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Tobacco's Gambit: Win PR War

By walking out on talks, industry hopes it can win over public - or sweeten deal.

Tobacco companies are now the good guys. They are the victims of a zealous Congress. They really want kids to stop smoking.

At least that's the message the companies are about to disseminate far and wide now that they've abandoned negotiations for a national tobacco deal.

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This week's walkout means:

* Tobacco legislation could become a major election issue if Congress doesn't pass a bill. President Clinton - reemphasizing the war on teen smoking yesterday in Kentucky - has made a tobacco bill a high priority. Some Republicans worry they could be politically vulnerable if they side too closely with the companies.

* Lawsuits against the industry will continue. Six hundred private cases are now pending, and four states are ready to go to trial within the next year.

* The industry will have no input into the final draft of legislation introduced by Sen. John McCain (R) of Arizona. Some analysts believe it is bluffing to get a better deal through Congress. The White House yesterday said it believes the tobacco firms will "come around" eventually.

But for now, the industry intends to renew a public-relations battle - something it apparently believes it can win, or at least gain political leverage in doing. In the meantime, Big Tobacco will take its chances in the courts, where historically it's had great success.

"There is no question that these companies can create enough noise that it would make it a more difficult environment to reach a legislative solution," Bill McInturff, a GOP pollster in Alexandria, Va., said yesterday at a Monitor breakfast.

If the industry stays outside the legislative process, it pledges to take its message to every town in America - and has the media savvy to do it. Tactics will include appeals to the nation's 45 million smokers, the tobacco growers, and the industries that sell to them. It will tag as "regressive and unfair" the part of the McCain bill that would raise cigarette prices by $1.10 a pack.

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The industry's shift - from participant in negotiations to antagonist - came Wednesday when Steven Goldstone, chairman and chief executive officer of RJR Nabisco Holdings Corp., told a press gathering that he's concluded "this legislative process, as far as tobacco is concerned, is broken beyond repair."

Mr. Goldstone's rebuke of Congress was immediately joined by the other tobacco companies. Yesterday, they launched their campaign with full-page ads stating that the proposed legislation in Washington would put them out of business.

Power of documents

But it's not certain the American public will buy their arguments. The companies' image has taken a drubbing during the past several years, especially since the release of internal documents showing that tobacco's marketing departments have studied why children buy cigarettes. Moreover, they face the release of some 39,000 new documents in the ongoing lawsuit brought against them by Minnesota.

"These documents are very powerful," says Richard Daynard of the Tobacco Liability Institute at Northeastern University in Boston.

In fact, the pullout comes at a time when Big Tobacco's legal troubles could start to mount. The Minnesota case should be decided within a month. After that, the industry faces additional lawsuits from Washington and Arizona this year and from Massachusetts and California early next year. And the number of lawsuits brought by private individuals has been doubling every year.

The shift means the industry is willing to forego the potential of winning liability protection from future lawsuits. It is a move that caught many analysts by surprise.

"They are foolish to walk away," says Mary Aronson, a Washington-based litigation and public-policy analyst whose clients are institutional investors. "The lawsuits will come, the class actions will come. Wouldn't it be better to have a cap on potential damages?"

Instead, the companies decided the legislation taking shape in Washington was too hard on them. It would cost them $500 billion over 25 years, raise cigarette taxes by $1.10 per pack, and give them no protection from liability lawsuits. If the McCain bill includes restrictions on marketing and advertising, it might require the tobacco companies' voluntary cooperation.

Goldstone said Wednesday, "Well, the bill that Senator McCain has requires my signature. And there is no chance in the world it's going to get my signature."

Eroding influence

In the past, the tobacco companies could throw down the gauntlet because they enjoyed considerable clout in Congress. But this time, "the only way they can succeed in stopping legislation is to get the Republican leadership in the House or the Senate to kill the bill for them," says California Rep. Henry Waxman (D). "I don't think [lawmakers] will, especially in an election year."

In fact, the industry's new tactics risk totally antagonizing Congress. "I don't think you try to arm-wrestle Congress on its court," says Ms. Aronson. "If they walk away from this effort to protect kids from smoking, I don't think it will play well."

But Bill Novelli, head of the Washington-based Campaign for Tobacco Free Kids, says the legislative initiative is fragile. "These guys could make this go off the tracks," he says. "It can be scuttled, but I don't think Senator McCain will take kindly to an ultimatum from the tobacco companies."

The industry went on the offensive immediately after Goldston's remarks, indicating they were planned. In full-page ads, the five tobacco firms said the proposed legislation would drive them out of business, add 17 new federal bureaucracies, and create a black market for tobacco products. It claimed Congress's legislation is unconstitutional.

The bankruptcy issue is of concern to many in Congress, including Senate majority leader Trent Lott (R) of Mississippi. But most analysts don't expect the industry to go under. Says one congressional staff member, who asked for anonymity, "Their profit margins are so high, that the most we forecast is a decline in the profits of 25 to 30 percent."

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