Philip Morris: An Ethical Anomaly

For my Second Paper I analyzed Philip Morris from an ethical perspective. Its a conflicting topic because the company sells a product that kills its customers, but those same customers keep buying from Philip Morris.

The Beginning

In 1492 Christopher Columbus arrived on the shores of North America. Among other spectacular findings, he discovered a strange plant used by Native Americans. Originally used by the Mayans circa 18 BC in Central America, the plant was quickly introduced to other tribes, where it was used for religious ceremonies and medicinal procedures. Today, 2030 years after its discovery, it is the center of a controversial $1 trillion global industry, and its ominous name is recognized everywhere. Tobacco.

After being discovered by Columbus, tobacco quickly became popular in Europe and the American colonies. In  1612, John Rolfe cultivated the first tobacco crop in Virginia. By 1619 it was the colonies’ biggest export and fueled economic growth in America. Smoking quickly became popular among Europeans and colonists.

Throughout the 17th and 18th centuries tobacco was mainly consumed through pipes, however the development of lighter types of tobacco in the 1800’s gave rise to cigarettes. The first cigarette machine was invented in 1881 and 1913 RJ Reynolds introduced the Camel brand, bringing with it the era of the modern cigarette.

Background of Philip Morris

Philip Morris founded his cigarette company in 1847 on a small street in London. They specialized in hand-rolled cigarettes and were very much a small, family run business. In 1902, the company moved to New York City and incorporated. The company remained small, and in 1960 it was only the sixth largest tobacco company in the United States. With their iconic Marlboro Man advertising campaign, the company gained popularity in the United States. In 1983, after a period of rapid growth, Philip Morris was the largest cigarette company in the United States.

From there, the company began to expand into other businesses. Philip Morris acquired Miller Brewing Company in 1970, and General Foods Corp. in 1985. The same year, Philip Morris Companies was incorporated as a publicly traded holding company for Philip Morris and General Foods. Philip Morris continued their expansion with the hostile takeover of Kraft in 1988 and a merger between South African Breweries with Miller in 2002. Philip Morris Companies changed its name to Altria Group, Inc. in 2003, and spun off Kraft Foods as a separate company in 2007. Altria then divested the international business of Philip Morris as a separate company, and acquired U.S. Smokeless Tobacco Company and premium wine manufacturer Ste. Michelle Wine Estates. Despite their disjointed and confusing past, the Altria’s business is fairly straightforward today. The holding company owns Philip Morris USA, U.S. Smokeless Tobacco Company, John Middleton, Ste. Michelle Wine Estates, Philip Morris Capital Corp., and Nu Mark, a new company that produces Nicotine Lozenges.

Financial Success

            Today,Philip Morris still sits atop the cigarette market. The company’s cigarette brands have about half of the cigarette market share and its leading brand, Marlboro, has a 39.9% share of the market. Other Philip Morris brands include Parliament, Virginia Slims, Merit, Benson & Hedges, L&M, Chesterfield, Cambridge, and Basic.

The majority of Philip Morris’s success stems from their advertising in the 1950s. Widely regarded as one of the most successful marketing campaigns of all time, The Marlboro Man helped Philip Morris catapult itself to the top of the industry. Until this brand repositioning, Marlboro cigarettes were considered a cigarette for women, but the image of a rugged cowboy enjoying a cigarette on horseback quickly changed this. Released in 1955, the success of the advertisement was massive. In 1954 Marlboro sales accounted for $154 million, and the brand had less than 1% market share. By 1955 sales increased 3,241% to $15 billion (13). From there the campaign expanded into other professions including sports stars, racecar drivers, and other “manly-men”. The campaign continued through 1999, and is still widely recognized in pop-culture.

Lastly, it is worth mentioning that a lot of Philip Morris’s success can be attributed to the addictive nature of their products. Having customers with a physical dependency to your product makes customer retention easy. The combination of customers who literally “can’t get enough”, paired with strong brand recognition, allowed Philip Morris to become the number one tobacco company in the United States.

Tobacco Regulation and the Current State of the Industry

While Philip Morris enjoyed uncontested financial success throughout the latter half of the 20th century, it appears that rough waters may be on the horizon. Through the 60s, smoking was a lifestyle in the United States. It was associated with a life of glamour, and practically everyone smoked. By 1963, American adults were smoking an average of 12 cigarettes per day. (Regulating Tobacco)

However, in 1963 the Surgeon General released a publication linking cigarette smoking and cancer. Since then, the tobacco industry has only become more regulated. A year later, the Cigarette Labeling and Advertising Act was passed, which required all cigarettes sold to carry the Surgeon General’s warning. This warning was amplified in 1971 when cigarette ads were banned from broadcast. As research into the negative effects of smoking grew stronger, regulations and bans appeared at a rapid pace. In 1990 smoking was banned on interstate buses and domestic flights.

