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All 7 Tobacco Executives in Perjury Probe Have Quit the Industry

Resignations: Most observers see no link to federal investigation. Last to step down is James Johnston of R.J. Reynolds.

June 01, 1996|MYRON LEVIN | TIMES STAFF WRITER

RJR Nabisco Holdings Corp. on Friday announced that James W. Johnston, chief of its worldwide tobacco operations, will leave the company at the end of this month to spend more time with his family.

Johnston, 50, chairman of R.J. Reynolds Tobacco Co. and vice chairman of the parent company, will be the last of seven tobacco chief executives under investigation for possible perjury in testimony before Congress to leave the industry.

But an RJR spokesman denied a link between Johnston's departure and the Justice Department probe, and some financial analysts also debunked any possible connection.

Instead, analysts cited management turbulence following the appointment last year of Steven F. Goldstone as chairman and chief executive of RJR Nabisco, and disappointment in Reynolds' continued slippage behind industry leader Philip Morris.

R.J. Reynolds, manufacturer of Winston, Salem, Camel and other brands, is the second-biggest U.S. cigarette maker.

"You have a new chairman and CEO at RJR in Goldstone, and you're going to get this fallout when you get a new CEO," said Gary D. Black, a tobacco analyst at Sanford Bernstein & Co.

Martin Feldman, an analyst at Smith Barney Inc., said he didn't believe the criminal investigation "has even 1% . . . to do with" Johnston's departure.

"I think the industry feels comfortable with its defenses" in the perjury investigation, Feldman added.

Johnston was one of seven top industry officials whose testimony before a congressional subcommittee triggered one of four pending grand jury probes of the industry.

The executives testified on April 14, 1994, that they did not believe nicotine was addictive. Within days, explosive internal documents from Brown & Williamson Tobacco Corp. that appeared to contradict their testimony were leaked to members of Congress and the media.

Included in the documents was a memo written in 1963--prior to the landmark surgeon general's report--in which a top Brown & Williamson executive observed: "We are then in the business of selling nicotine, an addictive drug effective in the release of stress mechanisms."

In his congressional testimony, Johnston said, among other things: "Cigarettes and nicotine clearly do not meet the classic definitions of addiction. There is no intoxication."

Johnston could not be reached for comment Friday, but in a statement issued through Reynolds spokeswoman Maura Ellis he defended his testimony. "I hope that it's still true that in America we're not only entitled to our opinions, but we're entitled to express them to elected officials," Johnston said.

Since their appearance before Congress, William Campbell, former head of Philip Morris USA, left that firm for Citicorp; Thomas Sandefur retired as chief executive of Brown & Williamson; Edward Horrigan Jr. resigned as chairman of Liggett Group; Andrew Tisch, former chairman of Lorillard Inc., took another post with the cigarette maker's parent firm, Loews Corp.; and Joseph Taddeo resigned as president of smokeless tobacco giant U.S. Tobacco. Donald Johnston, chief executive of American Tobacco Co., left that firm when it was acquired by Brown & Williamson.

While acknowledging that "people are struck" by the departure of so many executives, analyst Black said, "I think it's coincidence."

But Cliff Douglas, an anti-tobacco lawyer who has monitored the criminal probe, called the mass departures "extraordinarily unusual, even in a world of turnover such as theirs."

"One can only speculate from the outside, but it appears the events of recent times involving multiple criminal investigations and litigation and regulatory attacks [have] taken [their] toll on the leaders of the tobacco industry," Douglas said.

In its announcement Friday, RJR expressed appreciation for Johnston's "tremendous contribution" to the tobacco firm he has headed since 1989. The company said that Andrew J. Schindler and Pierre de Labouchere--who head Reynolds' domestic and international operations, respectively, and reported to Johnston--will report to Goldstone.

While tobacco stocks generally followed the market's downward path Friday, RJR Nabisco rose 12.5 cents to $33.125.

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