Chapter 17, Part 2

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

No matter what his intentions, J. Paul Sticht was busy in the summer of 1972 working behind the scenes to block David Peoples' ascension to chairman of R.J. Reynolds Industries. He won over the three other outside directors on the board: Walter L. Lingle Jr., a retired Procter & Gamble Co. senior vice president; Charles F. Myers Jr., the chairman of Burlington Industries; and Gordon Gray, who was Bowman Gray's brother and a longtime major shareholder.

Charlie Wade and two others were thrown off the RJR board, demoted and had their pay cut. (Journal File Photo)

Sticht told RJR Chairman Alex Galloway that the outside directors didn't want Peoples in the top job, and he threatened to quit as a director unless Galloway found someone else. Galloway dragged his feet and finally asked Sticht in October to head a committee of the outside directors to suggest a nominee. Sticht was also elected chairman of the board's executive committee, a six-man team of directors who were also full-time employees of the company.

Knowing he couldn't find Galloway's successor by January, Sticht persuaded Galloway to stay on as chairman and chief executive until the annual meeting in April or May. RJR set Sticht up in an apartment near Thruway Shopping Center while he tried to sort things out.

Spring approached, and Sticht still hadn't found a suitable candidate. Detractors say that he never found a replacement because he planned to take the job all along, but Sticht said there just wasn't enough time to find a top leader who was willing to move to Winston-Salem.

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.

Reynolds already had a reputation for parochialism, and Winston-Salem wasn't a big city or near enough to one to entice top executives. The broadcast ban on cigarette commercials and all the bad press the tobacco industry received also were deterrents.

''One of the fellows who was most helpful to me was Charlie Wade, because Charlie had no ambitions for himself,'' Sticht said. '' . . . And he was very helpful in giving me the insight into various people and how the organization worked and so forth.''

One day in January 1973, Sticht was telling Wade, an RJR senior vice president, about his problems in attracting quality candidates when Wade gave Sticht a push. ''Paul, why don't you do the job?'' Wade suggested. Myers also encouraged him to take it, Sticht said.

John Dowdle, a former treasurer of Reynolds Industries, compared Wade to Ellsworth Toohey, the newspaperman in Ayn Rand's novel The Fountainhead who knew that he would never run the show, but he did everything he could to control things behind the scenes. ''There was no way in God's world he could have gotten the top job,'' Dowdle said of Wade. ''He came up strictly through personnel. He knew nothing of finance, he knew nothing of manufacturing, he knew nothing of distribution or what not. He was a personnel ass-grabber.''

And Peoples didn't like him. ''I actually heard Dave Peoples say he's a stupid son of a bitch,'' Dowdle recalled.

''I think Charlie Wade realized that Dave felt that way about him and was scared to death of Dave. And he was scared of what would happen if Dave was made chairman. Charlie began to talk to Alex and Colin (Stokes) and Bowman (Gray Jr.), to the extent he could, about, if we're going to be a large, international company, we need to get some members of the board of directors who have that sort of experience. We really need something more than little Winston-Salem, home-grown type people who don't know anything but the tobacco business.' ''

Sticht said he and the other board members tried to be sensitive to the company's past by approving a power-sharing and face-saving arrangement in which Sticht was named president and Stokes chairman and chief executive. Stokes had risen up through manufacturing and had been chairman of the tobacco company. He ''was one of the good old boys, and I don't think Colin ever had any designs or any desires or anything else to be chairman, but I think he was talked into it,'' Dowdle said.

In the past, real power at Reynolds resided with the chairman. But it was clear to everyone that Sticht was running the show.

''If you asked Colin who was running the company, (Sticht) was,'' Dowdle said. ''He treated Colin as a figurehead. And he did it to his face, I saw that numerous times. Colin was bothered about it, but Sticht was already consolidating power on the board. I don't think Colin was in a position to say, `Paul, you're fired.' ''

Sticht put it more delicately. Stokes looked after the tobacco business while Sticht oversaw diversification -- meaning everything else. Stokes was informed about acquisitions and potential targets, but he never meddled in what Sticht was doing. (Business Week footnote; information on Sticht's rise and time at the helm.)

''It worked; I never had a problem with Colin that way,'' Sticht said. ''But it required an effort on both of our parts to make that work.''

Sticht said that that the ground rules of the partnership were defined when he and Stokes took office in April 1973. ''I made it clear I was never going to work for somebody else,'' Sticht said in 1977. At the time he was 60, just two years younger than Stokes. ''Technically, under the bylaws of the corporation, he (Stokes) would have to (make final decisions). But I can tell you this: If it violated the partnership agreement, I would call foul and call an end to the game. I say that a little facetiously, but that's just right.''

Stokes said that he and Sticht shared power equally, but he acknowledged that he never tried to pull rank. ''I have the title of CEO, but I don't try to look at it that way,'' he said in 1977. ''I wouldn't want to give the impression that it's the boss type of thing, or reporting to each other, but rather a working together to find the best solution for whatever the subject matter might be.''

