Goldstone

NATIONAL PRESS CLUB LUNCHEON SPEAKER
STEVEN F. GOLDSTONE, CHIEF EXECUTIVE OFFICER,
RJR NABISCO HOLDINGS CORPORATION

NATIONAL PRESS CLUB BALLROOM
WEDNESDAY, APRIL 8, 1998

.STX

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        MR. HARBRECHT:  Good afternoon, and welcome to the National Press
Club.  This is our 90th anniversary year.  My name is Doug Harbrecht.  I am
Washington news editor for BusinessWeek magazine, a McGraw-Hill Companies
publication, and president of the National Press Club.

        I'd like to welcome club members and their guests in the audience
today, as well as those of you watching on C-SPAN or listening to this
program on National Public Radio.  Before introducing our head table, I
would like to remind our members of some upcoming speakers.

        Tomorrow, "Mack" McLarty, counselor to the president and special
envoy to the Americas, will speak about President Clinton's upcoming trade
mission to South America.

        Next week, we'll hear Marvin Runyon, postmaster general, on April
14th; Charles Rossotti, commissioner of the Internal Revenue Service, will
appear, of course, on tax day, April 15th; and Zoe Caldwell, actor and
winner of the 1998 Sir John Gielgud Award, will speak on April 17th.  The
following week, the Mayor of Philadelphia Edward Rendell will speak on
April 22nd.  And he is followed by the Secretary of Transportation Rodney
Slater on April 23rd.

        Finally, in April, we will hear former NASA astronaut Mae Jemison
on April 29th.  And our last speaker in will be Kate Shindle, the reigning
Miss America, on April 30th.  (Laughter.)

        Transcripts and audio files of National Press Club luncheons will
be posted this afternoon at our web site, at "npc.press.org".  To purchase
audio and video tapes, please call 1-888-343-1940.  If you have any
questions for our speaker today, please write them down on the cards
provided at the table and pass them up to me.  I will ask as many as time
permits.

        I'd now like to introduce our head-table guests and ask them to
stand briefly when their names are called.  Please hold your applause until
all our head table guests have been introduced.

        From your right, Jim Rosen, the News and Observer, Raleigh, North
Carolina; Jonathan Gardner, Modern Health Care Magazine; Monique Conrad,
Washington Bureau Chief, Blade Communications Broadcast Division; Dick
Keil, Bloomberg News; April Taylor, Detroit News; Chip Jones, Richmond
Times-Dispatch; George Rodrigue, Dallas Morning News; Ken Eskey, Chairman
of the Press Club Speakers Committee; skipping over our speaker for just a
moment, Mark Johnson, reporter for -- with Media General and a member of
the Speakers Committee who arranged today's lunch; Carol Leonnig, Charlotte
Observer; Rebecca Carr, Congressional Quarterly; Ira Teinowitz, Advertising
Age Magazine; Kathy Kiely, New York Daily News; John Hoeffel, Winston-Salem
Journal.

        You might notice that there are no ashtrays at your table -- even
at the National Press Club, the watering hole for journalists in ages past
who grabbed shot of whiskey and lit a cigarette as readily as they reached
for their notebook.  (Laughter.)  Smoking is still allowed here, I should
point out, at the bar upstairs, the Reliable Source.  It may be the only
such location in the entire building.

        The changes in public attitudes toward smoking that led to
smoke-free workplaces and the patch have been gradual.  Those who, in the
past, would walk a mile for a Camel have had to stroll a bit further these
days.  The events of the past year, on the other hand, have been sweeping
and dramatic.  The cigarette giants like R.J. Reynolds and -- forgive me,
Mr. Goldstone -- Philip Morris hunkered down behind the wall of
conventional wisdom that smokers have no one to blame but themselves.
Then, as massive state lawsuits mounted and embarrassing and damaging
company documents emerged, word leaked out that the cigarette giants were
ready to make a deal.

        The unthinkable had arrived.  Tobacco companies were conceding the
harmful effects of their product, offering to pay for at least some of the
costs and even bring an end to characters like Joe Camel.  In June state
attorneys general and tobacco company lawyers signed a deal for $368.5
billion.  Then they waited for the reaction from the public and from the
Congress.

        Nine months later, that deal is still struggling.  The White House
and health groups are fighting to make it tougher, saying among other
things the agreement doesn't penalize the companies enough if smoking among
kids fails to decline.  Congress has hardly budged.  A compromise bill
introduced last week by Senator John McCain of Arizona was billed as
bipartisan and promptly won bipartisan criticism.  Late last week two wire
services reported -- and later back-pedalled -- that R.J. Reynolds was
bailing out of the discussions over the agreement, hunkering down once
more.  Here to explain, we hope, exactly what happened and presumably to
defend the tobacco settlement is the chairman and chief executive office of
RJR Nabisco Inc.

        Steven F. Goldstone previously served as the company's president
and earlier as general counsel.  Before that he was a partner in the law
firm of Davis, Polk & Wardwell.  He is a graduate of the University of
Pennsylvania and New York University Law School.

