THE R. J. REYNOLDS FAMILY – CHAPTER 2 REYNOLDS TOBACCO COMPANY AND THE AMERICAN TOBACCO TRUST

The Reynolds Tobacco Company remained intact after its sale to ATC. Buck Duke and his team at Continental controlled RJR, but Reynolds’ management continued to oversee operations. Rather than acquiring entire companies, Continental purchased majority shares, making them subsidiaries. This strategy was less controversial. It allowed local firms to keep their names, leadership, reputations, customer bases, and a share of larger profits. Few people realized Duke had joined the Reynolds board in 1899.

RJR declared, “I don’t intend to be swallowed. Buck Duke will find out he has met his equal, but I am fighting him now from the inside. You will never see the day when RJR will eat out of Buck Duke’s hands.” His defiance paid off.

After the Continental deal, RJR worked tirelessly. The partnership allowed him to retain some control while leveraging Continental’s resources. He remained deeply committed to his community, skillfully balancing business growth with a positive public image. He wasted no time using the capital gained from the ATC and Continental connection.

Four local brothers operated two competing chewing tobacco businesses. Pleasant Henderson Hanes and John Wesley Hanes owned P. H. Hanes Tobacco, while Philip and Benjamin Franklin Hanes ran B. F. Hanes Tobacco. Around 1901, RJR acquired both, consolidating Winston’s chewing tobacco market.[i] RJR also bought Brown & Williamson Tobacco, founded in nearby Mocksville. After the American Tobacco Trust dissolved, B&W became independent and later relocated to Louisville, KY.

Brown’s Mule was RJR’s personal favorite chew—he never smoked cigarettes and forbade his children from smoking. In The R. J. Reynolds Tobacco Company, Tannie Tilley recounts a humorous story: While on a train in West Virginia, RJR accidentally spat out the window during a station stop, hitting a man in the face. As the man stormed into the car, RJR prepared to apologize, but the man exccitedly wanted to know what brand RJR was using—he planned to switch immediately.

During his years with Continental, RJR played a risky game. Publicly, he assured his salesmen that Reynolds Tobacco would remain independent of the trusts. Privately, he made quarterly trips to New York to receive marching orders from Duke. This deception was strategic: in 1900, many American products proudly advertised that they were “not made by a trust.” By downplaying his connection with Duke, RJR protected his business.

Despite the looming threat of an American Tobacco lawsuit, RJR boldly launched Prince Albert Smoking Tobacco in 1907. His aggressive marketing campaign made it the first national tobacco brand. Advertisements for “The National Joy Smoke” appeared everywhere. They featured talented artists and clever slogans. The campaign fueled the company’s fastest growth in four years.

At the time, American Tobacco controlled 80% of the market and was the third-largest corporation in the U.S. It attempted to block Prince Albert, but Duke faced larger problems. As industries like railroads, banking, oil, and tobacco consolidated, Americans grew resentful of powerful tycoons like the Vanderbilts, J.P. Morgan, Andrew Carnegie, John D. Rockefeller, and Duke.

By 1910, RJR saw the writing on the wall. He believed the government would eventually dismantle the tobacco trust. He called this the “day of emancipation”—if not this year or the next, then soon. He prepared for its arrival. In 1911, the Supreme Court ordered the breakup of the American Tobacco Trust. Major players—Liggett & Myers, P. Lorillard, R.J. Reynolds, and American Tobacco—became independent.

Despite business tensions, RJR and Duke remained personally friendly. Duke sent a note congratulating RJR and his wife Katharine on the birth of their fourth child, Zachary Smith. RJR became one of American Tobacco’s top 52 stockholders, and his company thrived. During antitrust hearings, Duke even credited RJR with the idea of selling to Continental. At the 1911 breakup, Reynolds Tobacco was one of the top tobacco companies in the U.S. Thanks to the Duke partnership, RJR had become a skilled managerial leader.

Duke continued to value RJR’s expertise and personally held Reynolds Tobacco stock. American Tobacco still owned two-thirds of Reynolds’ common stock, frustrating RJR. Determined to reduce the influence of the “New York crowd,” he sought to distribute more shares to North Carolinians. In a letter to his friend Josephus Daniels, he wrote his prophetic vow: “Now, watch me and see if I don’t give Buck Duke hell.”

RJR resented having to persuade major Yankee brokerage houses and wealthy investors to sell their Reynolds shares. How could he reclaim control from Duke? A provision in the dissolution decree allowed him to issue new stock.

In 1912, RJR recapitalized the company with 100,000 new shares, selling some to his top managers. He introduced a profit-sharing plan for senior officers and “participation stock” for all employees, which paid special dividends. The plan was highly successful, making many employees wealthy over time.

Culturally, Southern textile mills employed mostly white workers, while the tobacco industry relied on Black laborers. RJR’s pragmatic approach to his Black workforce ensured stability for his tobacco empire. His patronage of Black churches, schools, and institutions fostered a loyal labor community, a cornerstone of Reynolds’ corporate culture well into the 20th century.

[i] With their generous buyout, P. H. Hanes founded Hanes Knitwear, while J. W. Hanes established Hanes Hosiery. The two companies merged in 1965 to form Hanes Corporation, later becoming part of the Sara Lee conglomerate. Hanes’ headquarters remains in Winston-Salem.