With these regulations came lawsuits against the industry from individual smokers and various parties, including attorneys general in various states. The tobacco companies settled in 1998 to gain immunity from future lawsuits from government groups in return for $246 billion to be paid out over the course of 25 years. This Master Settlement Agreement was agreed upon to recoup state governments for the expenses placed on their Medicaid programs from treating tobacco related conditions. While big tobacco was able to dodge many of these lawsuits, general concern for health caused sales to fall. Since 1965, there has been a steady decline in the percentage of adults who smoke cigarettes.

At first, Philip Morris and other tobacco companies publicly disclaimed any link between lung cancer and smoking, but this was not enough. To combat the health claims coming out, cigarette companies released filtered cigarettes that claimed to limit the amount of dangerous particles in tobacco smoke. The filtered cigarettes were in fact just as harmful as regular cigarettes because consumers would take bigger drags to make up for the lack of smoke. While defensive in nature, this act eventually came back to cause even bigger problems. In 2006, the District of Columbia District Court ruled the tobacco companies had violated RICO laws in a variety of offenses including lying about health risks and marketing to children. As a result, tobacco companies are now required to remove misleading statements about filtered cigarettes being safer, and provide greater transparency to their business and market practices.

In addition to increasing regulation, Philip Morris has had to deal with constantly increasing tobacco tax. The government directly taxes cigarettes with an excise, or “sin” tax, and all state government additionally tax cigarettes by the pack. Some municipalities like New York City also tax cigarettes. These taxes have led to drastic increases in prices, as Philip Morris and other companies push the tax down to their customers.

The current state of the tobacco industry is not pretty, but Philip Morris remains profitable with their hefty market share. Despite a clear public understanding of health risks, millions of addicted smokers continue their habit. As Philip Morris continues to make money off a product that is addictive and damaging to its customers, it is easy to question the moral roots of the company.

An Ethical Perspective

            As far as “evil” corporations go, Philip Morris is certainly on that list. On a very basic level the company sells harmful addictive products that kill almost 20% of Americans each year. Looking further into other company actions reveals that this is just the tip of the iceberg. In addition, the company has long known about the detriments of smoking, despite repeatedly disclaiming the medical claims. Although the company denied these accusations, Philip Morris is taking steps to change their business model. Despite these steps to gain a more favorable public opinion, analyzing the company as an ethical institution shows that the company is not as socially minded as they try to appear as.

When reports about health issues associated with smoking emerged, Philip Morris made an unprecedented decision. Instead of targeting the health problems and looking to manufacture “safer” cigarettes, Phillip Morris began marketing to the younger crowd. A Philip Morris internal document in 1992 states “the ability to attract new smokers and develop them into a young adult franchise is key to brand development” (11). While not necessary breaking the law by physically selling to minors, it is clear that the company believes that targeting a younger, more impressionable crowd is a much more viable solution.

It’s hard to pinpoint the moral atmosphere at Philip Morris. They are still extremely successful and their success comes at the expense of the well being of their customers. Looking at the company within the shareholder/stakeholder debate raises some concerns. In many ways the company is a strictly shareholder organization. They provide significant returns to their shareholders and continue to grow despite regulations and taxes. They are focused on growth and are constantly looking to maintain their enormous market share of 49%. There is a strong argument towards labeling Philip Morris as a shareholder company, but there is another side to the argument.

While it may seem futile to even consider Philip Morris as a company concerned about its stakeholders, the company has participated in a few initiatives that benefit society. Unlike most of its smaller competitors, Philip Morris has never manufactured flavored cigarettes. RJ Reynolds, the manufacturer of Camel cigarettes, came under serious fire for flavored blends like Twista Lime, Mandarin Mint, Beach Breezer, and Warm Winter Toffee (Harris). These flavored cigarettes provided a way to appeal to a younger crowd. Philip Morris has never engaged in this kind of behavior, and in some cases has made an effort to even deter minors from smoking. Since 1998 the company has spent a self reported $1 billion on youth smoking prevention including its “Think. Don’t Smoke” campaign that was started in the 2000s. The Philip Morris website is packed with information on the dangers of smoking, and the company even supported FDA regulation of tobacco, which was eventually allowed by the Tobacco Control Act in 2009. Most recently, Altria was listed on Fortune Magazine’s Top 100 most admired companies of 2011. In the Socially Responsible category they ranked fourth. The company donated $54 million to multiple nonprofits, including The Red Cross, the Smithsonian, the United Negro College Fund, and the National Urban League. Looking at the company without an insight into what kind of business they engage in paints a picture of an ethically sound corporation that values the impact it can have on society. However once the nature of the business that Philip Morris is engaged in is known, their social agenda seems like a façade.

