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PR WATCH
Public Interest Reporting on the PR/Public Affairs Industry
Volume 10, Number 3 Third Quarter 2003
WWW.PRWATCH.ORG
ALSO IN THIS ISSUE: The Electricity Deregulation Con Game
by Sharon Beder
How Environmentalists
Sold Out to Help Enron Electricity deregulation was supposed to bring cheaper electricity
prices and more choice of suppliers to householders. Instead it has
page 5 brought wildly volatile wholesale prices and undermined the reliabil-
ity of the electricity supply. The rising electricity prices and blackouts
Utility Company in California and the northeastern states of the US are consequences
of the changes engineered by vested interests; changes that were accom-
Propaganda:
plished through a massive PR campaign to deceive politicians and opin-
The Early Years ion leaders about their benefits.
page 7 Despite efforts to manufacture an appearance of grassroots support,
deregulation was primarily driven by large industrial users, who thought
they could save money, and energy companies, who thought they could
Cancer PR Firms Still make money out of it. The case for deregulation could not be presented
Addicted to Tobacco in self-interested terms to the public. It had to be presented as being
page 8 in the interests of the wider public. Groups such as large industrial
energy users used the language of free-market advocates to state their
case in terms that disguised their self-interest.
The Heritage Foundation, a conservative think tank, helped spread
the rationale for deregulation. Texas Congressman Thomas DeLay set
out his "free-market vision" for the electricity industry at a Heritage
Foundation lecture: "Bringing electricity into the competitive world will
unleash new products, greater efficiencies, business synergies, and
entrepreneurial success stories," he said. "It will create new industries,
Something similar happens, as Sharon Beder illus-
Flack Attack trates in her articles for this issue, when utility com-
Propaganda is the art of persuading people to panies like Enron are able to recruit environmentalists
accept ideas that are not necessarily in their own best to support their self-serving positions in favor of elec-
interests. This is why propagandists often look for ways tricity deregulation. The result is that policies contrary
to conceal the identity and motives of their client from to the public interest are sold to the public under false
the people they are trying to influence. This also pretenses. The dangers inherent in conflicts of inter-
explains why public relations firms sometimes find est should be obvious, but they often go unnoticed and
themselves enmeshed in conflicts of interest. unremarked until the damage has been done.
Past issues of PR Watch have reported on firms that The same theme runs through Paul Goldberg's arti-
specialize in working simultaneously for nonprofit cle on page eight. Conflicts of interest place PR firms
organizations, governments and corporate clients, where the action is happening in terms of influencing
often for the express purpose of achieving what the policy. When PR firm works for the National Dialogue
Porter/Novelli PR firm describes as "cross-pollina- on Cancer, it gets a seat at central command in the war
tion"--which helped it persuade the American Cancer on cancer, with an opportunity to influence key play-
Society and the National Cancer Institute to sign let- ers and policies in subtle ways that the public may
ters supporting the position of P/N's paying clients, never see. And if they get caught serving two masters,
including produce growers and pesticide makers. they simply apologize and call it an innocent oversight.
new entrepreneurs, and new jobs." Delay, the majority in lower rates, improved service and better reliability."
whip in the U.S. House of Representatives, was closely The Committee also cited the Brookings Institute report.
connected to Enron and a beneficiary of Enron dona- Politicians promoted the concept of consumer choice
tions. Two influential members of his "kitchen cabinet" as a primary benefit of deregulation because they wanted
were used as lobbyists by Enron. In Texas, his efforts to wide voter support, which is why the actual legislation
promote deregulation earned him the nickname DeReg. had names like the "Electric Consumers' Power to
In Energizing America: A Blueprint for Deregulating the Choose Act." When the chair of the Commerce Com-
Electricity Market, Adam Thierer, a fellow of the Heritage mittee, Tom Bliley, appeared at a press conference pro-
Foundation, argued that regulation of electricity monop- moting the bill, he brought along representatives of what
olies had caused a "lack of price competition and con- were supposed to be hundreds of consumer groups that
sumer choices, limited innovations, and a lackluster wanted consumer choice. This was to avoid the impres-
environmental record" whereas "deregulation of the elec- sion that the bill was being introduced for the benefit of
tricity marketplace" promised "rich rewards." These big business. The press conference announced a "media
rewards, he argued, included lower prices, lower oper- outreach" initiative telling consumers that deregulation
ating costs for industry, more jobs, increased reliability could save up to 43% on their power bills.
of service and a cleaner environment. "During the first six months of 1996 alone, energy
Even the more centrist think tank, the Brookings interests spent at least $37 million to lobby Congress and
Institute, produced a report supporting electricity dereg- federal agencies on deregulation," notes the Center for
ulation for its potential consumer savings. The report was Responsive Politics. In addition, millions of dollars were
financed by companies lobbying for deregulation includ- spent on PR, including television advertising and polling
ing Enron, Pennsylvania Power and Light, Wisconsin aimed at persuading politicians and bureaucrats. The
Electric Power, Cinergy and the Electricity Consumers Edison Electric Institute (EEI) alone spent $11 million
Resource Council, a coalition of large electricity users. on lobbying in 1996. It hired 15 different firms to sup-
Advocates of deregulation also formed a plethora of plement its eight in-house lobbyists including the lob-
corporate front groups and coalitions, including the bying firms of three former Congressmen--two
Alliance for Competitive Electricity, Citizens for State Republican and one Democrat--and a former lobbyist
Power, Electric Utilities Shareholders' Alliances, the for the AFL-CIO.
