FAMILY BUSINESSES

January 31, 2005 12:48 am by Gene Borio

If you were to examine the trial proceedings so far you would have a terrible time deciphering what any particular lawyer, witness or judge meant, exactly, when they said, “teens,” “youth,” “addictive,” “smoker,” or even, “Philip Morris.”

As near as I can determine, the executives involved with the slicing and dicing of the company that once was known as Philip Morris, Inc., have apparently succeeded in insulating major portions of that formerly single organization from the DOJ litigation.

There are 6 companies in the current “Altria Family of Companies.” If for some reason a member of the family gets into trouble with the law, the other parents, siblings and first cousins may be willing to go its bail, but they are certainly not about to pay any outstanding legal judgements. For example, only 2 of the 7 have been named in the DOJ lawsuit: Altria Group, Inc. and Philip Morris USA.

We’re only talking 7 entities here, but determining legal liability gets complex — even considering only the two named above.

On Wednesday, Mr. Webb began his cross of Altria Group VP Steven Parrish by presenting an organizational chart of the Altria family of companies. Here’s the overall corporate structure:

  • Altria Group, Inc. (formerly Philip Morris Companies), has whole or partial investments in 6 other companies:
  • Altria Corporate Services (formerly Philip Morris Management Corporation) (100%)
  • Philip Morris USA (formerly known as Philip Morris, Inc.) (100%)
  • Philip Morris International (100%)
  • Kraft Foods (100%)
  • Philip Morris Capital Corporation (100%)
  • SAB Miller (40%)
  • (Now we can set aside SABMiller right away. Altria Group only owns 40% of that, and there are a whole slew of even more complex business issues involving time, money and ownership here–but they don’t affect us so much in this discussion. So for once, just forget about the beer. Another company we’ll have to forget about is Philip Morris Capital, not because I don’t think it’s important, but only because it has completely escaped scrutiny in the DOJ suit and elsewhere.)

    On top of Mr. Webb’s organizational chart sat

    ALTRIA GROUP, INC.(formerly Philip Morris Companies, Inc.)

    HQ: 120 Park Ave, NYC
    CHAIRMAN & CEO: Louis Camilleri:
    Previous Chairman: Geoffrey Bible

    Altria Group is what’s known as a Holding, or Parent company. Theoretically, the only purpose of Altria Group is to hold investments in the other 6 companies. It may exercise some sway in the other companies” actions, as would seem proper for an entity that has a 100% investment in a company. But Mr. Webb emphasized the subsidiary companies’ total separation from each other and from the influence of parent Altria Group; he averred that the CEOs of those separate companies make the final business decisions for their companies.

    The 2003 Altria Group Annual Report reported net revenues of $81.8 billion, operating income of almost $15.9 billion, and net earnings of $9.2 billion. Mr. Parrish in his written testimony agreed that cigarettes still provide approximately two-thirds of Altria Group’s net revenues.

    Mr. Parrish, as Vice President of Corporate Affairs for Altria Group (nee Philip Morris Companies, Inc.) reports directly to the Chairman and CEO of Altria Group Inc, Louis Camilleri. His duties, he said in his written testimony, are thus:

    I am responsible for corporate communications, for corporate government affairs, which means federal, state and local government affairs, for the corporation and all of its operating companies in the United States, all of our corporate philanthropic efforts. Our corporation’s chief compliance officer reports to me. . . I also have what we call functional responsibility for corporate affairs all around the world, which means that the corporate affairs executives from our operating companies around the world have a “dotted line” responsibility to me. I am also in frequent contact with people in the operating companies, such as Philip Morris USA, on certain key issues.

    . . . for Philip Morris International, issues like regulation of tobacco by the World Health Organization; for Philip Morris USA, examples would be communications regarding FDA regulation, litigation issues, and other similar issues. Generally, I am talking about issues that would be of importance to and have potential impact on the shareholders of Altria.

    Because of the likelihood that I would be a witness in this case, I have had very little contact with anyone regarding it.

    There is one key company Altria Group owns which “oversees and supervises” the other companies — apparently some sort of practical buffer company between Altria Group and the others. That entity is,

    ALTRIA CORPORATE SERVICES(nee Philip Morris Management Corp.)

    ACS (ironic acronym presumably not intended) doesn’t have a product, it produces nothing; it is all service-oriented. It’s a small (but mighty) company compared to one of Altria Group’s large companies, like Philip Morris USA, which has 11-12,000 employees, ACS has only about 35-40.

    Mr. Parrish said Wednesday,

    ACS provides certain services to the operating companies and to Altria Group itself. . . In my department, we provide government affairs services to Philip Morris USA, Kraft, Philip Morris Capital Corp., and to a lesser extent Philip Morris International. . . When ACS does work for Philip Morris USA it bills both Philip Morris USA and Altria Group.

    Mr. Parrish worked for PMMC (now ACS) from 1990-1995. For nearly the same period of time, he was also VP and general counsel of Philip Morris USA.

