Chapter 17, Part 1

By Frank Tursi, Susan E. White and Steve McQuilkin
JOURNAL REPORTERS
© Winston-Salem Journal

Former executives of R.J. Reynolds Industries Inc. who worked closely with J. Paul Sticht don't talk much about his accomplishments, although they begrudge him a few. They prefer to dwell on the paradoxes of the man who ruled Reynolds for 11 years beginning in 1973.

J. Paul Sticht joined the board R.J. Reynolds Industries in 1968. (Journal Photo By David Rolfe)

The public saw a polished and courtly leader, a tall and trim man with a short cut of gray hair and a three-piece suit. Outwardly, Sticht seemed to embody the calm, cool voice of knowledge and authority.

There was another Paul Sticht, former RJR executives say, that the public rarely saw. That one could be arrogant and was an adroit corporate politician. By all accounts, Sticht was a master at getting and keeping power. He rose from modest beginnings as a steel-plant worker to become the No. 2 man at Federated Department Stores Inc. and a board member at Reynolds. When his rise to the top job at Federated was blocked, Sticht emerged as the new president of Reynolds Industries in what one business magazine called ''a classic tale of corporate intrigue.'' (Business Week footnote; information on Sticht's rise and time at the helm.)

Sticht arrived at RJR with an impressive resume and a vision of the company's potential. During his reign, he turned the sleepy Southern company into a major worldwide corporation. Where his predecessors dabbled in small acquisitions, Sticht went after companies that made some of the most well-known consumer products in America.

The R.J. Reynolds Tobacco Co. was once the largest cigarette company in the United States with a powerhouse of best-selling brands: Winston, Salem and Camel. But times changed, and as the case against smoking became more pronounced in the 1960s, RJR failed to adapt to the marketplace. Its rivals would eventually rush past it, and RJR's efforts to catch up would have a profound impact on the company and the cigarette industry.

He was the bridge linking the old way and the new way. The thrifty, parochial Reynolds and the free-spending, worldly conglomerate that became RJR Nabisco.

While building this bridge, Sticht managed to garner the distrust of some of his subordinates. ''Sticht was a man consumed and driven by his ego, extremely Machiavellian in his techniques,'' said one former top executive of the company.

''He liked to dabble. He liked to meddle. He would go behind your back. He would talk to the senior executives that reported to you. He would see if he could find some tidbit of information he could use against you.''

The executive said Sticht would wade into the affairs of Reynolds' various subsidiaries the way a child plays with different toys in a sandbox. ''He would pick one up and play with it for a while; then he would get bored and move on to another one,'' the executive said. ''It was very frustrating.'' Sticht says his detractors find conspiracies where none exist and that they miss the point. His job wasn't to be loved. It was to move RJR into the modern era.

Many former executives acknowledge that Sticht's efforts were usually well-intentioned. He wanted to build a powerful company and provide healthy returns to shareholders. He was not greedy for riches, former executives say, but enamored by the trappings and prestige that came with being CEO of a major corporation. He liked riding in private jets; he liked being invited to major events. And he liked dropping names.

''His ego simply had to be nurtured by having positions and responsibilities that would put him in the position to walk with kings,'' said J. Tylee Wilson, who followed Sticht as CEO and was on the giving and receiving end of his power plays. He would tell us: '' `I had dinner last night with Henry Kissinger.' You know what that means? He was at some goddamn thing in Washington with 500 other people. But he had dinner with Henry Kissinger. And we would hear that, `Well, I've got to go to the Kissinger dinner.' ''

A Steel-Town Boy

Black-tie dinners in Washington were far from the steel mills and coal mines of Paul Sticht's childhood. Born in 1917 in Clairton, Pa., near Pittsburgh, Sticht lived across the street from one of the town's steel mills. His family was of German descent, and his grandparents ran a boarding house for Germans who worked in the mills. Sticht's father worked there, and his mother helped run the boarding house.

''My mother hated living across the street from that mill,'' Sticht remembered. ''It was the dirtiest, filthiest place with the smoke pouring down.''

The family sold the boarding house after Sticht's grandfather died. They moved three miles south to West Elizabeth, which was as far as his father could go and still catch the bus back to the mill.

The town had a grocery store, two churches, a drug store, four saloons and a coal mine, where the work was hard and gritty. ''I decided very early on I didn't want anything to do with that,'' Sticht said.

As a teen-ager, he worked as a union organizer at a steel mill. His work with unions continued after he graduated from Grove City College in 1939 and took a job with Carnegie Steel, later renamed U.S. Steel. The company's managers often called on Sticht to act as an intermediary with the unions because he knew many of the unionized workers.

