Kimberly-Clark Corp. is the latest in a series of companies including American Brands Inc., Loews Corp., Philip Morris Inc. and RJR Nabisco Inc. that have received shareholder proxy proposals asking them to spin off their tobacco businesses.
Unlike the other companies, Kimberly-Clark Corp. is known for Huggies diapers and Kleenex tissues, not tobacco. To the religious investors that sponsored the Kimberly-Clark resolution and the other proposals, smoking and hygiene products don't mix.
But unlike many proposals by socially conscious investors that the Securities and Exchange Commission has let companies omit, these proposals are expected to appear on proxy ballots and might attract "yes" votes from big institutions that do not have a social agenda.
"Even those who routinely vote against 'social' proposals may be inclined to take a second look. The resolution's central argument is a financial one: Splitting tobacco and non-tobacco businesses will increase the companies' stock price by creating a 'firewall' around tobacco liabilities," according to an Investor Responsibility Research Center report on the restructuring of the tobacco industry.
While in the past religious groups have asked companies to cease all tobacco-related activities, "this proposal specifically is calling for a spinoff, and that's unique," said Amy Wilson, research analyst for the IRRC, Washington.
Investors in general are concerned about the health problems of smokers and potential legal liabilities of tobacco companies. Religious investors in particular also expressed "a sense of shame that Kimberly-Clark boasts of a 'rock solid' commitment to the tobacco industry," according to the Interfaith Center on Corporate Responsibility, New York, an organization of religious investors from the United States and Canada representing $45 billion in assets.
Kimberly-Clark generates 2% to 3% of its revenue from tobacco-related businesses. It sells cigarette paper and filter products as well as reconstituted cigarette tobacco and reconstituted cigar tobacco wrappers and binders to virtually every major cigarette manufacturer worldwide, according to the ICCR.
The sponsors of the resolutions - endowment funds of the Congregation of the Sisters of Charity of the Incarnate Word, Houston, and the Redemptorists in St. Louis Province, Mo. - see it as a contradiction for Kimberly-Clark, a leading supplier of hygiene and health products such as surgical gowns, to manufacture a line of tobacco-related products. In fact, the Sisters of Charity congregation purchases Kimberly-Clark health care products in its role as the sponsor of a major Texas not-for-profit health care system. The Sisters of Charity owns 62,000 shares of Kimberly-Clark; the Redemptorists owns 8,000 shares.
"Spinoff resolutions this year are going to be more interesting and pertinent for institutional investors" in light of efforts by institutional investors in Philip Morris to convince the company to consider a spinoff of its tobacco business, Ms. Wilson said.
And at RJR Nabisco, the company already took steps toward separating its tobacco business when it partially spun off its Nabisco food business in October, she said.
American Brands also completed "a partial tobacco spinoff of sorts," according to the IRRC report. In April 1994 it announced a $1 billion agreement to sell its U.S. tobacco business, American Tobacco Co., to B.A.T. Industries, a U.K. conglomerate. But American Brands will retain its British tobacco operation, Gallaher Ltd., which generated 80% of the company's tobacco revenue in 1993, the report said.
As for Kimberly-Clark, Diane Bratcher, an ICCR spokeswoman, dubbed it "the sleeper of the tobacco companies. Everybody thinks of it as Kleenex and Kimbies and Huggies, but really it's also a tobacco company."
"Kimberly-Clark is a major player in the tobacco industry. The odds are great that anyone who smokes a cigarette is consuming a Kimberly-Clark product," said the Rev. Michael Crosby, a Franciscan priest from the Province of St. Joseph of the Capuchin Order and coordinator of the ICCR's tobacco campaign.
"We're calling on the company to spin off its tobacco and tobacco-related businesses because we can't reconcile that reputation with the widespread sickness and death caused by tobacco consumption," said Sister Laurie Michalowski, corporate responsibility consultant to the Redemptorists.
Kimberly-Clark was to mail proxy statements including the resolution to investors March 3. Its management recommends shareholders vote against the proposal but says it continues to review its tobacco-related businesses. The annual meeting will be held April 20 in Dallas.
The SEC has denied two of the targeted companies - American Brands and Philip Morris - permission to omit the resolution from their ballots, Ms. Wilson said.
The ICCR's goal is "to mobilize investors to support the resolution and health care providers who are institutional purchasers to call on companies to get out of the tobacco business," Ms. Bratcher said.
In a response to the proposal on its proxy, Kimberly-Clark officials said spinning off the tobacco business "would have an adverse effect on the economic return to the stockholders of the corporation and ... it would be inappropriate to make such a commitment. However the board will continue to examine these businesses to ensure that they meet the corporation's long-term strategic objectives."
Tina Barry, a spokeswoman for the company, said the board reviewed the tobacco business as recently as last year and is in discussions with shareholders.