Alliance for Power Privatization, and the Coalition for WHAT'S GOOD FOR ENRON
Customer Choice in Electricity. The campaign was coor- Political campaign donations helped Enron play a
dinated by Americans for Affordable Electricity (AAE), major role in the deregulation campaign. In total, Enron
whose members included the Ford Motor Company, donated just under $6 million to election campaigns
Enron and various utilities. AAE raised millions of dol- beginning with the 1989-90 election cycle. It contributed
lars for lobbying and advertising, spending $4 million a to the campaigns of 71 current senators and 188 current
year on top of what each of its members spent. Member members comprising 43 percent of Congress. It became
companies and groups also donated the time of their the sixth highest contributor during the 1994 election
public relations, legal, policy and lobbying personnel. cycle and by 2000 was the top contributor of all corpo-
Citizens for a Sound Economy (CSE), a front group rations in the Energy/Natural Resources sector. Enron
with close Republican ties, spent tens of thousands on also spent millions lobbying Congress, the White House
advertising in various states and even used banners from and federal agencies. Like the EEI, Enron drew its lob-
airplanes to promote "consumer choice." It commis- byists from both the Republican and Democrat parties.
sioned a study (funded in part by Enron) claiming that By the late 1990s it employed more than 150 people on
deregulation would reduce the average electricity bill by state and federal government affairs in Washington, DC.
43 percent. Politicians financed by business interests The battle for deregulation at the state level was
were eager to use think tank and front group data in their equally well financed. Following their successes in Con-
arguments for deregulation. After CSE's figure of 43 per- gress, the power companies spent large amounts of
cent was cited by the Heritage Foundation, the Foun- money on lobbying for deregulation at the state level.
dation's report was publicized by others as a Enron's lobbyists sought out consumer groups, schools
confirmation of CSE's study. A press release from the and other community groups that would benefit from
House Commerce Committee claimed that "yet another cheaper electricity and tried to persuade them that dereg-
academic study" had concluded "that giving consumers ulation would be good for them.
the freedom to choose their own electric utility will result
2 PR Watch / Third Quarter, 2003
Enron CEO Ken Lay "is pulling out all stops to assuring them that $28.5 billion of ratepayer money
hasten deregulation," Business Week reported. "In April would be used to pay off past debts from capital invest-
[1997], he launched a $25 million-a-year nationwide ad ment (`stranded costs') incurred by the construction of
campaign and says he'll spend up to $200 million to nuclear power plants.
argue the merits of free-market electricity. Behind the The utilities were influential supporters of deregula-
scenes, he has deployed legislative SWAT teams in front- tion. For decades they had been giving campaign con-
line states such as New York, Massachusetts, and Texas. tributions and other donations to local politicians to
In Texas, Enron spent $5.8 million between 1998 and ensure that the issue of public power was kept off the
2000 on funding state politicians, hiring 83 lobbyists, political agenda. They also donated money to a variety
advertising, and donations to Texan charities. It used its of community and civic groups and charities. According
enormous political influence to overcome the resistance to the San Francisco Bay Guardian, the Pacific Gas &
of the existing regulated utilities in Texas and persuade Electric Company (PG&E) "infused itself into San
the public (which was already paying low prices for elec- Francisco politics, society, culture and business--using
tricity) that they would be better off with deregulation. its money to make connections that have insulated the
In California, big electricity users formed Californi- company from criticism or political challenge."
ans for Competitive Electricity to lobby for deregulation. "The politicians and the community groups are all
It encompassed a range of other coalitions including the neutralized by the money, and there's no countervailing
California League of Food Processors, the California force to fight the utility," observed consumer advocate
Manufacturers Association, the California Large Energy Ralph Nader. PG&E insinuated itself into several influ-
Consumers Association--a coalition of cement compa- ential business organizations and onto the boards of large
nies, steel manufacturers and a gold mining company, companies in the area. Even after prices for electricity
and the California Independent Energy Producers Asso- soared and service deteriorated, business groups refused
ciation. The California Manufacturers Association spent to publicly support a shift to publicly-owned utilities.
$1.7 million on lobbying in 1995 and 1996. The Cali- According to Nader, PG&E also spread large amounts
fornia Large Energy Consumers Association and Cali- of "money around to the big law firms, so there's no
fornians for Competitive Electricity also spent hundreds major firm that can take on PG&E. Then they enlist the
of thousands of dollars. political power of these law firms to press their agenda."
Existing regulated utilities also participated in the The revolving door between business and government
campaign for deregulation. The Center for Public also helped the deregulators line up bipartisan support.
Integrity estimates that three major Californian utilities Although Republican Governor Pete Wilson led the push
spent $69 million between 1994 and 2000 on lobbying for deregulation. Democratic Senator Steve Peace was
and political spending. In return for giving up their also a key advocate and received $277,000 in campaign
monopoly status, the regulated utilities negotiated a deal contributions from the three large utilities. David
PR WATCH is published quarterly by
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PR Watch / Third Quarter, 2003 3
Takashima, who had been Peace's chief of staff in the inserted a letter into 4.6 million ratepayers' bills saying
1980s before working as a lobbyist for utility SoCalEd, that "the state's booming economy can be a mixed bless-
returned to work for Peace and helped shape the dereg- ing," referring to rapidly growing population and the
ulation bill. Takashima then left to be director of gov- "multiple electronic devices" of the Internet age: "New
ernment affairs for PG&E. energy supplies have not kept pace with that growth...
