Winston-Salem Journal Book Review

Former Reynolds Executive Brings Contemplative Inside Look at Company’s Complicated Heritage

By Richard Craver Winston-Salem Journal  August 9, 2020

Hoots wrote “Going Down Tobacco Road” in part as a homage to the heritage of the company and in part as a connect-the-dots introduction to newcomers to North Carolina

Gene Hoots, a Winston-Salem native and former R.J. Reynolds Tobacco Co. official, began contemplating in 2017 adding to the literary treasure trove on the company’s complicated local and industry heritages.

Hoots started his self-publishing pursuit at the age of 78, when most individuals who feel like they have a story to tell are content to share it with family and friends.

In the process of conducting three years’ worth of research and interviews, the quest became more contemplative and personal to Hoots than he envisioned.

Hoots found life lessons as he documented the twists and turns of Reynolds developing into the world’s largest tobacco manufacturer, the leveraged buyout that brought the proud company to its knees, the local blue-collar millionaires it produced, the infamous executive reign of Ross Johnson, and the comeback of the past 20 years that resulted in the company’s July 2017 acquisition by British American Tobacco Plc.

On a side note, noticing how ill-prepared many of those blue-collar millionaires were financially, Hoots began a wealth-management consultant company, CornerCap Wealth Advisors in Charlotte, in which he is chairman emeritus.

Hoots worked at Reynolds from 1965 to 1986, running the company’s pension investment fund from 1977 to 1986, as well as its 401(k) plan during the latter part of that period.

He brought in three fellow Reynolds journeyers — Nancy Holder, Locke Newlin and Tom McCoy — to provide additional inside and outside headquarters perspectives on the company.

Hoots took time before the scheduled Aug. 15 publication of his book — available in paperback at $18.95 and an electronic version at Amazon for $8.99 — to discuss the inspiration for the book and what he hopes it accomplishes.

An edited version follows:

Q: What prompted you to join the list of authors writing about the history and heritage of R. J. Reynolds Tobacco Co.?

Answer: For years, I felt that there was yet an untold story, given RJR Tobacco’s long history.

I was impressed by Nan Tilley’s R.J. Reynolds Tobacco Co. in 1963 and Barbarians At The Gate in 1989, but to my knowledge no one had covered the complete story from the beginning in 1875 until the present.

A bit of the history of tobacco in America since 1611 was thrown in for good measure.

The incident that really prompted me to finally begin the book was a report by three researchers at the London School of Economics in 2015.

They said that the most profitable investment in America from 1900 to 2014 was tobacco. A single dollar invested in tobacco stocks over those 114 years would have grown to $6.3 million.

This was a unique industry. What made it so?

While the numbers on the investments and profitability of RJR are of limited interest to most people, with a financial analysis background I still felt that the story deserved to be examined in detail.

RJR was one of the most profitable enterprises in the world, and I wanted to show the impact of that on the company and the community.


Q: How do you think being a Winston-Salem native shapes your examination compared with authors taking an outsider’s look in approach?

Answer: Without a doubt, far more skilled writers have tackled the RJR story, but living in or near Winston-Salem and also being an employee for 21 years perhaps brought some insights into the local tobacco culture that an outsider might miss.

If you haven’t lived here for 80 years as I have, it is hard to see the many subtle ways that the tobacco culture impacted all of us.

For decades, RJR has played a key role in the area’s economy, politics and social life. It was the major employer in the area. At the peak in 1982, RJR had 18,000 employees in the area.

Management and workers had a common bond in the fortunes of their company. The head of human resources said “it was the biggest little company in the world.”

As it grew to prominence to become the 15th-most profitable company in the world, it still had a small-town, small-company culture. The management was “homegrown” and they liked being here.

Even 50 years after his death, they still reflected Mr. R.J. (Reynolds’) distrust of what he called “the New York Crowd.”

A senior executive might go rabbit hunting with a warehouse worker on a Saturday morning. Nearly universally, when any RJR person speaks about the company, they say, “It was the best company that anyone could ever work for.”


Q: What do you think you learned or discovered about Reynolds Tobacco that surprised you, or you believe will surprise readers?

Answer: I knew that tobacco was an extremely profitable business, but I was surprised to learn that it was far more profitable than I thought.

Tobacco truly was a unique industry, with profitability about twice that of the average American industry.

But the reality was that much of that profitability could be explained by the fact that the product was addictive, and people were willing to pay a big price for it. It was often said, “It’s not hard to be profitable if you make it for a dime and sell it for a dollar.”