        And Mr. Goldstone, as you prepare to answer questions from the
press today, I'd just like to read a section from the prologue from
"Barbarians At The Gate", the movie about Wall Street which was made a few
years ago, a book which was turned into made-for-TV movie.  Here's the
passage:

        "It seemed a shame, Steve Goldstone thought, as a warm Florida
breeze tossled his thinning brown hair ..."  (Laughter.)

        MR. GOLDSTONE:  "Thinning""  (Laughter.)

        MR. HARBRECHT:  ".. to introduce black clouds into such a postcard
landscape.  He took no pleasure in the dire predictions he was about to
spin, but it was his job to play devil's advocate.  No one else seemed
willing to do it."

        Mr. Goldstone"  Let's give a warm National Press Club welcome to
Steven F. Goldstone.  (Applause.)

        MR. GOLDSTONE:  Well, Doug, I appreciate the invitation to be here
today and to take the opportunity to tell you and all the shareholders,
employees, and others with an interest in my company and the tobacco
industry where RJR Nabisco is today and where we're going to go from here.
I've literally gotten hundreds of calls over the last week, from investors
and customers and suppliers, retailers, growers, and other interested
Americans.  And this has only emphasized to me the need for a very clear
statement of the situation and the future of R.J. Reynolds, our tobacco
company in Winston-Salem, North Carolina.  And let me tell you straight out
that today it is very clear to me that we have failed in our effort to
achieve a comprehensive resolution of the contentious issues surrounding
tobacco in our country.

        The extraordinary settlement reached on June 20th last year that
could have set the nation on a dramatically new and constructive direction
is dead, and there is no process which is even remotely likely to lead to
an acceptable comprehensive solution this year.  And by that I mean a
comprehensive resolution that sets clear and -- clear and understandable
rules for the future, but acknowledges that tobacco companies have a
legitimate right to exist in our country.

        Now although I believed on June 20th as I do now that a
comprehensive solution was the right way to go to solve the controversies,
the opportunity to implement it has clearly been lost.  Now, it's
worthwhile to take a moment to review what has happened and then to tell
you where our tobacco company is going to go from here.

        I became chairman of RJR Nabisco about two years ago.  You may know
our company -- it's the sixth largest consumer product company in the
world, and as chairman, I'm accountable to thousands of its shareholders
and over 80,000 employees all over the world.  Our companies have developed
some of the great brands in the world for consumer products.  Obviously, in
cigarettes, Camel and Winston and Doral; in our food company, Oreos, Ritz
Crackers, Planters Nuts and Life Savers.  But I'll tell you something.  I
found it uniquely difficult to plan for the future when one of our
companies was outside the mainstream of commerce, absorbed in massive
litigation, under regulatory and political attack, and with no normal
working relationship with the federal or state governments.  And it was
obvious to me that, after 40 years of litigation in which the industry
never lost a case, it didn't matter.  It was not providing the best
environment for my company and its employees.  And it was obvious to me
that a further escalation of the war, even if we kept winning in court,
would not change anything for the better for anybody; for my company, for
the public-health community or for the country.

        So we sat down at a table with our chief adversaries and members of
the public-health community, and the result was a remarkable comprehensive
agreement; tougher and more wide-ranging than anyone had been expecting,
but it would have fundamentally changed the way tobacco products are
regulated, marketed and sold in this country.

        Now, there has been a lot of water over the dam since then.  But
let me remind you what was said at the time, about that June 20th
agreement.  The New York Times, quote:  "Tobacco negotiators announced a
historic settlement proposal today.  If ratified, it promises to change
forever the way cigarettes are marketed in the United States, to provide
billions of dollars in compensation to states, and to permanently alter the
nation's legal, regulatory and public-health landscape."

        One attorney general who had participated in the negotiations said,
quote:  "This is the biggest public-health achievement and corporate
settlement in the history of this country."  Now a leading public-health
advocate Matt Myers of the National Center for Tobacco-Free Kids, said,
quote:  "This plan offers the best hope for protecting our children."  He
called it, quote, "the single most fundamental change in the history of
tobacco control in the history of the world."

        He got a little enthusiastic there.  What's happened since June 20"
Well, instead of any real consideration of the merits of that settlement,
Washington has rushed to collect more tobacco revenues while playing the
politics of punishment.  Not only destroying the negotiated settlement, but
threatening to injure farming communities, retail store owners, and every
one else who participates in this $50 billion industry, as well as every
adult who chooses to use these products.

        The comprehensive settlement failed because the administration,
while publicly praising the concept, privately dismantled it piece by
piece.  This resolution cried out for strong, bold political leadership;
precious little was forthcoming.  This settlement was, instead, subjected
by the administration to partisan positioning.  The comprehensive
resolution also failed because some leading public health advocates who,
seeing the realization of all the programs they had ever fought for, for
years, to obtain -- and some others they had never even dreamed of asking
for -- added a new cry:  a demand for retribution.