In addition to campaign contributions, legislators also Factors like that lead to shortages and shortages lead to
reaped personal benefits. Energy companies supported higher prices."
an organization called the California Foundation on the These arguments continued to circulate in the media
Environment and Economy (CFEE), which had repre- even though they were contradicted by independent
sentatives of the three main utilities on its board of direc- studies from groups like the Californian Independent
tors. CFEE paid for various overseas trips for politicians System Operator (CA-ISO), a nonprofit group that man-
and members of the Californian Public Utilities Com- ages 75 percent of the state's power grid. Born of dereg-
mission (PUC) to "study deregulation." ulation in 1998 with the blessing of utility companies,
The state government also spent tens of millions on politicians and regulators, CA-ISO compiled data show-
an "education program" in preparation for deregulation. ing that growth in demand was less dramatic than por-
"Plug in, California" was an $89 million government trayed and not a primary cause of the crisis.
advertising campaign aimed at householders and small
businesses that promised degulation would mean cost
FINGERING ENVIRONMENTALISTS
Environmentalists were also blamed for the state's
savings, reliability and consumer rights. It included tele-
energy problems. Ed Gillespie, a former George W. Bush
vision, radio and newspaper ads as well as direct mail and
campaign strategist who now chairs the Republican
trained speakers talking to 84 community groups.
National Committee, worked for Enron while concur-
Enron spent more than $345,000 lobbying for dereg-
rently heading the 21st Century Energy Project, a coali-
ulation in California and another $438,155 on political
tion of conservative groups which claimed that
contributions. It hired former legislators and Californ-
environmentalists had created the problems by imped-
ian PUC officials to shape legislation that created the dis-
ing the construction of new electricity generation.
astrous energy market which would later be referred to
Mainstream media bought into the propaganda and
as "the Enron model."
helped to spread it. Many media reports in fact stated
Enron made huge amounts of money from Cali-
that the problem was too little deregulation. "Demand
fornian energy deregulation. A significant proportion of
for electricity outpaced older power plants," stated the
California's electricity and natural gas market operated
New York Times, "while a botched experiment with par-
through Enron's online auction. According to Public Cit-
tial price deregulation and longstanding environmental
izen, the auction "allowed Enron's unregulated energy
opposition combined to create disincentives to build new
trading subsidiary to manipulate supply in such a way as
power plants or create cheaper wholesale prices through
to threaten millions of California households and busi-
competition."
nesses with power outages for the sole purpose of increas-
The federal government used the Californian energy
ing the company's profits."
crisis to call for easing California's environmental rules,
Even after the profiteering of Enron and other elec-
particularly air pollution regulations. (Subsequently Cal-
tricity companies got out of hand, the spin doctors
ifornia experienced its worst air pollution for several
worked to divert the blame from deregulation. Even as
years.) The energy industry used the crisis to justify a
the utilities threatened bankruptcy and ongoing black-
general repeal of pollution regulations and withdrawal
outs unless the state government bailed them out, the
from the Kyoto agreement on global warming. In News-
major media outlets in California and throughout the
week, Robert Samuelson argued that you couldn't curb
world depicted the problem as a shortage of energy itself.
pollution and global warming if you wanted cheap power.
Hundreds of articles were publishinged insisting that the
The energy industry also used the pretext of an energy
crisis stemmed from a booming economy and industrial
shortfall to call for more nuclear energy and oil drilling
growth, coupled with unusually hot, dry weather which
in protected places such as Arctic National Wildlife
caused energy demand to surge.
Refuge--even though the utilities had admitted the
California utilities, claiming bankruptcy as a result of
uncompetitiveness of nuclear energy, which was the
the price manipulation by unregulated power companies,
reason behind the state's rate freeze; even though most
used their information channels to ensure that the crisis
Californian electrical generators used natural gas, not oil;
was not depicted as a failure of deregulation. PG&E
even though the blackouts were not caused by a short-
4 PR Watch / Third Quarter, 2003
age of gas or oil; and even though curtailing of environ- ronmentalists who supposedly prevented the transmis-
mentally-friendly generation and conservation had con- sion system from being upgraded and expanded, and
tributed to the lack of surplus electricity in the first place. insufficient deregulation.
By 2001 many Californians had swallowed the pro- The real problem, however, is that deregulation has
paganda, and a majority supported nuclear power plants enabled producers to evade responsibility for investment
for the first time since the Three Mile Island accident in that would prevent such failures. The new unregulated
1979. The National Energy Policy released in May 2001 market is more interested in profitability than providing
recommended building "between 1,300 and 1,900 new a reliable service. In the case of electricity transmission
electric plants" with an emphasis on natural gas and the link between profitability and reliable service provi-
nuclear generation. It also promoted "enhanced oil and sion is so tenuous that the deregulation process has been
gas recovery," which included drilling for oil in ANWR, more of an act of faith than one grounded in common
as a way of dealing with the `crisis'. It blamed electric- sense. That faith, in turn, has been purposely fostered
ity shortages for rising electricity costs. The same spin by those with a vested interest in deregulation.
is being put on the August blackout in the northeast of
the United States and Canada. The disaster is again Sharon Beder is author of Power Play: The Fight for Con-
being blamed on increasing electricity demand, envi- trol of the World's Electricity, The New Press, NY, 2003.
How Environmentalists Sold Out to Help Enron
by Sharon Beder
A key component of the PR campaign by private Cavanagh was featured in full-page newspaper ads prais-
power companies consisted of efforts to target key envi- ing PG&E's environmental efforts. Cavanagh also pro-
ronmentalists, enrolling them to their cause while attack- duced videos on behalf of PG&E, and collaborated with
ing environmentalists who were not so easily persuaded. PG&E personnel to coauthor an article on their conser-
During the 1970s, environmentalists criticized the vation efforts. Cavanagh was appointed to a steering
expansionist mindset of the power companies and the committee with Amory Lovins and others for a PG&E
rating structure which rewarded high electricity con- research project, and he generally received favorable
sumption and provided no incentives for conservation media coverage for his "positive" and cooperative stance.