    From Mr. Parrish’s Written Direct Testimony:

    Q. Have employees of PMMC (now ACS) always reported ultimately to Philip Morris Companies (now Altria Group)?

    A: Yes. However, where ACS employees are performing services for an operating company such as Philip Morris USA, they generally act at the direction of the operating company with regard to those services.

    Q: PMMC (now ACS) employees ultimately acted and act on behalf of the parent company, Philip Morris Companies (now Altria Group), right?

    A. No. PMMC (now ACS) employees act on behalf of different entities at different times. For example, when ACS employees perform services for Philip Morris USA pursuant to the services agreement between ACS and Philip Morris USA, those employees are acting on behalf of Philip Morris USA. Likewise, when ACS employees perform services for Altria pursuant to the services agreement between ACS and Altria, they are acting on behalf of Altria.

    Altria Corp. Services is not named in the DOJ suit.

    YOU SAY SEMANTICS, I SAY SZYMANCZYK

    PHILIP MORRIS USA

    Chairman and CEO: Michael Szymanczyk

    Philip Morris Inc. became Philip Morris USA at the same time Altria came into existence in Jan, 2003. There are documents referring to Philip Morris USA before that date, yes, because that’s how Philip Morris Inc. was known internally. In 1967, Philip Morris Inc. reorganized to create three internal operating divisions: Philip Morris Domestic, Philip Morris International, and Philip Morris Industrial. In 1968, Philip Morris Domestic changed its name to Philip Morris USA.

    Mr. Webb emphasized that Philip Morris USA has its own financial records, officers and board of directors, all of which are completely separate from Altria Group’s.

    Mr. Parrish said Altria Group “supervises activities at Philip Morris USA in a way that is typical” of holding companies, ie, it does not manage Philip Morris USA’s day-to-day business decisions.

    MR. WEBB: Who has the final authority to make business decisions at Philip Morris USA

    Mr. PARRISH: Michael Szymanczyk and primarily Michael Szymanczyk.

    Mr. Parrish’s Written Direct Testimony shows how this division of authority plays out in practice:

    Q. The October 1999 position statement posted on the PMUSA website was a new corporate position for the company, correct?

    A: Yes, it was.

    Q: Was Geoffrey Bible, Chairman of Philip Morris Companies, also made aware of the content of the 1999 introduction of the Philip Morris USA website before it was launched?

    A: Yes, he was.

    Q: You discussed the website position statements with Mr. Bible before they were uploaded and made available on the website, correct?

    A: Yes.

    Q: And in fact, if Mr. Bible had disagreed, he could have taken steps to prevent Philip Morris USA from adopting and posting the October 1999 corporate position, correct?

    A: Yes, in theory. If Mr. Bible had disagreed and had been unable to persuade Mr. Szymanczyk, the CEO of Philip Morris USA, to accept his point of view, Mr. Bible, as the Chairman and CEO of the sole shareholder of Philip Morris USA, could have taken steps to seek Mr. Szymanczyk’s removal as the CEO of Philip Morris USA.

    Q: So really it was Mr. Bible and Philip Morris Companies who had final authority as to the Philip Morris USA position on disease causation and addiction, correct?

    A: No. Mr. Szymanczyk, as the CEO of Philip Morris USA, had the final authority as long as he remained CEO.

    Q: Does Altria Group have that final authority today?

    A: No. Please see my two answers immediately above.

    **———————————————————

    DR. WYNDER’S KRAFT WORK

    A puzzling round of testimony during Mr. Webb’s cross of Mr. Parrish came when Mr. Parrish was asked to describe his duties when he came on board at Philip Morris. Then Philip Morris Co. chairman of the board William Murray asked Mr. Parrish to assess the state of the science on ETS.

    He naturally dutifully searched out various scientists at Philip Morris — Borelli, Pages, Carchman, Jim Charles, “maybe others”–and, as noted in a previous blog entry, he had many “private, informal” meetings with Dr. Wynder.

    Mr. WEBB: Was Dr. Wynder paid for these meetings?

    MR. PARRISH: No.

    Mr. Parrish reported back to Mr. Murray, and told him he was comfortable with the company’s position on ETS.

    MR. PARRISH: I told him that based on my review of the literature, though I am no expert, I felt comfortable that the company’s position was the appropriate position.

    MR. WEBB: Do you have any doubt you acted in good faith to try to talk to scientists to find out state of information on ETS?

    MR. PARRISH: No

    No one asked Mr. Parrish why he didn’t meet with non-industry-paid scientists–as, for example, any of the authors of the 1986 Surgeon General’s Report. Mr. Schwind did ask if, and the answer of course was no. But what really puzzled me about this segment was why the Defense would try, seemingly, to make such a big deal out of trying to pass off Dr. Wynder as independent. No, he wasn’t paid for the meeting, but Philip Morris payments to him and his American Health Foundation were well-established in Mr. Parrish’s Written Direct Testimony.

    Judge Kessler, I believe, is a pretty conscientious and thorough judge; I wouldn’t expect her to merely skip through the Written Directs.