        The comprehensive agreement which should have been a public health
advocate's dream come true was left behind in favor of a surprising new
public agenda:  the need to promote litigation and punitive damages against
this industry.  This comprehensive settlement also failed because the
Congress, in the absence of leadership from the administration, dissolved
into a taxing frenzy on a disfavored industry and the 45 million customers
it serves.  And I'll tell you something; to be completely honest, it also
failed because those of us in the industry did not fully appreciate the
depth of the mistrust and anger that existed about the industry's past
controversies.

        So the atmosphere that we had hoped, through this settlement, to
clear, eliminated any chance of rational and realistic discussion of the
proposal and drowned out virtually all reasonable voices.  People more
interested in the political expediency of acting tough on the industry --
or in preserving the tobacco controversy for their own political benefit --
have dominated the debate.

        Now I have to say that there were some who did resist the
temptation to exploit the politics of the moment.  Senator Orrin Hatch, a
long-time tough critic of the tobacco industry, after studying the
agreement carefully, endorsed the essential framework of the comprehensive
settlement, including liability reforms, and acknowledged that, quote,
"realistically, unless all the parties who were originally at the
bargaining table and who made the settlement possible have some level of
acquiescence in the bill, we risk jeopardizing enactment of a program and
its successful implementation."

        But the fair process of debate that we and the attorneys general
had hoped for ended up instead in a process of discrimination and
exclusion.  The bill approved by the Senate Commerce Committee received
significant input from interest groups of every shape and variety -- except
from the very industry that was sought to be regulated.  An industry which
is the largest corporate taxpayer in the United States, which provides
employment for over 2 million Americans, and which sells a legal product to
over 45 million people, was not entitled to be considered.  It was a
chilling reminder that many of our representatives in Washington believe
that our industry simply has no right to be heard or to participate in the
legislative process in the United States Congress.

        So now you know, in a nutshell, why I've concluded that this
legislative process, as far as tobacco is concerned, is broken beyond
repair.

        Now why did this political process break down"  My answer is one
word:  money.  Three-hundred sixty-eight billion dollars that was in the
June 20th agreement is apparently not enough to satisfy all the wishes of
the federal government.  The amount has to be doubled or even tripled to
pay for all sorts of new programs having nothing to do with kids smoking.
Just take a look at the president's budget submission this year and you get
the idea.

        Let me be clear on what the Commerce Committee bill will do.
Although they say it raises prices by $1.10, that's not true.  The reality
is, as every Wall Street expert has commented, the price of cigarettes
would be more than doubled or even tripled under the Commerce Committee
bill.  This would impose costs of hundreds of billions of dollars on adult
consumers to fund huge government programs, and all of this is justified
politically in term of one thing -- stopping kids from smoking.  But
remember, less than 2 percent of all sales go to under-age smokers.  Now
don't get me wrong, I don't mean to minimize the problem, but the facts are
the facts -- less than 2 percent.  So this proposal prescribes billions of
dollars of tax increases imposed on more than 98 percent to influence 2
percent.

        Not only that, this proposal knows what every law enforcement
officer knows; that the price increases they're talking about will create a
black market overnight.  Do you know how many packs of cigarettes can fit
into one trailer truck"  Six hundred ninety-five thousand packs of
cigarettes.  That is 14 million cigarettes in one truck.  It is simply
irresponsible to brush aside the problems with black markets that our
neighboring countries, like Canada, have experienced when they raised
cigarette taxes by even lesser amounts than what the Senate is talking
about.  You cannot have effective enforcement of laws limiting access to
these products if teenagers are buying cigarettes off of the backs of
trucks.

        What, you reasonably may ask, is going on here"  No one knows
definitively why kids smoke or what could be effective in convincing them
not to.  The recent report from the Centers for Disease Control show a
disturbing increase.  And Michael Ericson (sp), head of CDC's Office of
Smoking and Health, frankly admitted the other day that there is no answer
to the question why.  Quote:  "There's been incredible rhetoric over the
past few years," end quote, he says, "but very little has changed," end
quote.

        Now, the negotiators in the June 20th agreement realize that
there's no one silver bullet that will cause a reduction in teenage
smoking.  That is why settlement included a multifaceted balanced approach
to the problem with real enforcement of youth access laws along with
voluntary advertising restrictions, education programs and gradual price
increases up to a dollar-fifty in less than 10 years.  The package included
every element ever suggested by mainstream public health experts with an
ongoing opportunity to evaluate and adjust the mix as we gained experience.

        All of this sound thinking has been ignored in the debate in
Washington.  Instead, we hear only the calls for greater and greater
taxation, all under the guise of protecting our children.  But you know
what"  As parents we know that the reasons kids smoke aren't related to
price.  In the trendy world of $100-plus sneakers, a few dollars to be
fashionable or cool apparently are not a problem.

        If people would only listen, the kids tell us that themselves.  At
a recent House Commerce Committee hearing a teenager was asked by a
congresswoman, quote, "Do you think raising price would deter some students
from smoking""  "No, because if you look, it's kind of weird how people
would be willing to pay $150, $200 for shoes.  And then when it comes to
cigarettes, people will moan, they'll groan, but they'll still pay."