''And whenever we had some union troubles. . . they would pull me out and see what I could do about it,'' Sticht said. ''And that never left me. My reputation of having knowledge of the unions and being able to deal with them was far greater than the facts.''

After World War II, Sticht worked briefly for TransWorld Airlines before moving on in 1947 to Campbell Soup Co. During his early years at Campbell, Sticht held a variety of executive jobs in personnel and marketing. ''But at no time did they ever allow me to give up labor relations,'' he said. ''We did some pretty interesting things involving the unions that were successful.''

That caught the attention of RJR executives, who were fighting a union in the late 1940s. ''That's how I first got acquainted with Charlie Wade and Colin Stokes and Spencer Hanes,'' Sticht said, referring to three long-time RJR employees. ''We talked about common problems and common needs.''

A business relationship turned into a friendship as Sticht and his wife spent weekends with the Wades and Haneses.

Sticht was the president of Campbell's international subsidiary and was growing weary of the constant travel in 1960 when he was courted by Federated Department Stores, which ran a number of department stores, including Bloomingdale's and Abraham & Strauss. He joined the company as an executive vice president and director and became president in 1967.

At Charlie Wade's insistence Sticht joined the Reynolds board of directors the following year. The company needed more sophisticated leadership, insisted Wade, an RJR vice president, if it were to become a diversified conglomerate. ''He understood the provincial nature of the company,'' Sticht said of Wade. ''He understood that it needed to change. . . . He was a great guy; very helpful to me.''

The company's leaders thought that courting and then embracing Sticht would deflect outside criticism that they were a bunch of local hicks but not present a threat to their hegemony. They would be wrong. (Fisher footnote; some information and comments about Sticht's rise to power.)

One former executive noted that bringing Sticht in was like ''letting the Trojan horse inside the walls.''

Kings and Pawns

As Alex Galloway, the chairman and chief executive of Reynolds Industries, eyed retirement at the end of 1972, the question of who would succeed him became more pressing. The company had always looked within for its leaders, but there was quiet dissension over the heir apparent, David Peoples.

Peoples had every reason to believe that he would be the next chairman of R.J. Reynolds Industries. A product of the Camel Cult and a favorite of the late Bowman Gray Jr., Peoples had joined Reynolds as an accountant in 1947. He fit the RJR mold. He was a Southerner, born in Morristown, Tenn., and educated at King College in Bristol, Tenn. He showed all the proper attributes of the Reynolds Way, including a willingness to wait his turn for promotions. Peoples had become comptroller and a director of the company in 1959 and was named president and chief administrative officer of RJR Industries in 1970.

Though presidents usually became chairmen, some insiders wondered whether the company could survive two successive leaders who came up through the financial ranks. Galloway, like Peoples, had also been an accountant. Sticht was among those on the board who thought that the job demanded marketing expertise.

Hard feelings still lingered from the reorganization that Peoples engineered in the 1960s. For a long time, various department managers, such as the head of the traffic department, which oversaw distribution, were members of the board.

''When Dave got through systematizing everything, the head of the traffic department was the traffic manager and the head of the purchasing department was the purchasing manager, and they were not even vice presidents,'' recalls John Dowdle, a former treasurer. ''He made, I think, some enemies, by breaking down the barriers to those fiefdoms.''

Peoples' health also became an issue when he suffered what many said was a heart attack while on a trip to Kuwait in 1972. Peoples later said it wasn't that serious, but it gave those opposed to his promotion another reason to back Sticht. Peoples would die in 1997 at age 80.

The misgivings insiders had about Peoples might not have gone farther without a push from Sticht, who suddenly had a lot of time on his hands. He would turn 55 in October 1972 and would take early retirement from Federated. His rise to the chief executive position there was blocked by Ralph Lazarus, a grandson of the founder of the department-store chain.

Part of Sticht's employment contract with Federated guaranteed him the opportunity to retire in 1972 with substantial benefits. He had built a house in an upscale community on Singer Island, near Palm Beach, Fla., and he said he planned to enjoy semiretirement by serving on a few boards and perhaps doing some consulting.

His plans would change, and by year's end he would be working full time on finding a successor to Galloway.

Though he was troubled by Peoples' promotion, Sticht maintains that he had no designs on the Reynolds job.

Dowdle is among the RJR executives at the time who disagree. They say that Sticht's goal was clear: to be chief executive of a cash-rich company that lacked strong leaders. ''Sticht wanted it more than anything in the world, in my opinion,'' Dowdle said.