PROJECT REPORTONUNETHICAL ISSUESINPHILIP MORRIS

Submitted To Submitted ByMr. Deepankar Chakrabarti Sakshi Gupta (34) FIIB Barkha Vig (12)

INDEX

S.NoTitlePage No

1Introduction3

2Vision & Mission Statement5

3Code of Conduct6

4Unethical Issues & Their Analysis7

5Results9

6Recommendations11

INTRODUCTIONPhilip Morris International Inc. (PMI) is the leading international tobacco company, with seven of the worlds top 15 international brands, includingMarlboro, the worlds best-selling cigarette brand. Philip Morris International is an American global cigarette and tobacco company listed on NYSE. Philip Morris International (PMI) manufactures and sells cigarettes under brand names like Marlboro, Red & White, Longbeach, L&M among many others. Philip Morris has had a very controversial history due to various ethical shortfalls. A study by Swiss research company Covalence in 2010 listed the most unethical companies in the world and Philip Morris ranked 5th in the list. It has been reported that in the past the company has targeted children and exploited their vulnerability to cigarette addiction. The company employed underage girls to handout free Marlboro cigarettes to children at clubs and concerts. In 2010, Philip Morris was also forced to admit that at least 72 children were working on tobacco farms that sold to Philip Morris, some of whom were as young as ten years old. While the company has a list of guiding principles that would ensure that the company would operate in a socially responsible manner, the guiding principles are extremely vague and are not backed-up by any significant results. This report analyzed the current code of conduct at PMI to establish the need for a more comprehensive CSR program, and thereby provided recommendations for the vision and design of the said program. It is expected that with the implementation of the proposed CSR program as per the given recommendations, PMI will be able to embark on the path of long-term sustainability and profitability, thereby increasing value for its shareholders.

They are aglobal companyemploying more than 87,000 people in manufacturing and sales facilities throughout the world.Wherever they manufacture, they apply the sameexacting standardsto ensure the premium quality that smokers of our brands have come to expect.Their day-to-day operations, however, involve more than just making cigarettes; they are also about the way we do business and interact with the world outside our offices, both locally and globally.One of their principal goals is to be a socially responsible company, at both a local and global level.In every country where their products are sold, they are guided by the same basic principles: They communicate about the serioushealth effects of smoking. They advocate for effective, evidenced-based tobacco regulation founded on the principle ofharm reduction. They support the enactment and strict enforcement of laws that set a minimum age to purchase tobacco products. We also work closely with retailers and other partners to implementyouth smoking preventionprograms. They work with regulators, law enforcement agencies, and retailers to combat theillicit tradein counterfeit and contraband cigarettes. They have adopted policies and implemented programs to operatesustainability, including using fewer natural resources, reducing carbon emissions, recycling and producing less waste. They work with growers and suppliers to promote sustainable tobacco farming. Through theirAgricultural Labor Practices(ALP) program, we work with suppliers and growers, interest groups, and governments to address the problems of child labor and other abuses in labor markets related to our supply chain. Theycontributeto improving the local communities in which we do business and source our tobacco through charitable giving, volunteer activities, and support of a wide network of non-profit organizations.

VISION & MISSIONOur goalsare To provide high quality and innovative products to adult smokers, generate superior returns for shareholders, and reduce the harm caused by smoking while operating our business sustainably and with integrity.The Mission guides and informs the business decisions at Altria and its operating companies, which pursue the Mission by focusing on four strategies:

1. Invest in Leadership:We will invest in excellent people, leading brands and external stakeholders important to our businesses' success.2. Align with Society:We will actively participate in resolving societal concerns that are relevant to our businesses.3. Satisfy Adult Consumers:We will convert our deep understanding of adult tobacco and wine consumers into better and more creative products that satisfy their preferences.4. Create Substantial Value for Shareholders:We will execute our business plans to create sustainable growth and generate substantial return for shareholders.