    **———————————————————

    TRUTH AND CONSEQUENCES

    As with the testimonies of Mr. Rupp, Ms. Blackie, Ms. Dawson, and others, Mr. Parrish’s testimony seemed to establish the reprehensibility, at least, of many activities of the TI, CTR and Philip Morris. This pillar–”A Campaign to Deny that Smoking and Exposure to Tobacco Smoke Cause Adverse Health Effects”- seems to me the DOJ’s strongest so far. (The weakest so far, I believe, at least in live testimony, is the “Marketing to Children” pillar.)

    Mr. Parrish had an interesting moment of near-candor when Judge Kessler interrupted questioning to ask him a direct question.

    MR. SCHWIND: Do you agree this group (ARIA–Associates for Research in Indoor Air) also was intended to serve as an independent source in scientific literature?

    MR. PARRISH: That’s fair

    MR. SCHWIND: Even though it consisted of industry consultants recruited, trained, and deployed by Covington & Burling and paid by the industry?

    MR. PARRISH: If expressing their own independent views, yes.

    MR. SCHWIND: Did you ever instruct IAI or ARIA to disclose their ties to the industry?

    MR. PARRISH: We never had — (I didn’t get the rest of this answer)

    JUDGE KESSLER: Would you have continued to pay any independent scientists if their views were contrary to the industry or Philip Morris?

    MR. PARRISH: Probably not.

    **———————————————————

    THE NAME GAME: AN HISTORICAL TIMELINE

    1847

    Philip Morris, Esq., a tobacconist and importer of fine cigars, opens a shop on Bond Street in London.

    1881

    Philip Morris goes public in London.

    1885

    Leopold Morris joins with Joseph Grunebaum to establish Philip Morris & Company and Grunebaum.

    1887

    Morris and Grunebaum dissolve their partnership. Company becomes Philip Morris & Co.

    1902

    Philip Morris & Co. is incorporated in New York

    1919

    A new firm, owned by American stockholders, acquires the U.S. Philip Morris company and incorporates in Virginia under the name of Philip Morris & Co.

    1938

    Philip Morris & Co. preferred stock is offered to the public.

    1955

    Philip Morris becomes the company’s name.

    Philip Morris Overseas is established as an international division within Philip Morris. In 1967, this division was renamed Philip Morris International.

    1967

    Philip Morris reorganizes to create three internal operating divisions within Philip Morris Incorporated: Philip Morris Domestic, Philip Morris International, and Philip Morris Industrial.

    1968

    Philip Morris Domestic changes its name to Philip Morris USA.

    1985

    Philip Morris Incorporated announces a restructuring, in which Philip Morris Companies (now known as Altria Group), a holding company, becomes the publicly-held parent of Philip Morris.

    1987

    Philip Morris International, a newly incorporated operating company, acquires the international business division of Philip Morris.

    2003

    On January 27:

    1. Altria Group becomes the name of the parent company of Kraft Foods, Philip Morris International, Philip Morris USA and Philip Morris Capital Corporation. Collectively, these companies form the Altria family of companies.

    2. Philip Morris Cos. stock begins trading as Altria Group, Inc., maintaining the stock symbol traditionally known as “Big MO.”

    Sources downloaded 1/31/05:

  • Philip Morris USA History
    URL: www.altria.com/about_altr…

  • Philip Morris International History
    URL: www.altria.com/about_altr…

  • Altria Group History
    URL: www.altria.com/about_altr…

  • Tobacco.org Timeline
    URL: www.tobacco.org/resources…

    **———————————————————

    PS:

    In a previous entry, I perhaps undervalued the worldliness of Mr. Schwind in comparison to that of Mr. Parrish in his Swiss home. On Thursday, Mr. Schwind displayed his German skills by fluently reading the warning label off a German pack of cigarettes. On reconsideration, I’m sure Mr. Schwind would feel right at home in Die Schweiz also.

  • One Response to “FAMILY BUSINESSES”

    1. tobacco observer Says:

      If you were to examine the trial proceedings so far you would have a terrible time deciphering what any particular lawyer, witness or judge meant, exactly, when they said, “teens,” “youth,” “addictive,” “smoker,” or even, “Philip Morris.”
      ========

      Its pretty simple. According to the gov’t, for purposes of this lawsuit the “youth addicted population” consists of all adults between the ages of 18 and 21 who legally smoke 5 or more cigarettes per day. If that definition defies all reason and common sense. . .well. . .what do you expect from a bunch of gov’t lawyers?

      Philip Morris’ structure isn’t particularly elusive, though the fact that the name of this parent company was the same as two of its holdings was one of the main reasons for the recent switch to “Altria”.

      Altria is a holding corporation that owns interest (ie shares) in a number of other seperate corporations, including SAB-Miller beer, PMUSA cigarettes, Kraft foods, and PM-INTL cigarettes. Like many large conglomerates, the exact nature of the companies it owns has changed over time with various mergers and acquisitions.

      But as such, Altria (formerly Philip Morris Inc) has never actually manufactured nor sold a single cigarette since its inception. By all accounts, Altria has never been involved in the day-to-day operations of any of its consituent tobacco companies or other holdings. So why Altria reamins as a defendant in this case is a bit puzzling, particularly when the other “parents” are not.

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