Chapter 6, Part 3

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

Under the Reynolds Way, each year started the same. Shortly before 9 a.m. on the first working day of the New Year, the company's managers would file into the chapel on the mezzanine level of the Reynolds Building. All board members and top executives were expected to attend.

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.

Clifford Peace, the company's pastoral counselor, would take to the podium and lead the executives and directors in a short service. ''The Lord is my shepherd. I shall not want. . .'' they would say together, repeating the comforting and familiar lines from Psalm 23. ''Yea, though I walk through the valley of the shadow of death, I will fear no evil. . . . Surely goodness and mercy shall follow me all the days of my life: and I will dwell in the house of the Lord for ever.''

Peace would give a pastoral prayer: ''We thank thee for the acknowledged faith in this company which brings us here year after year. We thank thee for those who worthily wear the mantle of leadership and for all who faithfully follow in their train. We thank thee that seed time became an abundant harvest this year, and that in our company, the work of mind and hand has again been blessed with an increase in product and profit.''

Then everyone recited the Lord's Prayer.

The service over, it was back to work.

Modesty was another hallmark of the Reynolds Way. ''It was not an environment where you got out in front and sought to . . . fly your flag,'' said Rodney Austin, a longtime personnel officer in the company. ''If you had it, they knew it. If you didn't, they knew that, too. How did they know it? You weren't snowing someone who came on an inspection tour from the home office in Dayton or somewhere. You were right here.''

Reynolds executives wanted performance and expected loyalty. In return was a promise of employment that extended far beyond what other companies offered. ''Reynolds was known for giving third and fourth final warnings,'' Austin said. ''Now, this is your final warning, for the fourth time.''

Stealing cigarettes, though, was a firing offense that elicited no advance warnings.

Frugality -- practiced on a personal and professional level -- was another key ingredient of the Reynolds Way. The company had long been the lowest-cost producer by holding down overhead. Bowman Gray Jr., the company's president, and other executives were cheap and proud of it, Fortune noted in 1957.

The company didn't blink at spending millions on advertising, ''but the rest of its vast affairs are conducted with the air of a man who just never got enough to eat,'' the magazine wrote. ''Reynolds buys the latest equipment, because efficient equipment saves money. But it often houses this equipment in bleak factory buildings that date back to 1900.''

The top executives at Reynolds, many of whom were millionaires, could have been driven to work in luxury cars. Instead, most of them car-pooled. Peace, the pastoral counselor, had the only company car.

The Reynolds Building didn't get carpeting until about 1955. For many years, the entire building had only two sofas. One was in the employment office and the other in the chairman's office. Herbert Noell Hardy, the vice president of the leaf department, bought his own sofa and put it in his office so he could take a nap after lunch.

Because everyone who worked for the company owned its stock, even the lowest-paid workers considered themselves owners, and top executives and the rank-and-file had a common bond. But owning a few shares of stock did not necessarily give employees the incentive to start counting paper clips. Frugality was a learned behavior, not an automatic response.

''It certainly wasn't (automatic) on my part because I didn't have that much stock then,'' former president Bill Smith said. ''It was a question of this was the way we were taught by our managers.''

There was one area where Reynolds didn't cut back. The Reynolds Way required that the company give time, money and expertise to the community.

Reynolds encouraged its managers to serve on community boards, often allowing them to work on these projects on company time. It donated millions of dollars over the years to causes in Forsyth County, even though directors often worried that other stockholders would object. This dedication started early in RJR's history. In 1891, R.J. Reynolds himself donated $500 to help start Slater Industrial Academy, the predecessor of Winston-Salem State University. In 1946, the company donated $150,000 to build the War Memorial Coliseum on the condition that the community raise $600,000 from other sources.

Money from Bowman Gray Sr.'s estate helped bring Wake Forest College's medical school to Winston-Salem in the 1930s. Later, money and land donations from the Gray and Reynolds families, along with some company contributions, brought the rest of the college to Winston-Salem.

Old Salem, now a historic tourist attraction, could have deteriorated to the point of no return without Reynolds' financial support. And a wide variety of organizations, such as the Piedmont Opera Company -- started by Reynolds' general counsel, Henry Ramm -- benefited from Reynolds' largesse.

The company enjoyed a cozy relationship with city officials because of its clout as the city's biggest employer and because of its deep involvement in community affairs. It was a maxim in town: Nothing was done unless it was first approved on the 19th floor of the Reynolds Building. Retired employees recall sitting in the building's cafeteria in the 1950s watching Mayor Marshall Kurfees stroll by, a trail of cigar smoke in his wake. He would catch the elevator to the 19th floor -- the true seat of power in town -- where he would sit with then-Chairman John Whitaker.

First Among Equals

Even under the Reynolds Way, not every department was created equal. In the manufacturing department, employees developed an arrogance that grew from the firm conviction that they alone were responsible for the company's success. After all, they ran the machines that made the cigarettes.

Newcomers tended to dismiss the manufacturing managers and their underlings as hicks. Almost all were Southerners -- mostly North Carolinians. They chewed tobacco, drove pickups. If they went to college, it was N.C. State. Many were second- and third-generation RJR employees. They were the Marines of the Reynolds Way, an elite corps with its own culture and values.

The same could almost be said of the company's salesmen. ''You keep making 'em and we'll sell 'em,'' Gray, the former salesman, was fond of telling his manufacturing managers. He took pride in the company's sales force, about 1,200 strong when he took over as president. It was considered the biggest and best in the tobacco industry and one of the largest of any kind in the country.

Gray preferred salesmen who were homey and fit in with their territory. They had to be willing to set up displays, unload boxes and help the store owner in any way. The payoff was in the shopkeeper's giving Reynolds products premium shelf space.

When Smith started with the company in 1939, he was a salesman walking from store to store with a cabin bag full of Camels. One day, he decided to call on a store in Richmond that was well known for refusing to deal with Reynolds, preferring instead to deal with a wholesaler.

He walked up to the owner and began making his sales pitch. ''No salesman from Reynolds had ever made a sale in that store, so I decided I was going to be her first,'' Smith recalled. ''And I really pushed -- hard, and finally she picked up a meat cleaver and that's when I decided I didn't want to sell to her.''

In 1953, Bill Carter, the company's assistant sales manager, brought Smith to Winston-Salem to head the company's new medical-convention business. The company would set up in the lobbies of hotels where doctors had conventions. The company had machines that embossed initials on plastic cigarette cases and doctors would stand sometimes 15 to 20 in a line to get a package of Camels and a plastic case with their initials on it, Smith recalled.

He also worked other trade conventions -- tobacco distributors, supermarkets and drugstores -- handing out samples and grabbing elbows. ''More importantly, I think it gave us the contacts with those people, away from their offices,'' he said. ''And that helped us tremendously when we were able to contact them in their offices. But to put it another way, it developed friends.''

In later years it would become easy for critics to call the Old Guard backward. But business according to the Reynolds Way was not always slow. The company had proven with the introductions of Winston and Salem that it could move quickly.

Yet this locomotive culture was ultimately headed for a collision with the jet-set world of international business. Its leaders would clash with new arrivals who had cut their teeth elsewhere, at such consumer-product companies as Procter & Gamble and Thomas J. Lipton & Co.

More important, the Reynolds Way and the riches it brought were based on a product that was coming under fire. Could the part of the Reynolds Way philosophy that called for loyalty -- that pledged never to put the kingdom in jeopardy again -- allow the part of its culture that called for honesty to tell the truth about cigarettes?