Philip Morris
Remarks by Michael A. Miles Chairman and Ceo Philip Morris Companies Inc. Union League Club Public Affairs Forum New York City Thursday, 920625
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includes latest MAM edits. 6/25/92. jgr
Remarks by Michael A. Miles
Chairman and CEO
Philip Morris Companies Inc.
Union League Club
Public Affairs Forum
New York City
Thursday, June 25, 1992
1. 1
REMARKS BY MICHAEL A. MILES
CHAIRMAN AND CEO
PHILIP MORRIS COMPANIES INC.
Union League Club
Public Affairs Forum
New York City
June 25, 1992
Thank you. It's a pleasure to be here.
When I was invited to speak to you, I asked
what you might like to hear me talk about. I
was told that I could talk about anything I
wanted to, as long as I said something
i nteresti ng .
This reminded me of an occasion back
in the 1960's, where the ultra-liberal
comedian Mort Sahl was introduced by a
master of ceremonies who said, "Come on
out, Mort, and say something really funnX."
2. 2.
This kind of introduction is, of course, a
comedian's kiss of death, but Sahl was up
to the occasion. He came out, looked at the
MC, looked at the audience, and said "John
Foster Dulles." This brought down the
house.
Well, I've been called on to say
something interesting, and while it's
probably not house-bringing-down material,
I hope some of it will be interesting to you.
There are two subjects I'd like to touch
on today. First, I'd like to provide you with a
brief overview of Philip Morris, including a
look at the company's growth, present
position and strategies for success in the
f utu re.
3. 3.
Second, I'd like to take a few minutes to
talk about "science fiction," and its impact
on businesses in general and our business
in particular.
Let me begin by touching on some of the
highlights that led to Philip Morris's present
position as what is probably the world's
largest consumer packaaed goods
company.
The company's modern history dates
from 1918 when a group of American
businessmen acquired the U.S. Philip
Morris Company and incorporated it in
Virginia.
In the late 1920's, Philip Morris
introduced a new cigarette whose
packaging and advertising were designed to
appeal to women.
The brand had modest sales in what
was then a very small segment of the
market, and it was called "Marlboro."
Fast forward now to 1954, when
Marlboro was repositioned with a new,
rugged, masculine image, and was
introduced nationally in the flip-top box with
the red roof design. One particularly
popular ad in the "filter/flavor/flip top box"
campaign featured a weather-beaten
cowboy.
5. 5
In 1962, the familiar, if not to say
classic, "Marlboro Country" ad campaign
was launched. On TV and radio, the
campaign featured the stirring theme music
from the mega-hit film, "The Magnificent
Seven," and nothing has been the same
since.
Today, Marlboro is the world's leading
branded, consumer packaged good, having
passed Coca-Cola for that honor in 1986,
and Philip Morris's combined tobacco
operations make it the world's largest
international cigarette company.
Our other leading domestic cigarette
brands include Virginia Slims, Merit,
Benson & Hedges and Parliament, and in
international markets we sell Chesterfield,
Lark, and L&M as well. Worldwide, our
cigarette production now exceeds 1.75
billion units per day.
In addition, through a carefully
orchestrated program of strategic
acquisitions -- including Miller Brewing in
1970, General Foods in 1985, Kraft Foods
in 1989, and the Swiss coffee and
confectionery company Jacobs Suchard in
1990 -- Philip Morris has also become the
world's second largest food company, and
the world's third largest beer company.
7. 7.
Last year, our combined operating
revenues totaled slightly more than 56
billion dollars. About 58 percent of those
revenues come from our food and beer
operations, while 42 percent come from
tobacco.
And, because Philip Morris was one of
the first U.S. package goods companies to
recognize and capitalize on the international
opportunities for our kinds of products, we
can today lay a legitimate claim to being a
truly global corporation.
_ We now have more than 166,000
employees working in 1,100 facilities in 160
countries around the world.
8. 8.
Last year our overseas businesses
accou nted fo r 36 pe rce nt of total P M
Companies revenues, up from 28 percent
five years ago.
At 20 billion dollars, these international
revenues were greater than the combined
overseas revenues of Coca-Cola, PepsiCo
and CPC International, three major
consumer packaged goods companies
known for their large international
operations.
Looking to the future, our objective -- not
surprisingly, perhaps -- is to continue to
build on the company's success, to ensure
that our shareholders, employees, and the
communities in which we do business,
continue to benefit.
9. 9.
In that context, let me try to give you
some sense of the futu re of ou r busi ness by
highlighting the five major strategies we are
following to continue the company's
successfu l reco rd .
Ou r fi rst strategy is to protect and bu i ld
our brand franchises. We are blessed with
some of the world's most recognizable and
most popular brands.
That's partly because, even back when
it was primarily a tobacco company, Philip
Morris recognized the importance of strong
brand names.
Out of that recognition came Marlboro --
which, as I said earlier, may be today the
strongest global brand name in existence in o
N
any consumer product category. AA
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9. 9.
In our beer business, that same strategy
has been evident in Miller's brand building
marketing programs over the years: the
creation of Miller Time; Lite Beer from
Miller, the first light beer in the industry; and,
more recently, Miller Genuine Draft, now
the fastest growing product in the U.S. beer
business.
And, in the food industry, Philip Morris'
acquisition program has resulted in the
creation of what is perhaps the strongest
branded food portfolio in the world as well.
It it
The list includes such familiar market
leaders as Kraft cheese, Maxwell House
coffee, Oscar Mayer meats, Jell-O gelatins
and Kool-Aid soft drinks, as well as Miracle
Whip toppings, Velveeta, Lender's bagels,
Entenmann's baked goods, Toblerone
chocolates, -- and many more.
