New Weapon Used In War on Tobacco

Shareholders roped in to break tobacco chain

KROGER and Food Lion sell food. H.B. Fuller & Co. is a chemical company.

This fall, however, they will be hearing from Michael Crosby, a Roman Catholic priest, that they are part of the ''tobacco chain,'' companies that have some involvement with the tobacco industry.

Father Crosby's efforts mark an expansion of antitobacco efforts by shareholder activists to include food companies, chemical and paper companies, and even insurance and health-care companies. In the past, he haunted tobacco companies, asking executives embarrassing questions during annual meetings.

''We're not limiting ourselves to the core, but we are reaching out to include the tentacles as well,'' says Crosby, a Milwaukee priest who works with the New York-based Interfaith Center on Corporate Responsibility, a coalition of religious groups that target their investments to socially beneficial companies.

Over the next several weeks, Crosby will request a meeting with corporate managements to discuss their tobacco involvement. He will ask retailers and advertisers to volunteer to comply with the Food and Drug Adminstration's proposed regulations on selling tobacco to youth. He will ask manufacturing companies to spin off subsidiaries that do business with the tobacco industry. And he will ask insurance companies and health-care companies to develop ''smoke free'' investment portfolios.

If the companies don't agree with Crosby - and many don't - he plans to present a resolution to be voted on by shareholders in the spring.

In the past, corporate management considered shareholder activists gadflies who could be ignored. Crosby, however, is now starting to have some success.

This past spring, Crosby asked Dallas-based Kimberly-Clark, a consumer products company, to spin off its subsidiary that sells cigarette papers and filters to the tobacco industry. Crosby reasoned the company should segregate its tobacco business to avoid losing corporate assets in the event of a liability lawsuit.

Management balked, but 22 percent of shareholders voted against management. The company later announced it would spin off tobacco-related businesses. ''We considered it a major affirmation of the approach we are taking,'' Crosby says.

Some tobacco companies have challenged resolutions with the federal Securities and Exchange Commission, saying they did not follow company procedures. Crosby hopes to forestall legal challenges this fall by writing to management first, asking for a meeting.

''In respect with spinning off an operation, there is no reason why it should not go on,'' says Louis Goodman, a Boston partner at Skadden Arps Slate Meagher & Flom.

Though most shareholder resolutions are not binding, they are gauges for management. If management cannot sway shareholders, they may risk a fight for control of the company.

Sometimes Crosby's early meetings produce results. For example, in 1990, Crosby met with Minnesota Mining & Manufacturing Company (3M) to ask them to reduce the amount of space their outdoor-advertising company allocated for tobacco advertising. The company agreed. In return, Crosby agreed not to introduce any tobacco-related proposals.

Last year, Crosby offered to withdraw a corporate resolution at Union Camp if the Wayne, N.J., paper and chemical company would pull its advertising for its flavor enhancers, used in cigarettes. The company did. This year, a spokesman says the company is reviewing the future of its tobacco-additive business.

Some companies are surprised to be targeted. ''We don't consider ourselves to be part of the tobacco chain,'' says Bill Belknap, spokesman for St.Paul-based H.B. Fuller & Co., which makes adhesives used in cigarettes. Crosby plans to ask Fuller to spin off its tobacco-related business. Mr. Belknap says, ''It's premature to react to this; we'll reserve response until contact occurs.''

Some companies will inform Crosby they are already on top of the issue. For example, Crosby plans to ask Food Lion, a Salisbury, N.C., food chain, to voluntarily support the proposed FDA rules on selling cigarettes to teens.

But the company already uses a system that automatically locks up a cash register when tobacco or alcohol products are sold. To unlock the register, a customer has to produce a driver's license.

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