Peoples moved from president and chief operating officer of RJR Industries to vice-chairman and chief administrative officer. He knew that he had been shunted aside. He was angry, but kept those feelings pretty much to himself.

Taking Charge

As Reynolds' president, Sticht became the first executive calling the shots who was a complete outsider. Mindful of his status, he didn't try to force himself on Winston-Salem's society. He figured that men like Stokes and Bill Smith, the tobacco company's chairman, could represent the company at social events. At business meetings, Sticht and Stokes often split time at the podium.

Over time -- helped by mergers and RJR's political scandal -- Sticht built a board of his own directors. It was more diverse -- including RJR's first black and female directors -- more worldly, and loyal to Sticht.

And as part of his global vision for RJR, Sticht also created another oversight panel, the International Advisory Board. It was a group of distinguished business leaders, men whom Sticht believed could open doors for RJR and its often provincial executives who had been late to move into international markets.

''The biggest single initial problem was exposing this company to the world,'' he said.

Many RJR executives saw the board as ministers without portfolios and meddlers, another excuse for Sticht to hobnob with the high and mighty.

''It had absolutely no bearing on what we did,'' said Peter Hoult, a marketing executive with the international tobacco company during this time. ''I'm not aware of any major initiative or benefit that came from those well-publicized, well-photographed, well-reported state meetings. If edicts came down, they stopped at the level of president,'' Hoult said. ''So either they didn't come down, in which case it was a waste of time, or they did come down and the senior management said, ''Oh, f--- that,'' in which case it was a waste of time equally.''

What Sticht possessed -- unlike the tobacco men in charge after Bowman Gray Jr.'s death in 1969 -- was a vision of what RJR could be. And he set about pushing the company further into the mainstream. During his tenure, the company's major purchases included Del Monte Corp., which sold fresh and canned fruit and vegetables, and Heublein Inc., a conglomerate whose holdings included liquor and Kentucky Fried Chicken restaurants.

''He articulated more of a vision for the company than anybody had up until he came along,'' said David Fishel, a former public-relations executive. ''Here was a guy who said, `I want to make this company more than it is. Certainly, tobacco is always going to be a lightning rod. We've got to branch out and do a lot of things.'

''Now how good were the acquisitions?'' Fishel asked. ''Obviously, not much of it is left around.''

Fishel describes Sticht as a tough businessman who nevertheless was pleasant most of the time. ''He was a guy I wouldn't bet against in the boardroom,'' Fishel said. ''Certainly the man had an ego, but I don't think you get in the position he was in without carrying an ego with you.''

J. Tylee Wilson, who followed Sticht as CEO, gives Sticht credit for making foods and the international tobacco business top priorities.

Sticht, who would become chief executive in 1978 and chairman a year later, put Wilson in charge of the international cigarette business when it was made a bona fide subsidiary and moved to Winston-Salem in 1976.

Yet, soon after Sticht took charge in Winston-Salem, Reynolds executives began to see deep flaws in the top marketing executive leading them into the New World of worldwide commerce.

''Selecting Paul as our CEO probably was one of our biggest mistakes,'' said G. Dee Smith, a longtime domestic and international tobacco executive.

''To me, he was somewhat of an empty suit. I think there were a lot of smarter individuals that should have been available when we made that decision. I like Paul, and I respect Paul, but I don't think he did us right in the management and in the selection of the people he brought in.

''Paul is as honest as any individual you could find. I think his integrity is great,'' Smith continued. ''I just don't think he has a lot of depth. His management style is hard to describe. And he would not make the tough decisions without getting so much information that it was almost impossible to make the right decision.''

Many other retired executives had similar views. ''He would be more like a chief of staff than a chief executive officer,'' said Morgan Hunter, a former president of the tobacco subsidiary. ''I don't mean to knock Paul. He was just not ideal for the role he was in.''

When asked about his strategy, Sticht told his subordinates that he wanted the company to get big. ''Bigger is not necessarily better,'' Wilson noted. ''Only better is better.''

Sticht's door was always open, and he was always available to help solve problems. But many who worked with Sticht said that he would listen but offer no constructive advice when they went to him for help. ''Paul would take forever to make a decision, forever, if he made one,'' Wilson said. ''You might hear from him, you might not hear from him.''

''I don't think Paul was the best communicator in the world,'' said Dale Sisel, a former chief executive of the international tobacco company. ''On the other hand, people underestimated Paul because he was sort of unassuming in his posture and the way that he behaved -- underestimated him from the standpoint of how knowledgeable he was, how powerful he was, how well connected he was. And I think some people underestimated him to their own detriment.

''Ty (Wilson) clearly would have fallen into that category,'' Sisel said. ''I think Ty very often underestimated Sticht.''

Sticht said he's proud of building Reynolds into a powerful, worldwide company and prefers to let history judge his success. The company's net sales went from $3.3 billion to $13 billion and net earnings from $263 million to $843 million in the 11 years that Sticht was president and then chief executive and chairman.

''I put some of the best years of my life into building Reynolds,'' he said. ''To the degree that it was successful, everybody can be the judge. But I really put a lot of time and effort into that.''