There is no doubt about it; the geniuses in Philip Morris’s public relation division are hard at work. Despite their social outreach, it intention is misguided. The company’s social agenda is arguably just another operating cost to help improve the reputation of Philip Morris as the best of the worse. The company’s support of FDA tobacco regulation might have seemed like a moral move, but FDA regulation of tobacco ends up helping Philip Morris. FDA regulation makes it much harder for smaller cigarette companies to survive. Only Philip Morris has the supply chain and brand recognition to remain profitable as cigarettes become more regulated. Additionally, FDA regulation makes the industry unattractive, heightening the barriers to entry and solidifying Philip Morris’s competitive advantage.

Applying the principles of John Rawls’ Theory of Justice provides an interesting insight into the ethical breakdown of the company. John Rawls argued that the ideal society starts in an original position where everyone is equal. From there, changes in equality should be open to everyone, and the changes in equality are to everyone’s advantage. More importantly, the original position is blanketed with a veil of ignorance where “no one knows his place in society, his class position or social status, nor does anyone know his fortune in the distribution of natural assets and abilities, his intelligence, strength, and the like” (Rawls, 205). Essentially, Rawls knows that those with an unequally high proportion of wealth, assets, or abilities would behave differently under a veil of ignorance. With an equal chance to have an unequal proportion of wealth, assets, or abilities, every individual would fight to make unequal distribution benefit society, instead of allowing the more endowed to “kick away the ladder”.

Looking at Philip Morris through Rawls’ principle of Justice as Fairness shows that the company is not acting fairly. Philip Morris engages in many business activities to help maintain their competitive advantage, including supporting FDA regulation that would kill their competitors. On a more broad scale, the inequality of wealth that Philip Morris has amassed over the years has not been to the advantage of society as a whole. In fact, the success of the cigarette king has come at the expense of the health and well being of society. While it’s apparent that Philip Morris does not abide by the laws of Rawls’ theory of justice, it is hard to blame the company, as Rawls’ theory is inherently at odds with capitalism.

Looking at the company through a different theoretical lens provides a similar conclusion. Thomas Donaldson, an ethics and law professor, claimed that businesses have three duties to society “The duty to avoid depriving people of their rights, to help protect people from such deprivation, and to aid those who are deprived” (Hartman, 163). Donaldson added that these responsibilities apply as long as the company can afford to support them. Edwin M. Hartman, another ethics professor, continued this idea by adding a fourth duty to avoid helping to deprive. When applied to Philip Morris, the theory shows that the company is not upholding the duties they owe to society. Smoking is an individual choice, so Philip Morris is not technically depriving people of their rights. Because the negative effects of smoking are widely known and well supported, the right to a healthy life falls on the individual to uphold in this situation because smoking is known to be detrimental to that right. That being said, the addictive properties of nicotine make this argument somewhat convoluted. Even if Philip Morris isn’t directly depriving people of their rights, the company is guilty of not avoiding helping to deprive. For years, they repeatedly denied health claims about the health issues of smoking, and released filtered cigarettes that claiming them to be healthier. In many ways, avoiding helping to deprive people of their right to live healthily would have been directly in opposition of their business.

Philip Morris is in an interesting situation. Tobacco has been in western culture for around 500 years, and for the majority of that time it was a large part of culture; celebrated as a luxury. It helped bring the colonies money, and once the United States broke free of British rule, it helped secure our economic freedom. Today, tobacco is frowned upon, and the companies that were once so wildly successful and respected in America are being ostracized. To ask Philip Morris to act completely ethically would be asking them to shut down operations completely. They sell a product that takes years off of lives and is responsible for 440,000 deaths each year. While they can continue to pursue “healthier” forms of smoking and ingesting nicotine, there is no way for the company to operate without harming someone. What makes tobacco an anomaly in the business ethics debate is the willingness for their customers to purchase products that will end up harming them. When we think of business ethics, it is normally thought of as creating negative externalities for the environment, the company’s employees, or the law. In the case of Philip Morris, the negative externalities fall on the company’s customers, who willingly accept them.

The solution to this problem does not lie in the hands of Philip Morris or any of the other tobacco companies. While in the past the company has made unethical business decisions like covering up health concerns or trying to convince the public that their cigarettes are safer, the industry is at a point now where they are acting as ethically as possible. They are simply providing a product that has strong demand. It is within our government’s duty to protect citizens when they are incapable of making smart decisions as individuals.

Nicotine is an addictive substance and should be controlled by the FDA. While recouping $246 billion from tobacco companies to reimburse government health programs was a good first start, I believe the next step is to regulate the sale of tobacco and make it an illegal substance. Until then, tobacco will always be a hotly contested subject and Philip Morris will continue doing what they have been doing since 1847.


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