2005 Reynolds American shareholder
The 2005 Reynolds
American (formerly RJR) shareholder meeting was held on May 6th in
Winston-Salem, North Carolina, USA, from 9:00 - 10:00 am.
In a historic
move, the meeting was
smoke-free. As people filed into the auditorium, ushers at
door took their tickets and said, "The meeting is smoke-free; please do
not light up."
Andrew Schindler called the meeting to order at 9:00
am. He announced that the
meeting would be smoke-free at the
request of shareholders and guests.
The prelude to
the smoke-free meeting was as follows:
Past Reynolds meetings, both in the city convention center and in
recent years at the Reynolds corporate headquarters, were extremely
smoky, with throat choking smoke that left some with headaches,
earaches, and unknown carcinogen intake. The corporate
headquarters has a "No Smoking Room" on a separate level from the
auditorium, where one can watch the proceedings, but cannot speak to
At 8 am, Anne Morrow Donley, concerned for her health, came to the
headquarters with a respirator. She spoke with the guard who was
assigned to the activists and said that she had the respirator, and
that it seemed that either the meeting would need to be smoke-free, or
she would need to wear the respirator, which would not remove all
toxins, but would help keep out the particulate matter at least.
The guard said that she should wear the respirator if that would be
comfortable for her.
A little later, the guard returned to say that they were working to see
if they could use a wireless mike from the No Smoking Room. Still
later, someone came by to say that this did not work, and they were
checking to see if they could use the wireless mike from the hallway
outside the auditorium. Another person came by to write down
which activist would be speaking and seconding and asking questions, so
they could know how to direct the microphone outside the meeting
room. Still later, representatives of the company returned to
state that it had been decided that it would be simplest to make the
meeting smoke-free. Seth Moskowitz, Public Relations, then asked
Ms. Donley if he could "check in" the respirator at the desk, and she
agreed. The activists were told to go to the auditorium, because
it was close to 9 am, and the doors would be locked at 9 am, so no one
else could enter the meeting.
As the activists filed into the meeting, along with other shareholders,
the ushers were looking at the tickets, and saying to each person,
"This meeting is smoke-free. Please do not light up. This
meeting is smoke-free. Please do not light up."
As the Rev. Michael Crosby later noted to a reporter from The Winston-Salem Journal, "When
the company does the right thing, no one objects." Although the
reporter stated that he was "stunned" when he heard that the meeting
was smoke-free, something happened between his filing of the story and
the published version -- there was no mention that the meeting was
Reynolds American Inc., quoting from page 3 of their Securities and
Exchange Commission report, "was
created to facilitate the transactions to combine the U.S. assets,
liabilities and operations of Brown & Williamson Tobacco
Corporation, now known as Brown & Williamson Holdings, Inc.,
refered to as B&W, an indirect, wholly owned subsidiary of British
American Tobacco p.l.c., referred to as BAT, with R.J. Reynolds Tobacco
Company, a wholly owned operating subsidiary of R.J. Reynolds Tobacco
Holdings, Inc., referred to as RJR."
Reynolds American now holds products from RJ
Reynolds, Santa Fe Natural Tobacco, Lane Limited (cigarettes, cigars,
pipe tobacco), and RJ Reynolds Global Products.
Susan Ivey, CEO and president of Reynolds American, and Chairman and
CEO of R.J. Reynolds, presented a glowing review of the mergers of
several companies. She said they would, "Relentlessly and
responsibly pursue earnings growth." She predicted increased
market share, and painted a picture of the new company becoming "an
American success story."
Three shareholder proposals were presented. All resolutions must
go through a rigorous process with the federal Securities and Exchange
Commission and the corporation itself before they can be accepted as
part of the meeting's order of business and printed in the shareholder
Reynolds American does not permit more than two people to speak to a
resolution. One person presents, or proposes, the
resolution. The next person seconds the motion. Both people
have only two minutes each to state their support of the resolution.
The board of Reynolds American
opposed all three resolutions, and all
three resolutions were defeated.
Shareholder proposal on FDA
regulation and phase-out of conventional cigarettes.
From the shareholder booklet, presentation by proponents:
proponents of this resolution believe, given the above overall
cautions. it is definitely immoral and may be legally negligent to
market our existing smoking products (which kill large numbers of our
customers and lead to serious illness in many more, and may also
constitute our existing products unreasonably dangerous withing the
meaning of product liability laws and doctrine), when we know how to
make other smoking products that (1) are acceptable to our existing
customers and (2) promise likely to harm fewer of them.