and efficiency. In the late 1980s, however, "sustainable NRDC had been founded in 1970 by two Wall Street
development" became the catchphrase and some main- lawyers to fight legal cases to protect the environment.
stream environmental groups were swayed by business It was funded by the Ford Foundation on the condition
proffers of "win-win" situations that they promised that it accepted a conservative board of trustees that
would enable companies to make profits while suppos- included Laurence Rockefeller and other wealthy con-
edly helping the environment. servatives. Additionally, Ford stipulated that its legal
In 1989, Ralph Cavanagh, a senior lawyer at the Nat- activities had to be cleared by a group of past presidents
ural Resources Defense Council (NRDC), set up the of the American Bar Association. One of the two found-
"California Collaborative Process." The San Francisco ing lawyers, Stephen Duggan, was a partner in the New
Bay Guardian called it a process whereby "key environ- York law firm, Simpson, Thatcher & Bartlett, which
mentalists could meet behind closed doors with top exec- included utilities as a major part of its clientele. At the
utives from private utilities to smooth over their dif- behest of the Ford Foundation, the NRDC also incor-
ferences and hammer out energy-efficiency programs." porated a similar public interest law group made up of
Thanks to the Collaborative Process, PG&E was able Yale Law School graduates, which included John Bryson,
to greenwash its image by running ratepayer-funded tele- who later became head of the Californian Public Utili-
vision advertisements with titles such as "Conversations ties Commission (CPUC) and then chief executive of
with the Earth" and "Smarter Energy for a Better Southern California Edison Company (SoCalEd).
World." At the same time NRDC defended PG&E's Cavanagh was reportedly a "disciple of Bryson."
commitment to environmental protection and sup- During the 1970s and 80s, the NRDC made a name
ported PG&E causes such as higher electricity rates. for itself by fighting legal battles to enforce clean air and
When President Bush awarded PG&E the Environ- water legislation as well as cases to do with pesticides,
mental and Conservation Challenge Award in 1991, arms testing and a myriad of other issues. When it came
PR Watch / Third Quarter, 2003 5
to energy issues, however, NRDC moved from being a investment environment created and the surcharges nec-
confrontational outsider to a significant player with a seat essary to bail out the utilities.
at the negotiation table, with the help of the San-Fran- "YOU CAN TRUST ENRON"
cisco-based Energy Foundation. Environmental groups also provided reputational
NRDC received $3.1 million from the Energy Foun- support to Enron, which was hailed as an ethical com-
dation between 1991 and 1997 and $1.13 million from pany, won environmental awards and was listed promi-
the Pew Foundation between 1993 and 1995. Both foun- nently on social responsibility investment indexes even
dations were set up with corporate money made in oil as it fought pollution restrictions in Texas, enabling its
and other industries. These foundations dominated the methanol facility to continue emitting more than 3,000
funding for activist groups, ensuring that their lobbying tons of air pollution each year while its pipelines in the
on energy issues took a pro-business, pro-deregulation developing world caused major environmental damage.
and pro-private utility stance. According to Ralph Nader, Enron won environmentalist praise because it lobbied
"the network of funders has become a network of for environmental regulations that were in its own inter-
enforcers. And these guys are all on a first-name basis est. Its stand on global warming, for example, had more
with these corporate [utility] executives." The Energy to do with the anticipated profit opportunities from
Foundation ran conferences where environmentalists greenhouse gas emissions trading than from a desire to
and consumer activists could hob nob with utility exec- save the planet. One company memo stated that the
utives and get on their wavelength. Kyoto treaty "would do more to promote Enron's busi-
Despite all this friendly hob-nobbing, Californian pri- ness than will almost any other regulatory initiative out-
vate utilities cut their budgets for achieving energy effi- side of restructuring the energy and natural-gas
ciency between 1994 and 1998: PG&E by 38 percent, industries in Europe and the United States."
San Diego Gas & Electric by 58 percent and SoCalEd Another Enron memo stated: "Enron now has excel-
by 23 percent. lent credentials with many `green' interests including
NRDC played a key role in gaining the support of Greenpeace, World Wildlife Fund, Natural Resources
environmental groups for deregulation in California Defense Council [NRDC], German Watch." NRDC's
during the 1990s. Many environmentalists were per- Cavanagh was particularly impressed with [Ken] Lay's
suaded that deregulation would remove incentives from opposition to some anti-environmental measures in
the regulated monopolies to increase electricity sales and Congress. "He is part of the reason why the bad guys
build large new power plants. They also believed that the ultimately failed at most of what they attempted,"
unregulated "free market" would provide more oppor- Cavanaugh stated. "On environmental stewardship, our
tunites for companies offering alternative power gener- experience is that you can trust Enron."
ation from renewable sources. Enron used donations and its relationship with the
To shore up environmentalist support for the dereg- NRDC to win approval for its purchase of the largest
ulation law, the California legislature included a small electric utility in Oregon, Portland General Electric
budget for energy efficiency and the development of elec- (PGE). The purchase faced considerable opposition
tricity generation from renewable resources. Harvey within the state. Even Oregon's Public Utility Commis-
Wasserman, author of The Last Energy War, claims that sion opposed the takeover, warning that prices would
the pro-environmental measures in the bill were a "few rise, workers would lose their jobs, and the environment
eco-scraps" that enabled Cavanagh to sell the deregula- would not be protected. Others went further, arguing
tion bill to the media and the mainstream environmen- that Enron planned to sell off PGE's assets and sell its
tal community. Cavanagh was quoted by the media as cheap hydropower to California for large profits.
the voice of environmentalists on the issue, preventing NRDC's Cavanagh played a key role in pacifying
others with more critical stances from being heard. some of this opposition. He negotiated a memo of under-
According to the American Prospect, SoCalEd CEO standing between Enron and Oregon environmental
John Bryson got NRDC support for deregulation by groups involving a transfer of $500,000 of financial sup-
promising a commitment to various conservation pro- port from Enron to the groups. Cavanagh repeatedly
grams but he later got the Federal Energy Regulatory declared that Enron was a socially responsible company
Commission (FERC) "to overturn the conservation that could be trusted. The takeover went ahead. And sure
mandate." Far from benefitting the environment, dereg- enough, in the following two years rates went up, assets
ulation in California crippled the nascent solar and were sold and PGE's electricity made its way to Cali-
energy efficiency industries, because of the uncertain fornia. Enron then sold the utility.
