Why Is A Lawyer Running Rjr Nabisco?

Back in 1988, when F. Ross Johnson, then chairman of RJR Nabisco Inc., was mulling a leveraged buyout of the company, his attorney, Steven F. Goldstone, is said to have thought it a distinctly imprudent idea.

It surely was: The ensuing seven years saw the home of Oreos and Camel cigarettes taken over and eventually relinquished by Kohlberg Kravis Roberts & Co. It was leveraged, downsized, and partially split apart as Johnson and four other CEOs came and left. Since the LBO, the company has had to pay down about $20 billion in largely LBO-related debt.

But Goldstone is back, and now he's running the joint. In a surprise move at a Dec. 5 meeting, RJR Nabisco's board appointed the 49-year-old attorney as the food and tobacco giant's new CEO.

The move was precipitated by family matters that demanded the attention of Charles M. Harper, the company's CEO since 1993. Harper, a well-respected veteran of the food industry, will remain as chairman, but he relinquished the CEO title to spend more time at his Omaha home with his ailing wife. Harper told employees in a letter that "only the most compelling personal circumstances could cause me to take this step right now." The succession plan was made in just two weeks. The company won't say if it considered others for the CEO job.

Who is Goldstone? Even many who follow RJR Nabisco closely say he is an unknown quantity. "I wouldn't know him if he stood in my office," says Oppenheimer & Co. analyst Roy Burry. Goldstone joined RJR Nabisco as general counsel in February; he became president of the $15.4 billion company in October.

"FLEXIBLE." Previous experience? None as a corporate executive. Goldstone spent his entire career at the law firm of Davis Polk & Wardwell, specializing in restructurings and litigation. "Steve has fundamental characteristics that will suit him very well as an executive," says UAL Corp. executive Stuart I. Oran, who represented United's unions a few years ago when Goldstone represented UAL's management. "The two most critical are his intelligence and pragmatism. He's not dogmatic. He's flexible."

Goldstone says he has done legal work for RJR Nabisco since 1978 and is therefore more familiar with its operations than his short tenure as an executive may indicate: "I know this company. I know the people. I know what direction this company needs to go in."

Analysts point to RJR Nabisco's seasoned and well-regarded operating chiefs, H. John Greeniaus at Nabisco and James W. Johnston at R.J. Reynolds Tobacco Co., as the reason they're not alarmed by Goldstone's lack of management or industry experience. Indeed, the company's laggard stock rose 3%, to 30 1/4, on the day Goldstone's promotion was announced. "Given the environment surrounding the company, I'm very comfortable with Goldstone," says Burry. The company has legal problems ranging from tobacco liability suits to the Food & Drug Administration's efforts to regulate the industry. These issues, Burry says, "require a legal thought process at the top."

Goldstone's first public statements as CEO, though, quickly drew the ire of major RJR Nabisco shareholders Bennett LeBow and Carl C. Icahn. In recent months, the two have waged a nasty battle to force the company to immediately split the R.J. Reynolds tobacco business from the Nabisco food business. In a partial initial public offering in January, 19.5% of Nabisco's stock began trading independently. The company has said it supports a complete spin-off but is legally unable to do so until certain commitments to debt holders and other issues are resolved in 1997. But in an interview with BUSINESS WEEK shortly after he was named CEO, Goldstone said a complete spin-off is unlikely until 1998.

The LeBow group, which last month said it would be fielding an opposition slate of directors committed to an immediate spin-off at the next annual meeting, was quick to attack. "RJR's management appears to be in disarray and turmoil," says a spokesman. "We are particularly disturbed that [Goldstone's] first words promote further delay for the spin-off, although they say their only priority is to increase the stock price."

Such attacks likely won't ruffle the new boss. Indeed, as an attorney, Goldstone may be better suited than the avuncular Harper to fight the legal battles that are likely to preoccupy RJR for quite some time. Whether he can sell cigarettes and cookies is another question. But at this company, surmounting legal troubles is, for now, Job One.


AGE 49.

EDUCATION BA, University of Pennsylvania; JD, New York University.

LAW Davis Polk & Wardwell: associate, 1970-1978; partner, 1978-1995. Specialized in mergers and acquisitions, litigation. Clients included RJR Nabisco and predecessor companies, United Airlines, General Electric, and J.P. Morgan.

BUSINESS RJR Nabisco general counsel, February, 1995.

President, October, 1995. CEO, December, 1995.

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