CODE OF CONDUCT1. Our Code of Conduct is about who we are and who we want to be. It is about how we do business, everywhere and all the time. In addition to knowing the legal and ethical responsibilities that apply to our jobs, employees are responsible to uphold the Codes commitment to doing what is right and reporting what is not.

2. PMI has a basic code of conduct or set of principles in place, which guides their operations and the way they do business and interact with the world. They also have a social responsibility program, although its focus is limited to charitable giving. They have not yet adopted a triple-bottom-line approach towards corporate social responsibility nor do they have a sustainability program in place.

3. The code of conduct put forth by PMI includes: Communicating on the health effects of smoking Advocating comprehensive tobacco regulation on harm reduction. Enforcement of laws on minimum age for tobacco purchase and implementing youth smoking prevention programs Combat illicit trade in counterfeit cigarettes Reduce impact on environment Promote sustainable tobacco farming Support local communities through charitable giving

4. As can be seen, the code of conduct is very basic and not comprehensive. While it covers some of the most important aspects related to the tobacco industry, it does not cover important areas like responsible advertising and marketing as well as human rights, two issues that have plagued the company in the past

UNETHICAL ISSUES & THEIR ANALYSISThe two areas that the code of conduct of PMI fails to address are human rights and labor practices, and tobacco advertising and marketing1. Philip Morris Tobacco has been lauded as extremely unethical since so much of their advertising seems geared toward children, and whats more evil than trying to get kids hooked on what is basically a life-threatening drug?

2. Philip Morris (and other tobacco companies) are still criticized for the prominence of their products and ads in delis, convenience stores, and magazines. Theres also the fact that they continue to pay for product placement in movies featuring cool characters who smoke and may influence the teens watching them to do the same.

3. In June 2010, the international non-governmental organization Human Rights Watch (HRW) published a report called Hellish Work that revealed 72 cases of children as young as 10 years old working 12-hour days in Kazakhstans tobacco fields for PMI. The report detailed how some employers confiscated migrant tobacco workers passports, failed to provide them with written contracts, provide below sustenance level wages and in some cases, no wages at all. There were also concerns raised about workers exposed to fertilizers and pesticides, lack of accessible drinking water and the level of nicotine that is absorbed through the skin in tobacco workers, especially children. 4. HRW reached the conclusion that the measures put in place by PMI were not sufficient to prevent and remedy the range of abuses and exploitation, including child labor and forced labor in Kazakhstan. The report also stated that PMI did not have adequate procedures in place to assess its human rights risks, examine the scope of its problems and effectively mitigate those human rights problems. Nor did the company have any mechanism to provide remedy to those children and adults whose rights were violated.

5. ABC News obtained internal documents of the company from 2005 that plotted a strategy to market to young people. This included making its brand Sampoerna young, cool and trendy and the voice of a new generation of Indonesians. The documents also show evidence of trying to build another PMI brand, A-Mild as a destination brand for aspirational young adult smokers. Even the famous Marlboro man advertisements which had been pulled off air in the United States after intense public pressure in the 1960s were shown to be prominently displayed across the country on billboards.

6. As can be seen, the code of conduct is very basic and not comprehensive. While it covers some of the most important aspects related to the tobacco industry, it does not cover important areas like responsible advertising and marketing as well as human rights, two issues that have plagued the company in the past. In reality, they are misleading consumers about their product.

RESULTS1. Human Rights Watch (HRW) published a report called Hellish Work that revealed 72 cases of children as young as 10 years old working 12-hour days in Kazakhstans tobacco fields for PMI.

HRW made its recommendations to PMI that included a thorough revision of the Good Agricultural Practices (GAP) policy and establishment of a monitoring department within PMI to prevent and remedy the human rights issues plaguing the company and its supply chain.