        You know, the local school professionals know this, too.  One
principal of an Ohio high school said "Cost is not a big factor.  Most kids
have enough money or can get enough to pay more for cigarettes."

        And, I'd like you to do me a favor.  Remember for a second where we
were before this Washington debate took off into financial orbit.  When the
FDA regulation was announced in 1996, it didn't include one thing about
price increases.  Not one cent.  Yet the president said, "We have today met
our responsibility to help our country protect its values, protect its
children, and ensure its future."  David Kessler said, "Our regulation
focuses on restricting access and reducing the appeal to children, because
that's the right public health strategy."  Secretary Shalala said of this
FDA regulation in 1996, which, I repeat, did not involve a penny of price
increases or taxes, quote, "The most important public health initiative in
a generation.  It ranks with everything from polio to penicillin.  This
will be huge in terms of its impact.  We will reduce the amount of teenage
smoking by half over the next seven years.  This is a comprehensive
approach."  End quote.  Not one penny of price increases.

        Now, just two years later, all we hear in Washington is taxation,
taxation, price increase, price increase, as the only solution to the
problem.   Now there's one fundamental problem with that for me.  Those
price increases will destroy the domestic tobacco business, and I don't
just mean my company.  They're going to put the growers out of business,
and they're going to destroy many communities where those growers live.
They're going to hurt badly the thousands of small retailers across the
country and they're unfairly going to burden adults who choose to smoke and
who can least afford that kind of taxation.
 
        You know, you do not have to rely on me for these points.  Let's
listen to what Wall Street's unanimous view is.  Gary Black of Sanford
Bernstein called the Senate Commerce Committee proposal last week "a $600
billion proposal from the land of make believe" -- end quote.  Martin
Feldman of Solomon Smith Barney said as follows:  "So where might the U.S.
tobacco industry be by the year 2003 if McCain's proposals are legislated"
The real retail price of cigarettes will exceed five dollars per pack.  A
thriving black market will have developed.  U.S. farmers and manufacturers
will have lost market share to foreign entities, and the weaker U.S.
companies may have filed for bankruptcy protection.  The aspirations of the
proposed bill are more likely to be achieved by policy based on compromise
and an understanding of industry dynamics rather than by trying to bludgeon
the industry to death."

        Finally, David Adelman of Morgan Stanley wrote, "Politics, not
policy, is unfortunately dominating the settlement process.  The proposal
would likely force RJR Nabisco into bankruptcy and would quickly result in
a very significant black market and will not resolve the nation's tobacco
issues."

        I'm going to -- I want to -- I really want to talk about one other
thing apart from taxes.  You know, on top of Washington's urge to use the
tobacco controversy as a unique opportunity to raise revenue, the debate
has really taken on truly a coercive, big brother type tone.  Not only do
politicians not think twice about proposing huge tax burdens on adult
smokers, but the adults of our country apparently cannot be trusted or
allowed to exercise their own judgment freely.  I'm going to give you one
example.

        The Commerce Committee bill, in the stroke of a pen, would
completely eliminate the camel image from my company's packaging.  Now,
this is a trademark that Reynolds has used for more than 80 years.  I don't
from the back of the room whether you can see the camel on that pack of
cigarettes.  Been there for 80 years, since this package cost five cents.
This image is known worldwide.  Yet the Commerce Committee determines, with
no debate, that a picture of a camel on a pack of cigarettes is too
dangerous even for adults to see.

        So I come back to it.  The legislative process that produced these
proposals does not give me any hope that it can produce a reasonable or
rational result.  So where does this all leave us"  My answer is:  just
about where we were a year ago, before we signed the June 20th agreement,
although we will undoubtedly incur costs and litigation expenses as a
result of this failed settlement effort.  And here is what I see:

        First, I have told my colleagues in the industry that, effective
today, I no longer see any purpose in working toward the June 20th national
settlement.  I stand behind the comprehensive resolution embodied in the
agreement, but I see no possibility in this environment to achieve it.

        As a business enterprise, then, we have to address how our company
will go from here.  First, we will be a responsible corporate citizen,
while growing our tobacco brands and competing for the business of adult
consumers.  We fully accept that the U.S. market is going to continue its
overall decline, but there is a lot of room for our company to continue to
grow and prosper.  Three out of four adults in the market do not smoke
brands made by Reynolds, and each point of market share is very valuable,
and we can obtain it through effective communication with adults.

        We have also heard the concerns of the public, parents, and others
who want to take the steps necessary to ensure that tobacco products are
not marketed or sold to kids.  I have testified in Congress, and I firmly
believe that marketing directed at children is not only illegal, it is
immoral, it is unethical.

        Our tobacco company operates on these principles today, and we will
work and we will support efforts toward achieving reasonable, effective,
and measurable results to reduce teen smoking.

        I share a responsibility with the parents of our company -- country
-- excuse me -- to educate our children that they should not smoke.  It is
an adult product with known health risks.  We don't need the 17 new federal
boards and commissions that would be created by the Commerce Committee to
get this message to our children.  As a parent, I do not believe we have to
rely on Washington to teach our children right from wrong.  In fact, I plan
to work with my colleagues in the industry to encourage independent,
non-government-controlled efforts to educate our children about the
lifestyle decisions they make that so concern us as parents.