6 PR Watch / Third Quarter, 2003
Utility Company Propaganda: The Early Years
by Sharon Beder
During the early twentieth century, private electric- such as deep sea fishing, theatre parties, baseball games,
ity companies and their trade associations developed the and duck shooting parties for influential politicians, edu-
arsenal of public relations techniques that enabled them cators, business people and newspaper editors. Through
to survive and grow through the 20th century, with very donations and other forms of patronage, it persuaded a
little government interference, despite growing evidence number of seemingly independent organizations to pro-
of their extortionist practices and despite popular move- mote the utility viewpoint.
ments for public control and ownership. The utility information committees spent an esti-
The utilities ran a massive nation-wide propaganda mated $30 million annually in advertising, which served
campaign to persuade the public that government own- as a lever to secure editorial loyalty in reporting on util-
ership of electricity utilities threatened the American Way ity matters. They consciously used their huge budget to
of Life. The campaign utilized smear tactics and reward newspapers that gave them good coverage and
appealed to patriotic feeling rather than reason. Utility withheld advertising from those that were critical.
representatives were urged "not to argue with the advo- Media support was also gained in various other ways.
cates of public ownership but to arouse prejudice against In the mid-1920s the Hearst papers ceased their pop-
them by pinning on them the bolshevik idea." ulist front-page stories supporting public ownership of
A federal inquiry into the electricity industry ran from electricity systems after Hearst received a loan from Her-
1928 to 1934. It concluded that "no campaign approach- bert Fleishhacker, president of the London and Paris
ing it in magnitude has ever been conducted except pos- National Bank in San Francisco and a leading advocate
sibly by governments in war time." The activities of the of privatization of water and electricity. Hearst instructed
various power companies and utilities were coordinated his employees to maintain "pleasant relations" with
by the National Electric Light Association (NELA). It Fleishhacker and not criticise his activities.
had an annual budget of a million dollars and additional The utilities even tried to simply buy many of the
special funds for special purposes such as its $25-30 mil- most influential newspapers around the nation so as to
lion per year advertising budget. control press coverage. They tried their hand at radio
Public relations material was sent to every conceiv- broadcasting and made good use of press agencies that
able outlet. Employees were trained in public speaking sent news items, editorials and features to newspapers
and public relations and gave thousands of talks to busi- around the country. Often the information committee
ness, schools and other groups, reaching millions of would draft an opinion piece and then persuade a promi-
people each year. The campaign was careful in its use of nent person--a governor, judge or attorney--to sign it
language. Public ownership became "political owner- as author. This ensured that newspapers printed them
ship" and private utilities became "public utilities" or and provided third party endorsement for utility views.
"public service companies". Local managers were expected "to cultivate personal
Female employees were also used by the utilities to acquaintance with the school superintendents, teachers,
influence the community. The women were trained to to arrange for [private utility] lectures, offering prizes,
promote the utilities with "their friends and neighbours, making use of school papers." Universities were offered
their associates in business and professional women's financial assistance to gain their cooperation in ensuring
organizations, social clubs and church societies." They courses were conducive to private power company inter-
were taught how to casually bring the conversation ests. NELA also encouraged and subsidized courses on
around to the issue of utility ownership at social gather- utilities. This was often not done directly but by using
ings, so as to give the utility point of view. This view was people who appeared to be independent.
not to be attributed to the utility but rather to some other The utilities influenced many organizations by pro-
respected community figure such as "my banker" or "my viding their most influential members, those "with
doctor." One company entertained 10,000 women in just standing and reputation as distinguished members com-
two days at tea parties organized for this purpose. manding the confidence of their fellows," with expense
NELA also utilized the now common technique of accounts in return for getting their organization to
getting other third parties to convey their message so that endorse the utility viewpoint. A government committee
it would not appear to be self-interested. Third parties reported in 1923: "Another practice...was that of
employed for this purpose included newspapers, schools, employing as campaign workers, persons prominent in
clubs, insurance companies, churches, government offi- commercial bodies, farm organizations, labor unions,
cials, political leaders, bankers and industrialists. NELA social literary, and civic clubs, without these hired rep-
and individual companies organized and paid for outings resentatives disclosing their employment."
PR Watch / Third Quarter, 2003 7
Cancer PR Firms Still Addicted to Tobacco
by Paul Goldberg, editor, The Cancer Letter
The American Cancer Society (ACS) had a problem: was enhanced in part by Richard Edelman's position on
it wasn't a major player in cancer politics in Washington. the board of the CDC Foundation, a non-profit group
To move to center stage, the Atlanta-based charity that develops partnerships between Centers for Disease
turned to two PR firms, Shandwick International and, Control and Prevention and others entities. If the letter
later, Edelman. To develop an overarching cancer from the Edelmans was sincere, the PR firm would serve
agenda, Shandwick and ACS constructed a political two masters no longer.
