2008Reynolds

Statement by Corporate Campaign, Inc. Director Ray Rogers
at Reynolds American’s May 6, 2008 Annual Meeting

I am Ray Rogers, Proxy for Pat Mahon.

Before I cast my votes, I would like to know whether each nominee will continue supporting the same, irresponsible policies that have been allowed to fester. I’m referring to the dangerous, unhealthy and sometimes lethal working, living and traveling conditions that migrant workers in North Carolina’s tobacco fields endure.

Will the nominees continue to support RJ Reynolds callous indifference to the human cost of farmworker misery and exploitation? Will they allow the tragedy to continue, while stockholders and themselves benefit so handsomely?

Will these board nominees start to monitor closely the incidence of serious work-related injuries and illnesses such as heat stroke, green tobacco sickness and pesticide contamination?

Do they realize what a costly public relations nightmare is in store for the company when more of the public realizes that RJ Reynolds executives and board members simply don’t care that they make their millions on the backs of workers who sweat and toil for pennies?

And please don’t suggest that farmworker exploitation is really only an issue between growers and the workers. Knowledgeable people can see that RJR clearly bears the greatest responsibility and has the power to change these horrible conditions.

Well-informed people no longer accept Coca-Cola’s claims that it’s not Coke’s problem, when its Colombian bottlers collaborate with paramilitary death squads to crush a union. Similarly, people of goodwill won’t stand by silently, while RJ Reynolds shrugs off any responsibility for the shameful and scandalous state in which it has placed thousands of farmworkers and their families.

Perhaps the most important question I must ask is: will the nominees work with farmworker representatives, specifically the Farm Labor Organizing Committee, to address these problems and correct them?

Someone once said: In slavery there’s a job for everyone. I’m here today with many others to state emphatically that society does not need those types of jobs and will not tolerate them.

To the board members I ask, what are you going to do to make RJ Reynolds and the tobacco industry less unjust and predatory?

Ms. Ivey, Members of the Board, Shareholders:

I am Catherine Rowan, representing Trinity Health and 4 other members of the Interfaith Center on Corporate Responsibility who are proponents of Item 4, the Proposal on Endorsement of Health Care Principles. Our proposal requests the Board of Directors to adopt principles for comprehensive health care reform.

We appreciate the fact that our Company recognizes that health care reform is an important issue and that it agrees with the concept of making health care more available to Americans at affordable prices.

As the president of the Business Roundtable has said: “Business, government and consumers must act together to make the health care system better and more affordable for everyone.”

However, investors have little or no information on what, if anything, many companies are doing to respond to this critical social issue.

That is why we have put forward this proposal today. We are not asking our Company to endorse any particular plan for health care reform. Rather we are asking it to develop principles that could guide the Company in the public debate.

We live in the richest nation in the world - and home to millions of people who do not have access to needed health care. For those affected, this is a personal and medical crisis; for others, including a number of corporations, it is an economic crisis. But because we have the capacity to solve the problem and have not, for all of us it is a moral crisis.

For example, progress in the fight against cancer is impacted because millions of uninsured Americans do not have access to quality cancer prevention information, early detection and treatment.

We all have a role to play in working for a health care system that promotes our nation’s well-being and respects the dignity of every person. This proposal asks our Company to participate in this effort, and I urge fellow shareholders to vote in favor of it. Thank you.

Whereas, global corporations and/or corporations having global sourcing for their products have a responsibility to ensure their “supply chain” is uncorrupted by practices that deny basic human rights for the workers.

Increasingly, corporations have learned their reputational risk is at stake when their suppliers become publicized as undermining workers’ basic human rights.

While RAI does not directly hire farmworkers, it does have contracts with those who hire them, thus supplying products for its tobacco production. When such farmers are not organized they can be denied basic human rights.

A key problem of workers harvesting tobacco for Reynolds American, whether in the U.S.A. or abroad, involves their possibility of contracting acute nicotine poisoning, Green Tobacco Sickness (GTS). This is caused by the skin's absorption of nicotine from touching green tobacco plants. A 2005 study called this a "unique hazard" (McKnight and Spiller, "Green Tobacco Sickness in Children and Adolescents", Public Health Rep. 2005; 120.6).