2. Although PMIs code of conduct does not include any guidelines on responsible marketing and advertising, the company has separately established three fundamental principles to guide its marketing efforts: Do not market to children or use any images or content that might appeal to minors. Put health warnings on all marketing materials and packing. Respect global standards of decency as well as local cultures and practices. As part of its policy, the company claims to not use youth-oriented celebrities, models under-25, advertising on front and back cover of general publications, product placement in movies or televisions or brand name or logo placement on promotional items likely to be used by minors.3. Need for CSR Restructuring The ethical issues that PMI currently faces shows that its existing code of conduct may have failed in guiding the companys actions. As such depending on the depth of the problem, a complete restructuring of the CSR program may be required at PMI. To establish this, a framework, originally designed by the Business for Social Responsibility (BSR), a global non-profit organization involved in providing advisory services in corporate social responsibility, is used. An adapted version of the framework is presented below.

Analysis of current CSR system

Establishing vision for a new CSR programDesigning a new CSR structure

Building Support and Leadership 4. The company recognizes the ill-effects of smoking on both smokers and non-smokers, and especially on pregnant women.

It also recognizes that smoking is addictive. The company claims to focus a significant part of its R&D efforts on developing products with the potential to reduce the risks of smoking-related diseases, understanding the underlying mechanisms of diseases caused by smoking and developing methods to assess whether a product can reduce the risk of smoking-related diseases.

5. PMI claims to support comprehensive regulation of tobacco products based on the principle of harm reduction. This means PMI will support any government activity that seeks to reduce the harm caused by smoking but not to reduce the prevalence of smoking itself.

6. The company supports regulations to prevent youth smoking like age bans on the purchase of cigarettes and claims to train retailers to refuse to sell cigarettes to minors. It also financially supports educational programs aimed at preventing youth smoking.

RECOMMENDATIONS1. Consumers are the key stakeholders to the company who are the drivers for the companys revenues. It is important to not just meet consumer needs, but also meet their expectations in terms of ethical and responsible behavior.

As such, the company should put the consumer at the center of not just its strategies and operations, but also its day-to-day conduct. PMIs code of conduct does put significant importance on the consumer. For example, the code of conduct states that the company will communicate the negative health effects of smoking to consumers and is putting efforts into researching ways to reduce or eliminate the health repercussions of smoking. It should communicate to consumers about the limited effects of low-toxicant smokeless tobacco among its product range by publishing such information that can help consumers make an informed choice.

2. PMIs code of conduct says very little about the expected behavior from employees both inside the company as well as when dealing with outside stakeholders like suppliers and customers.Since PMI is an international company with operations in many developing and under-developed countries, it is even more important to do so. This is because these countries often lack clear rules and laws regarding ethical behavior but as an international company, PMI needs to have transparent and high standards which employees would be expected to follow irrespective of which country they work in. 3. Dealers and retailers are the main point of contact with the end consumers and therefore e they often are the ones who shape consumers perceptions about the brand and company. As such it is important that they follow the same standards of conduct that PMI expects of its employees.

Their participation is especially important if PMI is serious about preventing youth smoking as is stated on its code of conduct. However, as was seen in the case of Indonesia, many of the retailers sell cigarettes to even youngsters. PMI needs to therefore strengthen its communication with dealers and retailers and ensure that the values the company stands for are not infringed upon by its supply chain partners.

4. For a publicly traded company, investors and bond holders are critical in ensuring the viability of the company and if investors lose faith in the company, it will have harder time acquiring finances, and in extreme cases remaining solvent. For PMI which currently enjoys high stock prices, this may not seem like a major concern but every controversial issue damages the companys reputation and results in its stock prices to plummet. As such, having a comprehensive sustainability program is important for the companys primary objective, i.e. maximizing shareholder value.

5. Finally, the biggest stakeholder for PMI is society in-large and like every organization, it has some responsibilities towards society. PMI seems to recognize these responsibilities from its stated efforts towards funding education for children with the aim of preventing youth smoking and its charitable giving program.

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