structure called the National Dialogue on Cancer, and Peggy Conlon, a member of the Dialogue board and
convinced former President George Bush and the Cali- head of its communications committee, described the
fornia Democratic Senator Dianne Feinstein to lead it. Edelman pledge as a dramatic conversion. "I am
The Dialogue is a dream opportunity for a PR firm impressed by people who are willing to set aside the profit
to tap into a pack of multi-billion-dollar industries, motive," said Conlon, head of the committee that
including health care, pharmaceuticals and food. Unfor- selected Edelman and president and CEO of the Ad
tunately, the firms involved have been unable to steer Council, a New York-based non-profit group that pro-
away from another multi-billion-dollar industry: tobacco. duces public service announcements. "There is a culture
Four years ago, soon after Shandwick and ACS set there that wants to do everything they can to improve
up the Dialogue, The Cancer Letter, a weekly newsletter the health of the country."
that covers the politics of cancer, reported that the firm Yet, the pledge notwithstanding, the PR firm didn't
also represented R.J. Reynolds Tobacco Holdings. The sever its ties to tobacco. The Cancer Letter reported that
embarrassment of that disclosure in January 2000, eight months later, the company's office in Malaysia was
caused ACS to fire Shandwick on the spot. helping British American Tobacco promote "social
The Dialogue, however, continues. Meeting behind reporting," a political process that critics say is designed
closed doors at sundry Washington hotels, at the George to preempt global tobacco control. Also, an Edelman
Bush Presidential Library and Museum, and at the Bush affiliate continued to represent BAT in Russia, and a
family compound in Kennebunkport, the Dialogue has press release from an affiliate in Poland claimed com-
been planning fundamental legislative and regulatory pletion of award-winning projects for Philip Morris
changes in cancer research and cancer care. Polska and that country's tobacco industry association.
After George W. Bush became President, he These revelations notwithstanding, Edelman has
appointed urologist Andrew von Eschenbach, a family managed to maintain the Dialogue account, positioning
friend and one of the Dialogue founders, to lead the the firm squarely in the center of cancer policy. Its
National Cancer Institute. The Dialogue was becoming employees work alongside NCI officials, cancer research-
the ideal place to meet important players and influence ers, and cancer professional societies. In July 2003, for
policy. Money poured in. The Dialogue has lined up example, the Dialogue announced a plan to create a
about $21 million in pledges and contributions, enough tumor bank for genomic research. The day before the
to consider hiring another big-time PR firm. announcement at the annual meeting of the American
After a search last fall, the Dialogue chose Edelman, Association for Cancer Research, an NCI staffer sent this
which, alas, was known for its 50-year history of repre- email to outside experts who were working on the Dia-
senting tobacco clients worldwide, and--on one embar- logue project: "If you are agreeable, and there is suffi-
rassing occasion also uncovered by The Cancer cient press interest, we would like you to serve as
Letter--ACS. Was Edelman prepared to make itself spokespeople for the project. Jennifer Mallory from Edel-
tobacco-free to get the Dialogue business? man (cced above) will be organizing the press interviews
It was. In October 2002, Edelman top executives over the weekend at AACR. Typically, such interviews
Richard Edelman and Daniel Edelman signed a pledge are conducted over the phone, and take approximately
that their companies would no longer serve tobacco 20-30 minutes to complete. If you are willing to serve as
clients. The letter pledged that Edelman and Strategy- a spokesperson for the project, and have not done so
One, two firms owned by parent company Daniel J. Edel- already, could you please forward Jennifer and me your
man Inc., would not work with tobacco companies on cell phone number? Jennifer will contact you over the
any business, including marketing, corporate reputation, weekend to provide you with more information about
social responsibility, and research. how the interview process will operate."
Until that dramatic pledge, Edelman sought to pro- The press release distributed at the AACR annual
mote both tobacco and health, serving pharmaceutical meeting cites Mallory as the contact, without mention-
companies and advocacy groups. The firm's health image ing her affiliation with Edelman.
8 PR Watch / Third Quarter, 2003
EDELMAN'S HISTORY OF TOBACCO FLACKERY "Social reporting" is a curious creation of the modern
Edelman's tobacco ties were an open secret. One public relations industry, a purportedly open "dialogue"
connection was brought to the Dialogue's attention last with "stakeholders." According to See, "It's about being
fall, when Conlon's Dialogue communications group responsive to the needs of the stakeholders." Critics,
recommended Edelman for the job. however, describe this process as an effort by BAT to
At that time, an Edelman-owned company in the U.S. thwart the World Health Organization's Framework
worked for Altria Group Inc., the parent company of Convention on Tobacco Control.
Kraft Foods, Philip Morris International, Philip Morris The BAT strategy involves convincing its opponents
USA, and Philip Morris Capital Corp. It was this reve- and sundry others "to join it in dialogue," wrote Bob
lation that prompted the Edelmans to make their no- Burton and Andy Rowell in the Fourth Quarter 2002
tobacco promise to the Dialogue. "They came back and issue of PR Watch. A respected political or cultural figure
said, `We'll resign that business, and you have our full in every BAT territory is found to lead the dialogue,
assurances that if you give us the business, we will take which culminates in production of yearly "social reports."
no tobacco assignments,'" Conlon said. "BAT coaxed journalists, health advocates, tobacco
Four years ago, the firm was open about represent- control activists and government officials to participate
ing tobacco outside the US and covert about represent- in meetings whose purported mission was to advise the
ing ACS. A week after reporting that Shandwick had company on how to become a responsible corporate cit-
designed and launched the Dialogue while also repre- izen," Burton and Rowell wrote.