Reynolds American voluntarily submit Eclipse and Eclipse-like products
to the FDA [US Food and Drug Administration] for approval as a drug
delivery system of the drug nicotine. If FDA approves Eclipse as
reduced risk product, that we develop a plan to phase out the sale of
our conventional cigarettes within three years and market only Eclipse
or similar products.
The Rev. Michael Crosby, Capuchin
Franciscan, spoke for the resolution. He began his remarks
by referring to the speech of Susan Ivey, and her capsule picture of
the future of Reynolds American as "an American success story."
Rev. Crosby noted that "if each
year 390,000+ Americans are dying from
tobacco related illnesses, then judging by the market share of this
company, the company's success story is built on the deaths of at least
115,000 Americans each year. The cheer leading is based on these
deaths, and in the long term, this has got to be remembered.
There was not one mention of this in Susan Ivey's speech. ... This is a
conscience issue. Everybody is responsible for what is going on."
As he stated this,
the room was intensely quiet -- the proverbial "you
could have heard a pin drop" applied here.
Anne Morrow Donley seconded the
resolution. She first thanked
Reynolds American for making the meeting smoke-free, saying this would
help everyone in the room. Regarding the resolution, she
mentioned that, "Tanzania is experimenting with genetically
modified tobacco which has no nicotine content. This would reduce the addictive
elements of tobacco products. I don't know if Reynolds
American will be pursuing this as part of its responsible company
action. If the FDA regulates the amount of nicotine content, this
would be an important consideration."
Shareholder proposal on cigarette
advertising on the internet.
Whereas: Our company is using
Internet sites to market our brands ... These sites contain music,
graphic visuals, instructions on gambling and other features which the
proponents of this resolution believe have great appeal to
RESOLVED: That, within six months of
the 2005 shareholders meeting, our company either submit all its
Internet advertising to an independent panel of academics and other
experts to make sure it is fulfilling the letter and spirit of the law
regarding such advertising or terminate all of our advertising and
marketing on the Internet.
Anne Morrow Donley, speaking on behalf
of the St. Louis Region of the Americas Sisters of Mercy, moved
acceptance of the the resolution.
"Your statements in the shareholder booklet opposing this resolution
overlook several important things. You focus attention on web
sites you have formed for advertising cigarettes, and call them
Next you say that you require proof of age, and require a password, and
warn that providing false information is a violation of the law.
But you cannot see the person on the internet when you are making a
The reality is that it is a trivial matter for kids to get a password
that someone else has used -- they trade these on the net all the
time. Numerous passwords have been put out for the XXX sites
(pornography). Age restricted sites are the most desired thing
for many kids. Your use of the age restricted format is just one
more way of re-enforcing that this is something kids should aspire to
-- something to show they are adults.
There is also cigarette advertising on internet video games, the
X-Box. Kids have reported playing a Chronicles of Riddick game in
which you have to use cigarettes as money, to exchange them to "unlock
Those who have researched the subject have noted that some of the Salem
ads are patterned very closely after ads used for X-Box. This is
linking the company's ads too closely to children.
Some nations, such as Australia, have recently discovered internet
sites advertising various cigarette brands even without age
restrictions. It is possible that some of this company's brands
are being sold through that site as well.
The internet knows no borders. It travels around the world, not
just the USA.
Finally, regarding the independent panel, you say, "it is the work of
the courts to render judgment when asked to do so -- not a group of
professors." This reveals an unwillingness to have that "open and
frank discussion" such as you advertised some years ago. A group
of academics might very well end up saving the company millions of
dollars in court cases, and save the shareholder investments as
well. This does not seem to be careful fiscal management.
I would urge the shareholders not to wait until the Courts are faced
with this problem, but to act now by supporting this modest resolution
which would protect both young people, and the shareholder investments.
The Rev. Michael Crosby seconded the
Shareholder proposal on New York
On June 28, 2004, a New York state law
compelled major tobacco companies to replace their cigarettes with new
"fire-safe" versions designed to extinguish themselves more quickly
than conventional cigarettes. The Wall Street Journal noted that
this legislation might create an environment wherein "cigarette
companies could become more vulnerable to cigarette-fire lawsuits filed
in other states" if they did not enact similar laws (06/23/04).
[A] letter from a representative of the
filers of this resolution [asked] for the same standard to apply beyond
New York to the rest of the United States. In response, Reynolds
American questioned the science behind the New York legislation.