"Health problems due to transdermal nicotine absorption are frequent among tobacco harvesters. ... The toxicity to the cardiovascular system and carcinogenicity of chronic dermal nicotine exposure are likely to exist as non-smoking tobacco harvesters show similar cotinine and nicotine levels compared to active smokers in the general population." (Schmitt et. al, "Health Risks in Tobacco Farmers -- a Review of the Literature", Journal of Public Health, 15:4, August 2007).

GTS threatens 33 million+ tobacco farm workers globally (World Health Organization, 1999 World Bank).

Sara A. Quandt, Ph.D. noted in Science Daily, 2/24/2000, "Many farm workers believe they will be fired and lose their income if they get sick or work too slowly. Green tobacco sickness is an environmental justice issue, part of the growing concern that poor, minority and medically underserved populations bear a disproportionate share of environmental and occupational health risks."

GTS is a particular hazard for migrant and Hispanic tobacco farmworkers. For instance, Mexican farmworkers were recently hospitalized in Kentucky for GTS.

"Conditions are shamefully bad for most farmworkers," said Virginia Nesmith, of the National Farmworkers Ministry. "This company has the power to make a difference for thousands of workers."

RESOLVED: Shareholders request the Board of Directors of Reynolds American Tobacco International to commit itself to create procedures for the implementation of the internationally agreed core human rights conventions in the countries in which it operates and to find ways to ensure that its suppliers are in compliance with these as well.

Supporting Statement
This resolution’s sponsors believe the creation of a “basic human rights” protocol that will be used by RAI and in its contracts with all its suppliers is key to be recognized as a good corporate citizen. We believe this is critical if the rights of farmworkers and others who are essential actors contributing to this Company’s production of tobacco products are ensured such things as healthy and safe working conditions, a basic right to organize, adequate health care, and other elements enshrined in the Universal Declaration of Human Rights and the various international covenants.

Response of Reynolds American to Human Rights Protocols:

Your Board of Directors recommends a vote AGAINST this proposal.
RAI and its operating companies believe that universally recognized fundamental human rights should be respected. This principle and its day-to-day practice is one of the foundations of how we conduct our business.

The contracts that RAI and its operating companies have with suppliers specifically require adherence to all applicable laws and regulations. In addition, RJR Tobacco has contracted with Leaf Tc, an independent company, to monitor RJR Tobacco's leaf suppliers worldwide for purposes of evaluating such matters as the impact the suppliers' activities have on the environment and safety conditions at the suppliers' farms. If deficiencies are identified, Leaf Tc consultants work with the supplier to help develop an appropriate remediation plan.

RAI and RJR Tobacco also have been meeting with external stakeholders to determine what additional steps can be taken to address living and working conditions for tobacco farm workers employed by U.S. contract tobacco growers. RJR Tobacco has identified, and plans to implement, several additional efforts to support improved safety and more sanitary living and working conditions on those farms. Both RJR Tobacco and the stakeholders continue to work together to identify additional opportunities and external resources to address these issues.

Finally, the business of RAI's operating companies is conducted primarily in the United States where, unlike in many developing countries, issues such as child labor, dangerous pesticide levels and exposure, and lack of minimum wage requirements, are rare.

Therefore, your Board of Directors urges you to vote AGAINST this proposal.

WHEREAS: our company’s products are a major, if not the major, contributor to fatal cancers and heart disease;

University of Minnesota Cancer Center researchers report: “users of smokeless tobacco are exposed to higher amounts of tobacco-specific nitrosamines -- molecules ... known to be carcinogenic -- than smokers."

More than 40 elements in tobacco smoke are cancer causing. Smokers are 22 times more likely to develop lung cancer than non-smokers. Studies show length of tobacco use increases the cancer risk: cancer of the nose (2 times greater), tongue, mouth, salivary gland and pharynx (6 to 27 times more), throat (12 times), esophagus (8 –10 times); larynx (10-18 times), stomach (2-3 times), kidney (5 times), bladder (3 times), penis (2-3 times), pancreas (2-5 times), colon-rectum (3 times), and anus (5-6 times).

In 2007, in a "stark departure from past practice, the American Cancer Society" redirected its entire $15 million advertising budget "to the consequences of inadequate health coverage." John R. Seffrin, the American Cancer Society's CEO, stated: "I believe, if we don’t fix the health care system, that lack of access will be a bigger cancer killer than tobacco." He added: "The ultimate control of cancer is as much a public policy issue as it is a medical and scientific issue."

