Smoke n' stock options
In Britain, for many years, there was a Flat Earth Society that dismissed all those orbital snapshots of the world as trick photography. Its small but dedicated band of followers provided some dimple-teasing amusement for reporters and a strong testament to the power of faith to flatten globes.
I remembered them when the seven CEOs of the tobacco companies stood in a row in 1974 and swore to Congress that their product wasn't addictive, and that the case for smoking-related health problems was still moot. Some of them may even have believed it. Many of them smoke themselves. However, it is clear that these statements were only truthful in a Clintonesquely legal way, not by laws of science, but by the laws of tort and product liability. The little voice whispering advice in their ears was not that of their conscience, but of the corporate lawyers who have been fighting a bitter war of attrition in the courtrooms of America.
Analysts have generally assured people that the political clout and big money of the tobacco companies would keep the vulpine liability lawyers at bay. Investors have, of course, been much more canny. They have discounted tobacco stocks for decades, which suggests that they haven't believed a word the companies have said about tobacco's effect on health. No-one who has ever smoked, or has known a smoker, is likely to accept that nicotine isn't addictive.
Researching drug addiction, I've met many people who gave up heroin but can't give up cigarettes. A whole generation in the 1960s and 1970s smoked marijuana mixed with tobacco, and managed to give up the grass but not the weed. It's also true that caffeine is addictive. Many of us could not join the dawn chorus with equanimity without a pot of tea or coffee to whisk away the clouds of night.
But while tea seems to have a beneficial effect on the heart as well as the soul, the spiritual benefits of nicotine come with a lot of noxious baggage, both in its own right and from the oily goo and carbon monoxide produced in the smoke. And you don't get too many secondary caffeine imbibers.
It would seem that most investors suspected all along that it was only a matter of time before the legal truth caught up with the real world. Bearing in mind that the best defense in jury trials has been that smokers knew and accepted the very health risks the tobacco chiefs were denying, something had to crack soon. Investors wondered how long tobacco could keep on smoldering. In fact, it has already reached combustion point - and quite suddenly.
Peter Pringle's book, Cornered: Big Tobacco at the Bar of Justice (Henry Holt, New York), details the multiple pressures of litigation from individuals and states, the effects of disclosure and defections from the tobacco companies, and the erosion of political support that has led to current desperate attempts at an agreed settlement.
It began when the tort lawyers put truth into the rumors spread by their opponents and started behaving like socialists. They pooled their resources so that David would at least have a sling shot to hurl at Goliath. They were joined by the states' attorney generals, and between them they put the graffiti on the smoking room wall which spelt the end for liability-free tobacco sales. The current offer of $500 bn is phenomenal, even if its value can easily be reduced. Even more phenomenal is that the companies would not suffer very much.
At issue here is not the profits, which are pretty much assured. No matter how often you put up cigarette prices, people will skimp on other things to pay for them. Any payments tobacco makers give to states' medical plans, anti-smoking campaigns or class actions, will come from those who carry on smoking. What is at issue for the companies is the effect of potential litigation on stock prices. Half a trillion dollars is a cheap price to pay for an amnesty against liability suits that unlocks all that 'shareholder value.'
However, this is hardly a moral rallying call for Congressmen under heat over the settlement. The best thing for the tobacco companies would be to make accomplices of their customers. Every pack of cigarettes should carry coupons that can be saved toward stock options. Then every smoker will stand to gain from the upward surge in tobacco shares if the companies get the type of settlement that they want. They can hardly sue if they benefit from their own suicide.
Of course the basic idea needs elaboration. Maybe the stock option could be made conditional on their signing a waiver of any right to sue, or it could even include some sort of extra incentive plan. For example, those enrolled in the plan could draw down much larger stock options at 1998 prices if they became ill with one of the diseases on a list of accepted smoking related ailments.
There is also a sound corporate policy argument. Presently, many tobacco companies are disdainful of retail investors, and so fail to realize the corporate benefits of having a mass of loyal, lifelong shareholders rooting for them - albeit shorter lived than most. They should make sure that by the time Marlboro man is on a drip, he has a DRIP.
The Speculator