It argued: "We believe that identifying New York cigarettes as
'fire-safe' may instill a false sense of security of consumers' and
that, because of a lack of adequate paper, that 'even if we concluded
that it would be beneficial to market New York-compliant cigarettes in
other markets, we cannot obtain enough of the banded paper to do
so.' Given this questionable response, the shareholders feel
compelled to file this resolution.
RESOLVED: That the Reynolds American
Board commit the Company within six months of the annual meeting to
voluntarily establish New York's cigarette fire safety regulatory
criteria as the standard for all the cigarettes that are produced for
sale in the United States, Puerto Rico and all U.S. protectorates.
The proponents have submitted the
following statement in support of this proposal:
Nationally, cigarette fires are the
leading cause of fire death. They claim approximately 1,000 lives
in the U.S. annually. Ten years ago, the direct costs of
cigarette-ignited fire death, injuries and property damage was
estimated to be $4 billion, with health care costs exceeding $100
We have the technology to drastically
reduce such deaths. We already make a product which ... if used
as directed causes death. To be complicit in more deaths due to
an unwillingness to change our technology makes us complicit in their
Sister Regina McKillip , Sinsinawa
Dominican, moved acceptance of the resolution.
Chairman, Board of Directors, and Shareholders:
am Sr. Regina McKillip, a Sinsinawa Dominican Sister representing the
proponents of Shareholder resolution # 6 regarding New York
and lighted tobacco products are the leading cause of fire deaths and
the third leading cause of fire-related injuries in the United
States. In 2001, 31, 200 cigarette-induced fires occurred,
responsible for 830 civilian lives lost as well as firefighter
fatalities, 1, 770 persons injured and $386 M in direct property
damage. Other costs include health care, lost productivity, and
use of fire and emergency services
June 2004, a New York state law required major tobacco companies to
replace their cigarettes with new “fires-safe” versions designed
to extinguish themselves more quickly than the conventional
requiring less fire-prone cigarettes has been introduced in over a
dozen states since 1979. And in New York, it finally passed!
Legislation was introduced in the U.S. Congress last year that would
prescribe first safety standards for cigarettes that are
substantively the same as the standards set forth by the state of New
tobacco industry has for decades opposed the passage of state and
federal requirements for cigarette fire safety standards, arguing
that the cigarettes would be technically not feasible to develop,
they would increase toxicity and would not be acceptable to
consumers. They also have denied the effectiveness of the proposed
standards to reduce fires.
addressing these concerns, I will be referring to a study done by the
Harvard School of Public Health and the American Legacy Foundation
published in January 2005.
the feasibility to develop a fire-safe cigarette, we know we have the
technology to do this. It has been done. This has been
through paper banding, that is the application of ultra-thin paper
bands to the traditional cigarette paper. Of the five brands this
study looked at, the average parentage of full-length burns was 10%
for the New York cigarette brands tested compared to 99.8% for
California and Massachusetts brands. Thus indicating the New York
brands are less likely to ignite fires than the same brands sold in
the toxicity…there has been a slight increase in the toxicity of
cigarette smoke. However, that has to be balanced against the 900 to
1,000 lives lost annually to fires caused by careless smoking. And
there is no evidence that these increases affect the already highly
toxic nature of cigarette smoke.
ignition propensity cigarettes has had no effect on consumer
purchases of cigarettes in New York, indicating that the New York
reduced ignition propensity cigarettes are acceptable to consumers.
on 3 of the 4 reasons stated by the tobacco industry for opposing
this…their concerns are unfounded.
the effectiveness of the RIP cigarettes to prevent fires…there is
insufficient data. The co-author of the study, Greg Connolly has said
that it could take up to 3 years to collect valid information on
the study concludes that there is no valid reason why cigarette
manufactures should not sell RIP cigarettes nationwide. And we concur
with their conclusion with regards to our company…we find no valid
reason why our company should not sell RIP cigarettes nationwide.
company stated in the proxy statement that careless behavior and
mishandling of cigarettes cause fires, and the most effective way
to reduce these losses is through educational efforts. We do not
disagree with this. However, we
believe the company does have a
responsibility to do all it can to provide a safe product. And a
successful technique is not available. We already know that smoking
kills in other ways than fire. Why not make the changes that are now
available to us to help prevent more deaths?
also have to think about the legal ramifications for our company.
Legal experts have stated that having two distinct classes of
cigarettes could expose their makers to huge legal risks.
it can be done, because it will not negatively affect the sale of
cigarettes, because it may cause a legal risks to our company, and
because we want our company to do all it can to prevent more deaths
from cigarette smoking, we encourage adoption of our proposal to
establish New York cigarette fire safety regulatory criteria as the
standard for all the cigarettes that are produced for sale in the US,
Puerto Rico and all US protectorates."