        As a second point, now, I knew that when we started this settlement
discussion we would suffer for our attempt to settle in compromise.  And
that the plaintiffs' lawyers would trumpet it as a sign of weakness to
solicit even more and more cases against us.  Well, this is already
happened and we are facing hundreds of cases more than we had just a year
ago from lawyers seeking jackpot judgments of every variety.  But let me
assure you and them that we are not, as they would like to have it, like a
Brinks truck overturned on a highway.

        To the lawyers who, as reported in the Wall Street Journal last
week, have been advertising for plaintiffs on late night TV and producing
home videos on how to sue this industry hoping that a huge pot of money
would be theirs for the taking, I say you have been operating on a wrong
assumption.  We will not stop defending ourselves.  We continue to have
strong defenses to these claims and American juries continue to respect
notions -- basic notions -- of personal responsibility and the consequences
of free choice.  We have consistently prevailed in front of impartial
jurors and we will continue to do so.  I'll tell those plaintiff lawyers,
if you gamble on a big new inventory of the same old cases, you are making
a bet you will not win.

        Just a few weeks ago, our industry won a big case -- an important
case -- in Indiana, in which a very renowned, nationally known plaintiff's
lawyer presented a full-blown case including all of the industry's
so-called "damning documents."  The jury, nonetheless, had no problem
distinguishing political science from real science and brought in a defense
verdict in a second-hand smoke case.  So I believe the industry should and
will continue to win the vast majority of cases.

        Now, finally, we're also going to have to litigate some state cases
on Medicaid reimbursement and I just want to touch on that for a moment,
because the states have, for years, approved tobacco as a legal product and
they have taxed it to the point of no return.  They did this knowing the
health risks associated with the products and while knowingly granting
their citizens the right to smoke.  These cases don't have any merit, and
courts in Maryland, San Francisco, Washington and West Virginia have
already thrown them out, and undoubtedly, where fair tribunals exist,
others are going to follow.

        Now finally, and perhaps most important, we are going to speak out
and engage in a public policy debate on the issues that affect our
industries and our customers.  And I don't mean just the country's 45
million smokers, I mean the hundreds of farming communities, the tens of
thousands of small grocers and convenience store owners, the truckers, the
distributors, the suppliers and others -- two million Americans in all --
who have an economic stake in this industry.

        I pledge to my employees and to my shareholders I will devote much
of my time and my company's considerable resources to fostering a healthy
and vigorous debate about the choices this country has.  And I have talked
to the chief executive officers who lead the other companies in this
industry, and I have absolutely no doubt that they will join me in devoting
their considerable resources to raising these issues in every town across
this country.  And the primary issue is taxation.  Is it fair to increase
the taxes on cigarettes by huge amounts to pay for new federal spending
programs or to provide tax cuts for wealthy Americans"  You know, the
Commerce Committee bill would raise taxes so that Washington would make 15
times more than our tobacco company does on every pack of cigarettes sold
-- 15 times.  That is big business for big government, but it is bad
business for Americans.

        What would this do to real people, and to the family of a smoker
who makes $25,000 a year"  By the fifth year, it would increase his tax
bill by almost $1,000 a year -- more than he will then be paying in federal
income taxes.  It's also bad business for the growers and their farm
communities, who are our partners.  Taxes this high, and the reduction they
will cause in volume, plus the further restrictions on foreign sales in the
bill will crush them too -- towns like Carrollton, Kentucky; Wilson, North
Carolina; or Danville, Virginia; or towns in Tennessee like Carthage.  And
it's not just the farmers, it's the hardware store owner, the farm
equipment man, the fertilizer distributor, the local banker, or the real
estate agent.

        Blake Brown (sp), who is a leading agricultural economist, sums it
up when he says these communities will be devastated.  Their jobs will be
lost, and they will not be replaced.  Washington does not realize that
farmers don't want government hand-outs and that a farmer welfare program
will not even begin to address the problems of others in the community.

        So we are going to talk to the people about all this, and we're
going also to talk to them about the intrusion of government into the free
enterprise system and censorship and coercion of individual liberty.  We're
going to see if adults want their federal government to censor the images
they are permitted to see, like that dangerous camel that has been on the
front of our package for 80 years.

        Now, you know, this all may sound like political rhetoric to you,
but I assure you it is not.  These are real issues facing real people
involved in this business.  They are issues that could not be more serious
to them and to me as head of this company.  I have a responsibility to
them, and I have a duty to my shareholders and the employees to do what I
can do to protect them.

        Now, I'm not that unrealistic.  I know that there is little doubt
that my words today will be met with more of the same litany of accusations
about past misconduct that some people would rather have the country focus
on to the exclusion of any vision for the future.  But I cannot afford to
dwell in that debate.  I cannot afford to dwell in the past.  I have a
business to run in an industry on which millions of people depend.  We
simply have to move on.