senting R.J.R., The Cancer Letter reported that Edelman The word "dialogue" figures prominently in the lan-
was similarly serving two incompatible clients: the guage of social reporting. "At British American Tobacco,
cancer society and Brown and Williamson Tobacco we acknowledge that our products are risky, and we rec-
Corp., a BAT subsidiary. ognize the significant responsibilities of our business,"
For ACS, Edelman ran a voter education campaign, said BAT Malaysia in its statement on social responsi-
placing advertisements in conjunction with the Iowa bility. "We also believe that a company like ours, with a
caucus and the New Hampshire primary. For Brown and century's experience of operating in diverse global cul-
Williamson, the PR firm operated a 45-foot-long "mobile tures, which knows our products and its science, sup-
media coach," a press center for the Indianapolis-based ports sensible regulation, and has a long track record of
Team KOOL Green, which competes on the Champi- cooperation with governments worldwide, can make a
onship Auto Racing Teams circuit. real contribution to progress in reducing the health
At the time, Edelman officials said the company was impact of tobacco," the statement reads. "Our goal is to
not "engaged in public affairs on behalf of the tobacco seek solutions through dialogue with a wide range of our
industry in the U.S," adding that the Team KOOL Green stakeholders. We see this as a better alternative to con-
relationship involved auto racing and was made by a flicts and stalemates which can often characterize debates
Canadian office (The Cancer Letter, Jan. 21, 2000). on tobacco issues."
Still, ACS declined to renew Edelman's contract, and A TALE OF TWO DIALOGUES
the firm has done no work for the cancer society since, Internal tobacco industry documents released earlier
said Greg Donaldson, the society spokesman. Though this year show that at the time Shandwick was design-
launched by ACS, the Dialogue is a separate not-for- ing the Dialogue for ACS, it was also working on the
profit organization, which appears to have a greater tol- Framework Convention for BAT and designing its social
erance of conflicts. reporting process.
SOCIAL REPORTING: THE OTHER DIALOGUE The documents, obtained from the Minnesota
Chalk it up to irony, but Edelman's Malaysian office Tobacco Document Depository, which was established
was carrying out a campaign that was initiated primar- as a result of that state's lawsuit against tobacco compa-
ily by Shandwick. nies, include a copy of Shandwick's February 2000 pre-
On June 13, Edelman issued a press release about sentation to BAT. One of the slides in the presentation
scholarships for children of tobacco farmers and curers describes its strategy to "rebuild reputation and restock
on behalf of British American Tobacco's Malaysian affil- the `reputation reservoir'" through "a bold stroke to cap-
iate, BAT Malaysia. "We work with BAT off and on . . . ture people's attention, get taken seriously, win a part in
specifically on the community relations and on the social the debate."
reporting front," said Andy See, an Edelman employee By the time Shandwick prepared the presentation to
who was listed as one of the contacts on the press release. BAT, it had spent years covertly representing tobacco
PR Watch / Third Quarter, 2003 9
companies in controlling the spin from litigation, newly artists in the Russian avant-guarde art, the modernist art
released documents show. of Kazimir Malevich, and the works of his followers.
After ACS fired Shandwick, the cancer dialogue According to an Imageland press release about the
endured, evolving on a separate track from the BAT dia- women of the avant-guarde exhibit, "the Russian public
logues, but the two dialogues are strikingly similar. Like was able to see the paintings of their famous compatri-
the BAT dialogues, the cancer dialogue is organized ots in large part because of sponsorship by British Amer-
around prominent figures: Bush and Feinstein. The ican Tobacco Russia, which is continuing the glorious
groups seek to bring their opponents to the table, in effect Russian tradition of sponsorship of the arts."
surrendering to seemingly democratic rule by consensus. Imageland became an exclusive official representative
The Dialogue's first meeting was held at the Bush of Edelman four years ago. According to a press release,
library in November 1998. Soon after the cancer Dia- it has "access to huge information resources and diverse
logue was launched, Shandwick officials announced the experience of the global network," and its employees are
creation of the Cancer Legislation Advisory Committee, able "to take internship with many U.S. and European
a spin-off group that was given the task of designing a offices of Edelman, as well as leverage their expertise
new version of the National Cancer Act. during the annual educational programs by Edelman
The creation of the committee and appointment of University Summer School." The company's Web site
its members wasn't an action of the Dialogue. It was the displays the Edelman affiliate logo.
action of Shandwick and its client, ACS. The commit- Another Edelman affiliate, Business Communications
tee has produced the framework for a bill, which Fein- Associates S.A. of Warsaw, stated in a May 12 press
stein has introduced. Now, the Dialogue is proposing release that it has completed award-winning projects for
programs and policies for NCI and other government Philip Morris Polska and the Polish National Associa-
agencies, applauding von Eschenbach's pledge to "end tion of Tobacco Industry.
suffering and death due to cancer" in the next 12 years-- Several Dialogue members said they are watching the
and collecting money. Edelman controversy closely.
"NATURALLY-OCCURRING" NICOTINE "We engaged in a partnership to provide funds to the
Meanwhile, the BAT dialogues, too, were delivering National Dialogue on Cancer, because we want them to
their intended message. move this issue of tobacco much higher up on their
As Burton and Rowell first reported in PR Watch, agenda, because it is the cause of one-third of all cancer,"
BAT's first Malaysian social report described nicotine as said Cheryl Healton, president and CEO of the Ameri-
"a naturally-occurring substance in the tobacco plant can Legacy Foundation, and a Dialogue participant.
which is thought to have a mild stimulant effect." The foundation, established with proceeds from the
The report also noted that tar produced by burning Master Settlement Agreement between state attorneys
tobacco "is thought to be related to some of the health general and tobacco companies, committed $3 million
risks associated with smoking." to the Dialogue over the next three years. "The founda-
In Malaysia, the social reporting meetings were orga- tion works very hard to limit to the maximum extent pos-
nized internally by BAT, and Edelman's role was to "con- sible the placement of our dollars with tobacco dollars,"
duct private briefings for selected groups of people, and Healton told The Cancer Letter. "To that end, we received
press briefings," Edelman employee See told The Cancer two assurances from the National Dialogue on Cancer.