A 2003 study estimated that one of every 10 cancer patients were uninsured. Health insurance companies are known to provide substantially lower rates to those who do not smoke or use our tobacco products.

Our company’s health care costs are higher in the US because it has to cover employees who use tobacco products. If America had universal health care, these would be covered. Consequently, shareholder revenues are diminished when company finances must cover health care costs, many stemming from cancer and heart disease arising from tobacco use.

Because access to affordable, comprehensive health care/insurance is the most significant social policy issue in America and has become a central concern in the 2008 presidential campaign:

RESOLVED: Shareholders urge the Board of Directors to adopt principles for comprehensive health care reform such as those based upon the following principles reported by the Institute of Medicine: Health care coverage should be universal, continuous, and affordable to individuals and families. Any health insurance strategy should be affordable and sustainable for society and should enhance health and well-being by promoting access to high-quality care that is effective, efficient, safe, timely, patient-centered, and equitable.

Supporting Statement
As shareholders, we believe publicly held companies must account to all their stakeholders vis-a-vis their positions on critical public policy issues, like universal health care, especially tobacco companies because they contribute so much to the health problems of so many. We ask fellow shareholders to support this resolution.

Response of Reynolds American to Endorsement of Health Care Principles:

Your Board of Directors recommends a vote AGAINST this proposal.
The availability and affordability of health-care coverage for Americans has been, and continues to be an important issue in Congress and other forums. RAI and its operating companies provide comprehensive, affordable health, dental and vision coverage for their employees. Even with plan modifications over the years due to the rising cost of health care, RAI and its operating companies still provide competitive plans with a range of options, allowing employees to select the program which best fits their individual and family needs.

RAI and its operating companies traditionally have not established positions on legislative issues beyond those that might apply to the tobacco industry. Management expects that Congress and others will continue to discuss and debate the range of proposals for making health-care coverage more available and for dealing with the ever-rising costs of such care. Management will continue to pay close attention to those discussions, and will be mindful of the details of health-care reform proposals as they become more apparent, including the intended funding sources of these proposals.

The universal health-care debate in Congress, in 1993-1994, centered in part on increasing the federal cigarette excise tax by $1.00 per pack, to pay for additional health-care coverage. We opposed that proposal at that time, and would do so today. Just last year, as Congress debated expanded coverage for the State Children's Health Insurance Program referred to as SCHIP, we opposed the requirement of a $.61 per pack increase in the federal cigarette excise tax and proportional increases in taxes for other tobacco products. Congress ultimately expanded and continued SCHIP through March, 2009, without additional tax increases.

Although we generally agree with the concept of making health care more available to Americans at affordable prices, we believe it is in the best interests of RAI and its operating companies to refrain, at this time, from endorsing specific solutions to this complex and evolving debate concerning national health-care reform. We continue, however, to oppose any approach that would impose the resulting costs (exclusively or disproportionately) on RAI's shareholders or on RAI's operating companies' customers and consumers.

Therefore, your Board of Directors urges you to vote AGAINST this proposal.

On October 22, 2007 the following op-ed piece, The Two Cigarette Society, appeared in The New York Times. It was written by David G. Adams, a lawyer who was the director of the policy staff at the Food and Drug Administration from 1992 to 1994.

"WHEN it comes to the health of our children, two cigarettes may be better than one. Young smokers who begin their habit with nicotine-laden cigarettes need a cigarette that will not leave them to later fight the ravages of addiction.

"Experts tell us that teenagers often begin smoking to copy their peers and others whom they see smoking. As adults, however, they continue smoking largely because of the addictive qualities of nicotine. (Ninety percent of smokers regret having begun smoking and most make efforts to stop.) This means that in the absence of addictive levels of nicotine in their cigarettes, most young smokers would ultimately quit.

"A two-cigarette strategy would prohibit young smokers from buying addictive cigarettes. The tobacco industry is capable of producing cigarettes that are virtually free of nicotine, and regulators could develop clear standards for non-addictive cigarettes. (Disclosure: My law firm represents tobacco companies, but I have recused myself from that work.)

