EMPLOYEE BENEFIT FUNDS – PART XI - INNOCENTS ABROAD (AND AT HOME)

THE INNOCENT ABROAD

In 1977 when I went into the pension group, RJR had only one significant fund outside the U.S. – Macdonald Tobacco’s pension plan in Toronto, Canada. This required at least an annual trip to Toronto. At that time, Toronto qualified as my only “international” travel, ever. In those days, Canada did not even require a passport to enter from the U.S.

I had never entertained a serious notion of going to Europe or Asia. I did not know anyone there, had no business there, and only vaguely ever thought that I might go there. My outlook reflected a provincial outlook from my upbringing, in a time and place where very few people travelled abroad.

An example of my naiveté - one evening at the local airport, my son noticed the clock that said the time was 12:00 in London. He asked me if that meant noon or midnight. I told him I had no idea. Since I didn’t know anyone there, it had never been a question I needed to answer.

But RJR’s expanding “empire” brought big changes in international exposure with our pension funds abroad. International operations grew with Sea-Land, Tobacco International, and then the Del Monte acquisition added significant foreign locations with pension funds.

In 1981 the international part of the job came sharply into focus. While the dollars abroad were not large compared to the U.S. funds, they could not be ignored. They presented me with a Hobson’s choice. If I went abroad, that could be criticized as a ‘boondoggle.’  If I did not go, and one of the foreign plans lost a few million dollars, I could be criticized for lack of due diligence.

That Spring, I made a Far East trip that took me to Hawaii, Manila, Kuala Lumpur[i], Hong Kong, Taiwan, and Japan. A second trip a few weeks later was to London, Geneva, Nairobi, and Cape Town. The RJR empire had one or more operations in each location with its own pension fund. This travel was a revelation for someone with no international exposure.

AND THE INNOCENTS AT HOME

But I was not the only ‘innocent’ in the RJR empire. On my trip to the Far East, I first met one of the RJR Tobacco International people from Hong Kong. By chance, we were at a restaurant in Manila where we were introduced. Keith McCulloch is a Brit but has spent much of his life abroad. We have been friends for over 40 years.

He found the provincial character of Winston-Salem people sometimes hard to believe. He recently recalled that at an RJR Nabisco executive conference in Texas, headed by Tylee Wilson and Ross Johnson, he sat at dinner next to a Senior Vice-President originally from the domestic Tobacco Company. Keith found him to be “’a delightful Southern gentleman’ who asked me how I had graduated from the UK to Tobacco International in Japan. I asked him when he planned to visit Tokyo as the company had offices there for Tobacco International, Nabisco, Kentucky Fried Chicken, Del Monte and Heublein. Part of his answer was that he did not have a U.S. Passport!” Yet this man was directly involved with decisions about the lives of thousands of people outside the U.S.

Our innocence sometimes extended to the investment world. After a couple of years working on the pension fund, I was in California and one of the PIMCO people said, “Warren Buffett was in Newport Beach last week. He says that R.J. Reynolds is the best bargain in the stock market now.” When I got back to Winston Salem, I asked one of the executives, “Do you know who Warren Buffett is?” His answer - “Not until last week. He just bought 5% of the company.”

Operating management did not understand the power of Wall Street and its capital allocation aims. This shortcoming would cost the company dearly. Before the decade ended, investment bankers and funds, less benign than Warren Buffett, came to the gates of the empire as stockholders. And soon after as Barbarians.

[i] By coincidence, a few hours ago, I was contacted by an executive in the Kuala Lumpur office on my visit 41 years ago, Howard Banwell. My meeting was officially with Randy Coupland, but when we met, Randy said that his boss, Howard Banwell would take us to dinner that evening. Randy mentioned that Howard had a BMW. I said nothing, but I had no idea what a ‘BMW’ was. A BMW could have been a new type of coffeemaker as far as I knew. There were no BMWs in Winston-Salem, and the only foreign car that I could name was a Volkswagen Beetle.