Letter. Also, he said, Edelman wrote the press releases The first was that the National Dialogue Foundation,
that accompany the BAT reports. once it accepted our money, would accept no money
Meanwhile, in Moscow, Imageland Public Relations, from tobacco companies or their subsidiaries. And
an Edelman affiliate, is working on brand development second, that the PR firm in service to the foundation had
of BAT cigarettes. "We are working on a specific brand," relinquished all ties to tobacco industry clients. It is on
Olga Naumova, an agency employee, said to The Cancer that basis that we moved forward with them. Our money
Letter. The company is preparing to re-launch Yava cannot be commingled with tobacco money."
Zolotaya, Yava Gold, an updated version of one of the After a reporter asked about these projects, Edelman
Soviet-era cigarettes. "It's a local product for the Russ- vice chairman Leslie Dach said the Malaysian projects
ian market," Naumova said. would be terminated.
Imageland has performed other tasks for BAT Russia. "I instructed our folks there to resign this project rela-
These included corporate relations projects and public tionship," he said, calling back after taking a few min-
relations for three BAT-sponsored exhibits: women utes to investigate. "Our policy is that we don't do work
10 PR Watch / Third Quarter, 2003
for tobacco companies through our companies anywhere the leadership of the firm, which review the financials on
in the world, and when we find out that that policy hasn't a monthly basis, doesn't understand what BAT stands
been followed, we move quickly to correct it." for is ludicrous."
The following day, Richard Edelman sent a letter to Sources said Edelman has a variety of relationships
the Dialogue's Peggy Conlon. "[The] activity by our with affiliates, ranging from equity partnerships to com-
Malaysian office violates our clear firm-wide policy," mercial relationships.
Edelman wrote in the letter dated July 23. "I was "Edelman suggests that they are unwilling to attempt
unaware of this activity in Malaysia, and we have to limit the activities of affiliates on behalf of tobacco
instructed the Malaysian and Asian operations to resign companies, which can be simply done," said a former
the client. We take our commitments seriously. This executive. "Edelman should refuse to work with any firm
should not have occurred, and we are issuing a firm-wide not prepared to take a similar anti-tobacco stance. The
reminder of our policy. In addition, we will be taking all global commitment Edelman made to change 50 years
fees from this activity and donating them to charity." of pro-tobacco advocacy was obviously not taken seri-
However, nothing can be done about the Warsaw and ously enough to drive accountability through the firm."
Moscow affiliates, Dach told The Cancer Letter. "They Many public relations firms create multi-track sys-
are independently governed companies," he said. "We tems, where purportedly separate units accept tobacco
don't control their policies. They are affiliate companies, business, allowing the main corporate entity to maintain
which means that we at times use them in their coun- a no-tobacco appearance.
tries to help us implement projects." Edelman's Web site Dach said he didn't know how the Malaysian tobacco
lists 39 offices and 37 affiliates around the world. account slipped through the system. "It's not clear to
Conlon was sympathetic. "If anything has happened me," he said. "And that's, in a sense, not important to
in Malaysia or some place on the other side of the world, us insofar that it shouldn't have happened, and it's very
I am confident that they didn't know about it," she said. clear that it will not happen."
Further, Conlon accepted Edelman's explanation that The company will not use its affiliates to hide tobacco
the work of affiliates is beyond the company's control. relationships, Dach said. "We have a very clear policy that
"If you don't own the company, how can you force them no Daniel J. Edelman company will work with tobacco
to resign business?" she said. companies on any business. We cannot control what our
Stanton Glantz, an antismoking activist, professor of affiliates do. We derive no financial benefit from their
medicine, and director of the Center for Tobacco Con- clients, and our people will not work, and do not work,
trol Research and Education at the University of Cali- on these matters under these policies.
fornia at San Francisco, said Edelman's 50-year history "If an affiliate attempts to refer work related to a
of service to tobacco companies makes it a bad hire for tobacco account to an Edelman office, the company will
managing public relations of an organization promoting decline," Dach said. "If they asked us to work on this,
tobacco control. we'd say `No.'"
"I think it just shows that they are not serious," Glantz DEFINING A TOBACCO COMPANY
said of the Dialogue. "The great care that smart people The relationship between the cancer Dialogue and
take to avoid such situations isn't just an ethical state- Edelman raises the question of what constitutes a
ment. It's also a very practical programmatic statement. tobacco company.
You don't want [information] leaking out. It's like the According to Dach, Altria, the parent company of
CIA hiring the KGB to do their intelligence work for Philip Morris and Kraft, is tobacco. "We were doing
them, or Bush hiring Al Qaeda to do PR, because they some research work, not for the tobacco company, but
have good connections to Al-Jazeera. It's just amazing, at the Altria level--for Altria--and we terminated that,"
absolutely amazing to me." Dach said.
CENTRALIZED GLOBAL BILLING However, the public relations firm continues to rep-
A former Edelman official familiar with accounting resent Kraft, a separately-traded company owned by
practices said that several years ago, the company set up Altria. "Kraft is a food company, obviously," said Dach
a central billing system, which required that all offices said. "I don't comment on my clients' ownership, but
around the world create billing codes for all their Kraft is obviously a food company."
accounts. "Edelman utilizes a centralized global billing In the recent past, Edelman handled press relations
system managed from their Chicago office by their Chief for the Formula One Lucky Strikes Honda team, and it
Financial Officer," the executive said. "To suggest that continues to represent teams on the Winston cup circuit
PR Watch / Third Quarter, 2003 11
of the National Association for Stock Car Auto Racing. "W