"The age to purchase addictive cigarettes might be set at 21. Better yet, sales of addictive cigarettes could be restricted to individuals born 19 or more years before the two-cigarette strategy was put into effect. Under this approach, 18-year-olds who start smoking non-addictive cigarettes would be prohibited from switching to addictive cigarettes even after they turned 21. In addition, a higher federal excise tax on addictive cigarettes than on non-addictive cigarettes would create a financial incentive for smokers of all ages, including scofflaw adolescents, to select non-addictive cigarettes.

"Granted, a two-cigarette policy would not be a panacea. It would not end smoking, it would not give us safer cigarettes, and it would not undo the addiction that grips the current generation of smokers.

"The Institute of Medicine, a unit of the National Academy of Sciences, has called for a gradual reduction of the nicotine content in all cigarettes to non-addictive levels (an approach I proposed 13 years ago when I worked at the Food and Drug Administration). But it would take decades to eliminate addictive cigarettes from the market. While a worthy strategy for eliminating addiction many years from now, a gradual approach would still permit the addiction of the next generation of smokers.

"Decades of addiction will mean disease and death for millions of our children. If we can prevent addiction at the outset, we shouldn’t waste another day."

This resolution’s shareholders are against smoking itself because of its health-hazards. We also believe a lesser evil is better than a greater evil. Hence the following:

RESOLVED: shareholders request the Board of Directors to begin immediately to find ways to implement a “two cigarette” approach globally with all its various cigarette brands and to report such to the shareholder and its publics within six months of the annual meeting.

Response of Reynolds American to Two Cigarette Approach to Marketing:

Your Board of Directors recommends a vote AGAINST this proposal.
The specific approach recommended in the proposal to reduce harm from the use of cigarettes has already proven to be commercially unsuccessful in the United States. At least two other manufacturers have marketed a nicotine-free cigarette or a cigarette with substantially reduced nicotine levels, but were unable to gain any meaningful consumer acceptance of the products.

Management, however, agrees with the underlying intent of the proposal -- efforts should be made to explore the implementation of harm reduction strategies in connection with the ;manufacture and marketing of existing and future tobacco products. As stated in RAI's Guiding Principles and Beliefs, "Decreasing the health risk and harm directly associated with the use of tobacco products is in everyone's best interest." RAI and its operating companies have a desire to work in conjunction with others to reduce the harm caused by the use of tobacco products.

A harm reduction, or continuum of risk, strategy recognizes and informs smokers that different types of tobacco products have different levels of risk. This strategy has the potential for achieving measurable reductions in the harm caused by tobacco use, particularly cigarettes.

David Sweanor, in a recent article published in The Ottawa Citizen, explained the benefits of such a strategy: When dealing with any cause of death, injury or disease, we have four broad areas of intervention: We can try to prevent onset of the behaviors, encourage cessation among those already engaging in it, protect third parties from any associated risks, and reduce the risks for those who will continue the behaviors. This applies whether we are talking about rock climbing ... or ingesting nicotine. The way we use these four broad avenues of interventions will vary but the goal is always the same: the maximum practical reduction in the risk of harm."

Published scientific studies indicate compelling differences between the tobacco product categories for the incidence and risk for serious and chronic diseases. The difference is particularly notable when comparing the harm caused by cigarette smoking with that of non-burning tobacco products. A 2007 report from Britain's Royal College of Physicians said that "the consumption of non-combustible tobacco is on the order of 10 (to) 1,000 times less hazardous than smoking."

The rate of smoking has consistently declined for decades, but government sources report that approximately 45 million Americans continue to smoke. It is likely that smoking and tobacco use will remain legal and prevalent for the foreseeable future. Given that there are adults who choose to continue to smoke, the acceptance and implementation of harm reduction strategies by tobacco manufacturers, public health and other interested groups and relevant government agencies could help achieve further reductions in the harm caused by smoking.

RAI and its operating companies have already begun implementing strategies consistent with this goal. RAI's acquisition of Conwood, with its portfolio of smokeless tobacco products, and RJR Tobacco's introduction of Camel Snus, a new alternative and replacement tobacco product for current smokers, are two recent examples. RAI's operating companies also are actively working, consistent with applicable laws, to help identify methods of appropriately and accurately educating tobacco consumers on the differences in risk between cigarettes and non-burning tobacco products.