        Finally, I cannot tell you how disappointed I am that our effort to
reverse years of acrimony and chart a new direction have failed for now.
Perhaps at some point a real opportunity for a comprehensive resolution
will present itself.  Perhaps another opportunity will not arise as events
play out over the next few years.  But we really have no possibility for
reasonable reform today.  So we will continue to manage our business in the
most responsible and competitive way we can.  And we will discuss the
questions openly in towns across this country.  And I have no doubt that
when the debate occurs, the American people will bring wisdom and common
sense back to these issues.

        Thank you very much, and I'm happy to take questions now.
(Applause.)

        MR. HARBRECHT:  Mr. Goldstone, just a few questions to clarify:
Are you saying that you and your company will refuse to participate in any
further negotiations toward a settlement"  And the president's going to be
in Kentucky tomorrow.  What if the president personally asked you to change
your mind on the points you've made today"

        MR. GOLDSTONE:  You know, I have reached a judgment about where the
likely process is going to lead and the quality of the debate we're having
in Congress.  The president doesn't need to ask me anything; the president
needs to stand up to Congress and to the public health community and to the
country, and do what is right.  It was not easy for me to enter into these
negotiations a year ago.  I know it wouldn't be easy for the president to
take that leadership role, but I think he's got to do it if we're going to
make progress.

        MR. HARBRECHT:  Well, Mr. Goldstone, right here I have comments
from the president today, made in a high school in Kentucky, where he says,
"I hope that RJR will consider it, because obviously when it comes
advertising and restricting advertising aimed directly at children, it
would be better if we had common positions."  Could you address that"

        MR. GOLDSTONE:  I asked the president a year ago to join with us on
common positions, but he hasn't done it.  So I have to move forward and
protect my employees and protect my business.

        But the one thing I can tell you for sure:  My company will not
target children.  They will not advertise -- anyone in my company who ever
is seen to do that today will be out of a job in five minutes.

        MR. HARBRECHT:  Even Donald Trump would say that all deals are
negotiable.  You clearly oppose this latest bill, but what specifically
could be done to keep you at the table"

        MR. GOLDSTONE:  I really today do not see anything, except for one
thing:  I signed the June 20th agreement, and when I sign an agreement, I
commit to it.

        But I have to tell you that I think the issues that we need to
debate in this country are so important that I'm not going to spend my time
in Congress, walking the halls in Congress, on the assumption that senators
or representatives would see me; I'm going to talk to people in the country
about what I think the important issues are.  Regressive taxation, unfair
taxation, arguments that don't have merit and also coercion, restriction of
individual liberties of adults, I think are something we need to talk about
in the country.

        MR. HARBRECHT:  Do you speak for RJR alone, or is this an industry
statement"

        MR. GOLDSTONE:  No.  This is a strongly held view that I have come
to as chairman of RJR Nabisco.  I have talked to the chief executives of
the other companies, but they are going to have to make up their own minds
as to how they want to proceed.

        MR. HARBRECHT:  Have you discussed your announcement today with any
other tobacco executives, and do you expect others to follow your lead"

        MR. GOLDSTONE:  Well, it's kind of the same question, the same
answer.  I have let the chief executives of the other companies know the
essence of what I am going to say, the same way I have let a number of
senators and Congress people know what I was going to say.  But I don't
know exactly how they are going to respond.

        MR. HARBRECHT:  Will you now go to trial with all the remaining
states or continue to settle"

        MR. GOLDSTONE:  I haven't crossed that bridge right now, except to
tell you that my instinct now is the defend ourselves as strongly as we
can.

        Those state cases, again, as I said in my talk, where you have
taxed this product so dramatically; I mean, for anyone to say today -- is
there one person in this country that doesn't know cigarettes are not good
for you"  And yet these states have taxed this product aggressively and
made a lot of money from this product.  I don't see the merit of those
cases.  So my instinct now is to have our company provide as strong a
defense as it can possibly provide.

        MR. HARBRECHT:  Here is a question from a skeptic.  Are your strong
statements today part of an ongoing negotiating strategy aimed at getting
the best possible deal for the tobacco industry"

        MR. GOLDSTONE:  I will tell you something.  I am not kidding around
when I say I am done with this process.  I am not going to spend time
walking the halls of Congress in the context of a process that I see is
completely broken.  I will say that I signed the June 20th agreement, and I
commit.  And when I sign a contract, I perform on it.  But that's the only
thing I have done.

        MR. HARBRECHT:  On the one hand you said raising prices on
cigarettes will not deter kids from buying cigarettes; on the other you
said taxing cigarettes will destroy the domestic market.  Isn't that a
contradiction"

        MR. GOLDSTONE:  No.  I wish it were, but it's not.  Unfortunately,
all the evidence I have seen is that kids who smoke, smoke will -- and for
the money that they have, all kids' money is discretionary income.  They
can spend it any way they want to spend it.  It's the 40-year-old adult who
is trying to raise a family of four on an income of $22,000, his money is
not discretionary.  And he will either trade down to cheaper cigarettes, or
many might have to smoke fewer cigarettes.  And those are adults who will
be denied the opportunity of making their free choice.  And it especially
galls me about that when I see the president's budget, or when I hear
people in the House talking about let's collect taxes from people with
incomes like that so we can reduce taxes on other Americans who don't need
those tax breaks.  I find that frustrating, to say the least.  And I do
plan to talk to people in this country about that.