The Rev. Michael Crosby, Capuchin
Franciscan, seconded the resolution. He stated that the
cigarette fires are the leading cause of fire deaths. "Mr. Schindler, in 1997, your vacation
home was destroyed and surrounding homes were damaged to the tune of $1
million in damages, all because of a cigarette fire. If the
company had agreed to establish self-extinguishing cigarettes as the
norm, this damage might not have occurred.
I have heard, and I don't know if it's true, that your main competitor
is supporting state by state regulations, rather than a federal
regulation, and that you are opposing regulations.
Mr. Schindler did not comment on either
point, and did not deny either point.
Question and Answer time.
The Rev. Michael Crosby stated
that on May 3rd, 2005, the U.S. Supreme Court breathed new life into
the European Union's lawsuit on smuggling. Our province raised
the issue a couple of times in the past. My question is, if you
could give a little history on this, regarding Canada and so on.
The company has merged with other companies. What is the
responsibility of the new corporation on this issue, and is money being
put into escrow for defense against lawsuits on smuggling?
Susan Ivey referred the question
to Andrew Schindler.
Andrew Schindler said that the company has accrued money to pay for any
defense necessary. He then referred the question to Charles Blixt, attorney, who
said that the Wall Street Journal
had misrepresented the situation, and that any lawsuits brought against
the company would be dismissed, and he did not think it would be a
Sister Regina McKillip, noting
that there is only one woman on the board of directors, asked why there
are not more women on the board.
Susan Ivey said that they are
proud of their diversity, and are seeking proper diversity, and will
continue to look at the situation.
Anne Morrow Donley asked what
provisions have been made for funds to pay for liability if executives
of the company are indicted in court? Is the TI [Tobacco
International] providing backing for this liability? And what
provisions are made in case a court determines there to be criminal
Susan Ivey handed the question
to Andrew Schindler who
turned the question to Charles
Blixt who said he did not think there would be any
problem. The lawsuits, he said, are against Reynolds
International, which is owned by Japan now, and there will be no
Media -- The Winston-Salem Journal
was the only media present at the meeting.
EXCERPTS from The Winston Salem
Journal, May 7, 2005, headlined, American Way: Chief executive is
optimistic about outlook for new company at shareholders meeting;
writer, Brian Louis.
Susan Ivey, the chief
executive of Reynolds American Inc., made her debut in front of
shareholders yesterday, telling them that the future looks good for the
“Our goal is clear,” Ivey told about 100 stockholders
at the annual meeting, which was held in the auditorium of the RJR
Plaza Building in downtown Winston-Salem. “We will build a winning
company and enhance shareholder value by establishing a world-class,
high-performance organization that relentlessly, and responsibly,
pursues and achieves sustainable earnings growth.”
The low-key meeting lasted about an hour, and
shareholders included employees and company officials. Reynolds
American was created last year as part of R.J. Reynolds Tobacco Co.’s
merger with Brown & Williamson Tobacco Corp, and Ivey was named
Andrew Schindler, Reynolds American’s non-executive
chairman and the former chief executive of Reynolds Tobacco’s former
publicly traded parent company, R.J. Reynolds Tobacco Holdings Inc.,
presided over the shareholders meeting.
The first Reynolds
American shareholders meeting was similar to past Reynolds Holdings
shareholders meetings, including the presence of anti-smoking
activists. Three activists were at the meeting, and they spoke
in support of three shareholder proposals. They were the only ones who
Before speaking in support of one of the proposals, the Rev. Michael Crosby of the
Interfaith Center on Corporate Responsibility, asked the audience to
remember the thousands of people who die from smoking-related illnesses
The shareholder proposals, which the company’s board
recommended that shareholders vote against, were soundly defeated.
One of the proposals asked the company to obtain Food
and Drug Administration approval of Reynolds Tobacco’s Eclipse brand
cigarette that the company claims may pose less risk of cancer, chronic
bronchitis and possibly emphysema, compared with other cigarettes.
In other business, shareholders re-elected four board
members to serve until 2008: Betsy Atkins, the chief executive of Baja
Ventures, a venture-capital firm; E.V. Goings, the chairman and chief
executive of Tupperware Corp.; Nana Mensah, the chairman and chief
executive of ‘XPORTS Inc.; and Robert S. Miller Jr., the chairman of
Shareholders also ratified the appointment of KPMG LLP
as the company’s auditor and approved Reynolds American’s long-term
incentive program. About 950 managers are eligible to receive grants
under the plan.
13 May 2005