Therefore, your Board of Directors urges you to vote AGAINST this proposal.

Reynolds American Inc. rolled out its first report on corporate social responsibility at its annual shareholders' meeting yesterday, focusing on seven areas of commitment.

The areas, which Reynolds called "planks," are environmental sustainability; supplier responsibility; community and civic engagement; employee responsibility; youth-tobacco prevention; corporate social responsibility; and harm reduction and product integrity.

"What has become abundantly clear to us is that corporate social responsibility is not a program, nor a report, but a way of doing business," Susan Ivey, the chairwoman and chief executive of Reynolds, said to about 100 shareholders, company officials and employees.

"It is a prism through which potential actions can be viewed to better understand the perspectives of multiple stakeholder groups," Ivey said.

However, Reynolds indicated that it would take its time and chart its own course in implementing the goals of its report. For example, the board of directors did not support three shareholder proposals with social-responsibility requests: protocols for rights for tobacco-farm workers; endorsing principles for health-care reform; and a pledge to develop a no-nicotine cigarette. Shareholders soundly defeated each proposal.

Reynolds' deliberate approach, particularly on supplier responsibility and youth-tobacco prevention, disappointed two groups that spoke during the meeting and protested outside the Reynolds Building.

The Farm Labor Organizing Committee, which had about 125 participants at its second local protest since October, is urging Reynolds to use its clout to get tobacco growers to provide better wages and living conditions for field workers.

In 1999, the committee called for a boycott of another North Carolina company, the Mt. Olive Pickle Co. Inc., that ended in 2004 when Mt. Olive signed a collective-bargaining contract that covered workers who picked the cucumbers for farmers who supplied the company.

Ivey said that even though Reynolds would not negotiate a collective-bargaining contract with the labor committee, it would work to make sure "that key suppliers comply with applicable laws and adhere to responsible practices."

But the Rev. Michael Crosby of the Interfaith Center on Corporate Responsibility, said that Reynolds must deal with the fact that as many as 20,000 illegal immigrants may be working in tobacco fields with little, if any, workers' rights.

Ivey said that 2007 "was another strong year," with diluted earnings up 8 percent. She said that the company would focus in 2008 on growth within Reynolds Tobacco's base businesses, increasing sales of its "super premium" cigarette and its smokeless brands, and looking for opportunities to expand internationally and through deals.

The second protest group featured about 50 youth participants rallying against Reynolds' marketing strategies, particularly its Camel No. 9 style that's aimed at female smokers. The coalition of youth groups targeted Reynolds for the first time after focusing on Philip Morris USA, the largest U.S. tobacco manufacturer.

Ivey said that R.J. Reynolds Tobacco Co. has recently updated the youth tobacco-use-prevention materials it has been providing to middle schools for 15 years.

"Demonstrating such programs' effectiveness is encouraged by the federal government, and I'm pleased to report that R.J. Reynolds' program tested well," Ivey said.

But the coalition said that the Camel No. 9 advertising -- described by the company as carrying "a fun and irreverent attitude" -- is influencing too many girls.

The Camel brand extension began receiving criticism from anti-smoking groups within weeks of its January 2007 debut, particularly because of its fuchsia and teal packaging and ad placements in 11 women's magazines.

Reynolds said last November that it would not advertise its cigarette brands in newspapers and consumer magazines in 2008.

"The 14- to 19-year-old group looks up to young adult-female consumers," said Morgan Wittman, a student at Jordan High School in Durham and a representative of North Carolina's Youth Empowered Solutions.

"The preteens look up to the 14- to 19-year-old group, and the tobacco companies know all this," Wittman said. "Ending the tobacco epidemic requires that tobacco companies stop recruiting a new generation of customers."

Ivey reiterated Reynolds' position that any Food and Drug Administration regulation of the tobacco industry must allow the company to market such products as smokeless tobacco and snuffs as having reduced risks for disease when compared with cigarettes.

"It is my hope that, as a nation, we will not waste another decade pursuing an abstinence-only approach to tobacco use," she said. "Public policies that are impractical, unrealistic and potentially misleading to consumers will do little to advance real efforts to reduce the harm caused by tobacco."