        MR. HARBRECHT:  Does your industry share any of the blame for the
current status of the legislation, since your representatives insisted they
would not compromise in any way upon the June 20th agreement"

        MR. GOLDSTONE:  Well, I don't -- I think when you see a process as
broken as this process is it really doesn't matter much what the industry
says, in my view.  I will tell you, though, that I think it's the kind of
thing you can have regrets about, and it is something that perhaps this
industry should have come to grips with before.  But that's water over the
dam.  We came to grips with it when we did.  But we did underestimate the
emotional content, how angry people have been over this issue.  That
clearly was a misjudgment on the part of the industry.

        MR. HARBRECHT:  What's to stop Congress from passing a bill over
your objections"  And then what"

        MR. GOLDSTONE:  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.  I will tell you that over the next several months leading to
the election in November we are going to have serious discussions with
people in this country about the quality of the debate in this town and the
lack of leadership, and voters in this country will hold representatives
accountable according to their own judgments about the outcome of that
debate.

        MR. HARBRECHT:  The tobacco deal hasn't even made it to the House
yet.  Do you have any hope that the House Commerce Committee or other
panels will pass a tobacco bill more to your liking"

        MR. GOLDSTONE:  I have no hope whatsoever.

        MR. HARBRECHT:  Are you surprised that the agreement with the AGs
got so little support from Republicans who traditionally have been strong
backers of the tobacco industry"

        MR. GOLDSTONE:  Well, my -- I'm disappointed.  I would say that it
would be unrealistic to think that the Republicans, given the kind of
debate that has taken place, would be aggressively taking leadership when
the president has been really so ambivalent.  I must tell you that the
little that I did see in Congress when I spoke to some senators and some
congressmen, and whether they were Democrats or Republicans, the issue was
always the same: "This is not going to go anywhere unless the president
gives us a bill and supports it."  So it doesn't surprise me; it
disappoints me, but it doesn't surprise me.

        MR. HARBRECHT:  Why should you be granted relief from punitive
damages for past conduct when that conduct is only now coming to light"

        MR. GOLDSTONE:  Well, you know, the June 20th agreement includes a
payment of $60 billion of punitive damages.  Now, this industry has never
paid punitive damages in its entire history, and $60 billion is more money
in punitive damages than has ever been paid by all the companies in all the
history of commercial litigation in the United States.  So don't tell me we
haven't paid punitive damages.

        MR. HARBRECHT:  For years, tobacco executives told Representative
Henry Waxman's public health committee that nicotine is not addictive.  Why
should the public believe you now"  Why should they believe that tobacco
will make good on their promises in the settlement"

        MR. GOLDSTONE:  You know what I think is really the terrible, just
terrible loss for this country is that if we had had that June 20th
resolution, the country would no longer have to listen, "What does Steve
Goldstone think about whether tobacco is addictive or not""

        You know something, I'm not a scientist, I haven't the faintest
idea.  Except that in the common parlance that we use, I have said I think
it's addictive.  But what difference does it make what I think"  What
matters is the comprehensive resolution required these tobacco companies to
stop debating these health issues.  There would have been a warning on the
pack for all to see:  Tobacco is Addictive.  That would be the end of it.
Consumers would make of it what they want and our companies would no longer
debate it.  And I really think that's important.

        What some of those who want to foster debate do is they keep
banging heads on, "What does the tobacco executive think""  What difference
does it make"  Who cares what the tobacco executive thinks"  What we care
about is what does the pack of cigarettes say, what does the surgeon
general say, what does the consumer think, not what the tobacco executive
thinks.  We're looking at the wrong person, and the June 20th resolution
would have solved that problem, but it doesn't look like that's going to
happen.

        MR. HARBRECHT:  Your tobacco public relations campaign, which you
mentioned in your address, how will you do this -- meetings, advertising
from your company, from all companies"  How will that be done"  And what
will you spend on that too"

        MR. GOLDSTONE:  Well, really what we're going to do is enter into a
debate across the country.  And I don't know that I'd call it a public
relations campaign as much as it is going to require a tremendous personal
effort on my part, on Andy Schindler, who is the chief executive of our
company, and I hope the rest of the industry will join me, where we visit
all parts of this country and talk about these issues.

        I don't know how much money it will cost.  All I am telling you is
whatever is required to be able to have a dialogue with Americans on these
issues of taxation and coercion and curtailing of individual freedoms, I'm
going to have and I'm going to spend my company's money on it.  And I
certainly hope that the rest of the tobacco industry, and any other
corporation in America who thinks these issues are important, joins us in
the debate and maybe travels with us.

