carolina, on Friday night I attended a South Atlantic League baseball game between the Hickory Crawdads and the host Greensboro Grasshoppers.    The game, won by Hickory 7-2, was played at NewBridge Bank Park, a smoke-free park.




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