The second surprise was how those tobacco profits supported billions of dollars of unsuccessful RJR ventures with little criticism from stockholders or outsiders.

Poor returns from many of the new investments, and a rapidly expanding corporate overhead required to manage the spreading “empire,” created a real drag on profits.

But the cigarette machines kept pumping out profits so big that they covered all the sins of diversification and still provided a total return that was far above the average company.

A single cigarette machine produced a net profit of about $40 a minute. The Whitaker Park and Tobaccoville plants had several dozen of these machines running 80 hours a week.


Q: You dedicate the second section of the book to the series of non-tobacco companies that Reynolds acquired and divested over several decades. Why was that piece of Reynolds’ history important to tell?

Answer: My career has been mostly in financial analysis of one kind or another.

As I started the book, that was the only section I felt even moderately qualified to write about.

The details of those acquisitions exposed the vast amount of money that was “misallocated.” That is to say, it went into ventures that never had a justifiable payoff for the stockholders.

Each of the eight businesses that the tobacco company invested in had its own story, some with happy endings and some not, but they all provided experiences and history that readers can learn from.

RJR management had justifiable fears that the company would fall prey to a raider, one of the conglomerate companies that were so popular in the 1960s.

To protect the company, RJR itself became a “conglomerate,” but, sadly, not a very successful one.

This misdirection finally led to its downfall at the hands of the “barbarians.”

Q: You dedicate another chapter to what you termed “The Dark Ages” following the leveraged buyout period, assigning winners and losers? How did you make those distinctions, and what was the biggest winner and loser?

Answer: I defined winners and losers mostly in economic terms, although there were definitely psychological and emotional losers — people who saw their beloved company torn apart.

The biggest winner in dollar terms was the core KKR (Kohlberg Kravis Roberts) buyout group.

They made back several times their investment in six years.

Other big winners, but reluctantly so, were the loyal stockholders who sold their stock for far more than it was worth at the time of the buyout.

The biggest losers were the thousands of employees whose lives were uprooted when RJR Nabisco was broken into pieces, many of them for no justifiable purpose.

The next biggest losers were the three surviving companies that struggled to compete without the capital resources to do so — every dollar of cash that could be squeezed from them went to pay the debt incurred by KKR in the buyout.

All the “financial engineering,” the buying and selling of businesses, the transfer of personnel to other cities and other countries, contributed not one dime to the quality of the products or the customers’ satisfaction.

So what was the point?

It really was a game about egos and status for those who played it at the highest levels.


Q: You also dedicate a section to lessons learned. What do you hope readers, both those familiar with Reynolds’ history and those brand new, will take away from your book?

Answer: From the history of RJR, especially 1960-1986, three lessons emerge. There were three management critical errors, only easy to recognize with hindsight.

But readers can take something from the book that will help them avoid the same mistakes. And the lessons are universal; they apply to businesses no matter how big or small.

Aside from those three lessons, I learned some personal lessons as well.

The main one was a change in perspective about many of the people who made headlines at critical times while I was there. My negative views of many softened, including the infamous Ross Johnson.

The story is part tragedy and part comedy about mere mortals who often did the best they could and made mistakes that any of us might have made.

Only one major character came through untarnished, performing his role consistently well, though any management “expert” would have said that he was unqualified for his job.


Q: Books like these often are referred to a “labor of love.” How was this for you, and are there any plans for more exploration of more current times?

Answer: The book did develop into a “labor of love.” I started it as a financial analysis of RJR, and then realized that the human story overpowered the numbers.

It let me renew relationships with my family as we remembered our own tobacco heritage.

It reconnected me with RJR people with whom I had little contact in the last 30 years.

And it let me make new friends who wanted to share their stories of growing up and living along Tobacco Road.

It is amazing how interesting people can be once they begin to tell the story of their lives.

I talked with people who were changed forever by the gold leaf.

One example was the teenage girl whose parents made her sisters and her work in the tobacco fields and “bring in a crop” every fall. The three did not know that those tobacco earnings were set aside to fund their college educations.

That girl graduated from Wake Forest and then worked to put her husband through medical school. He is one of North Carolina’s noted pediatric neurosurgeons.

The two represent the best of what tobacco meant to the Tar Heel state. And there are thousands of other stories just like theirs — people who could never have realized their potential without that tobacco crop.

I do not plan to write another book.

However, through a website, I will add new information about tobacco today and the reflections of those who want to share their tobacco experience at RJR and elsewhere.

Going Down Tobacco Road

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