        MR. HARBRECHT:  Do you smoke"  If not, did you ever"  When and how"
And how did you quit"

        MR. GOLDSTONE:  You know, one of the things about the question of
addiction is I keep thinking of the juror who I once heard say after a
trial, "Yes, it's addictive, but you can quit."  I mean, more people in the
United States today have stopped smoking than are currently smoking.

        Now I will tell you, as I've told others, I smoked cigarettes -- I
happened to smoke Camels -- when -- after I went to college.  I was about
19 or 20.  And I smoked till I was about 32 years old.  And I have to admit
it to you, I enjoyed it very much.

        But there came a time where, just kind of balancing it, the -- what
I thought were the risks to my health versus the enjoyment I got from
smoking cigarettes, I decided to quit.  And I quit when I was about 32
years old.

        And I did see yesterday the criticism of President Clinton, so I
hesitate to say this, but I have to answer you forthrightly, I do enjoy a
cigar on occasion today.

        MR. HARBRECHT:  Here's your chance for a mea culpa.  Will you
apologize for targeting underage smokers"

        MR. GOLDSTONE:  In the two years that I have been chairman of this
company, I have been very, very clear to people who work in my company that
we will not do that.  And I absolutely know that that is not an issue in
our company today.

        I think where the industry probably should have some regrets is
that we should have come to grips with the issues that were troubling
Americans years ago.

        You know, one of the problems here is that we make a product that
is a risky product.  And in our tort system in the United States, when you
make a product like that, you are going to get sued from morning till
night.  And that's just the reality.  That's the way we do it in the United
States.  And what happens is these companies have had lawyers advising
them, and I think, in trying to defend these cases, they have been careful.
And the country and the industry got into a confrontational mode that I
think the industry, in hindsight, probably should have tried to break
before it did now.

        But we are where we are today, and that is not an issue for RJR
Nabisco.  And I don't believe that is an issue for Reynolds competitors in
the industry today.

        MR. HARBRECHT:  One other follow-up, sir, on the public relations
campaign before -- will you run independent political ads before the
November elections, and will you take aim at supporters of the tobacco
bills in Congress"

        MR. GOLDSTONE:  No.  I wish I had this plan more well-thought out.
I really don't.  The only thing I can tell you is I'm going to have to take
the advice of experts.  One thing I have learned in the last year, I am not
a politician.  And, in fact, I know precious little about the way this city
works.  But, I am going to do what I need to do to speak to Americans
across the country, more, I hope, in small groups.  And I don't mean just
smokers and farmers in the communities.  I'm talking about people who are
fathers and mothers, who may have an instinct that there's something really
wrong about Americans having the right to smoke, if they choose to do it.
And I want to talk to them about the issues.  So it's not just people who
will be directly economically concerned.  I want to talk to people who
might be concerned about government intruding into the personal choices
that Americans make once they're fully informed.

        MR. HARBRECHT:  Mr. Goldstone, before I ask our final question
today I'd like to present you with a few gifts here.  One is a certificate
of appreciation for appearing today.

        MR. GOLDSTONE:  Thank you very much.

        MR. HARBRECHT:  This is our history book, the 90th anniversary
history book, "Reliable Sources."  You can read about the National Press
Club back when everybody used to smoke cigarettes.

        MR. GOLDSTONE:  Terrific.  Thank you.  That's great.

        MR. HARBRECHT:  And here is the National Press Club mug, which is
perfect with coffee and a cigar from time to time, sir.  (Laughter.)

        MR. GOLDSTONE:  (Laughs.)  Thank you.

        MR. HARBRECHT:  For our final question today, considering the
acrimony over the tobacco industry, have you ever been tempted to find a
less controversial line of work, and what would it be"  (Laughter.)

        MR. GOLDSTONE:  Well, I have to tell you, the thought has crossed
my mind.  And one thing I can say with absolute certainty, I left the legal
profession about two years too early, from what I can see -- (laughter) --
in terms of the litigation environment.

        I'm not -- I will tell you something.  As chairman of this company,
I get invitations to play golf, like other chief executives, quite often.
In another life, in another job, in another industry, being chairman of a
company this size is probably a hell of a lot of fun.  But it is not fun in
this company.  But I will tell you, it's what I said before:  this is the
job I have, I have fiduciary duties, I owe my loyalty to my employees and
to my shareholders.  But I was in the happy situation last year of thinking
that my loyalty to shareholders, loyalty to employees matched perfectly
what was right for the country.  Now, that hasn't happened.  But I'll tell
you something:  we are going to go forward.  It's my job to do it.  And
we'll just go forward and talk to Americans about the issues that I think
are important for them to debate.

        MR. HARBRECHT:  Thank you very much.

        MR. GOLDSTONE:  Thank you.  (Applause.)

        MR. HARBRECHT:  Thank you.

        I'd like to thank you for coming today, Mr. Goldstone.  I'd also
like to thank National Press Club staff members Kate Goggin, Joanne Booze,
Pat Nelson, Melanie Abdow Dermott, and Howard Rothman for organizing
today's lunch.  Thank you very much.  (Sounds gavel.)

####

®FC¯END

®FL¯


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