Our objective is to ensure that every
brand we offer is a leader in its category.
[pause]
Our second strategy is to grow all parts
of our business -- food, beer and tobacco --
in all geography around the world where we
see opportunity for that growth to be
profitable.
This strategy reaffirms our conviction
that the long-term health of the company
depends on the real unit volume growth of
the goods we sell.
Accordingly, we seek growth through
investment in new products, line extensions
of existing products, acquisitions, and
strategic joint ventures.
The recent focus of our acquisitions has
been on international markets -- particularly
central Europe.
_ In May, for example, we acquired
majority interest in the Czechoslovak
cigarette manufacturer Tabak.
In Hungary, the majority interest we're
acquiring in a company called Egri gives us
opportunities not only in tobacco, but also in
the distribution of some of our Jacobs
Suchard coffee and confectionery products.
[pause]
Our third major strategy is to emphasize
productivity and synergies in and between
all of our businesses.
13.
Our productivity and synergy initiatives
include major ones, like the consolidation of
Kraft's and General Foods' respective
headquarters and the integration of all Kraft
and General Foods operations outside of
the United States, as well as smaller, but
equally energetic local efforts, like the KGF,
Miller, PM-USA cross-company sales
teams in the Syracuse area who created a
very successful joint promotion for some of
our food, beer and tobacco products on
Memorial Day.
All of these efforts, large and small, are
saving the company literally hundreds of
millions of dollars. Today we're taking
further steps to combine our distribution,
customer service, sales operations, and
sales accounting, with further significant
savings in prospect.
0
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14. 14.
[pause]
Our fourth major strategy is to
emphasize total quality management in all
of our business units and staff departments.
Now I know that total quality
management, or "TQM," has become
something of a buzz phrase recently, and is
therefore suspect in some quarters.
The fact is, however, that Philip Morris
was practicing total quality management
long before business school professors
began writing books about it, just because it
made good busi ness sense to do so.
15.
The quality emphasis in all of our
businesses is one of the primary reasons
for the strength and leadership positions of
our brands. We will continue that quality
emphasis in the years ahead.
[pause]
Our fifth and final major strategy is to
manage Philip Morris as a global company
i n eve ry respect.
Among other things, this means that on
the product side, we're looking to elevate
more of our packaged goods into truly
global brands.
2
N
16. 16.
Today there are just a few brands that
truly qualify for membership in that elite
group -- Coca Cola, Kodak film, perhaps
Nescafe, and a few others.
Also among them are some important
and growing Philip Morris brands --
Marlboro, Philadelphia brand Cream
Cheese, and Toblerone chocolate. We
want to lift other entries up to global status
as well.
[pause]
Now, those of you who know Philip
Morris will recognize that these strategies
are pretty much the same ones that the
company has applied over the years.
They have enabled Philip Morris to grow
each of its operations in existing markets, to
penetrate new markets successfully, and to
adapt to changing market conditions. I'm
confident that these same strategies will
serve us well i n the futu re.
In summary, then, PM is today a global
company, with a track record of some
success, with strategies we believe are
working, and with a good outlook for the
futu re.
[pause]
Now, having heard me go on for several
minutes about the growth of our company,
the scope of our businesses and the
opportunities we see ahead, you may be
asking yourselves "What, no worries?"
The answer, of course, is that, , we
do have our share of worries. We worry
about the competition, which is tough in all
of our businesses. We worry about the
economy which is weak in many of the
countries in which we do business.
We worry about price wars. We worry
about escalating consumer excise taxes on
our products.
And we worry about social pressures on
the use of our products, driven by special
interest groups who zealously believe they
know what is best for everyone else.
One of the most troubling tactics these
groups use is the shotgun dissemination of o
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questionable scientific research. o
a
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19. 19.
20. 20.
The tactic is intended to scare the
public, and to soften up legislative bodies
and regulatory agencies, with the ultimate
aim of increasing the regulations on the
products and practices that the special
interest groups oppose.
~
~
This brings me to the second of the
topics I said I'd like to talk about -- science
fiction. Not of the Isaac Asimov
type, but rather the so-called scientific
studies being generated today; studies that
are often fundamentally flawed, but that are
being used by special interest groups to
achieve their own intrusive agendas.
And whether you call it science fiction or
junk science or tabloid science, it's all the
same.
Now, please don't take what I wi II have
to say as gratuitous science bashing. We
were all taught to believe that science is a
pure and exacting field, by its very nature
one of our most powerful tools for inquiry,
and certainly much science is just that.
22. 22.
But unfortunately, and increasingly, one
can today also find examples of junk
science that compromise the integrity of the
entire field of science and, at the same time,
create a scare environment where
unnecessary regulations on industry in
general, and on the consumer products
industry in particular, are rammed through
without regard to rhyme, reason, effect or
cost.
Let me give you some examples of what
I'm talking about.
22. 22.
23. 23.
In 1982, so-called science -- which now
seems to be one of the most flagrant
examples of science fiction ever -- made an
entire town homeless. The population of
Times Beach, Missouri was evacuated, and
the town was shut down at a cost of 187
million dollars, because dioxin had been
fou nd i n the town's roads.
The scientist at whose urging the town
was permanently evacuated has since
conceded it was all a terrible and costly
mistake.
He says that the government should
have been more up front with the
townspeople, and should have told them,
"We may be wrong,".
23. 23.
24. 24.
But that didn't happen, and the whole
town fled from the specter of dioxin. Today,
after more thorough study and analysis,
dioxin is thought not to be a carcinogen at
low levels, and even if it is a carcinogen at
high levels, it's a very weak one.
Another, classic example of junk
science is the story about Alar and apples.
In this case, an environmental group
called the Natural Resources Defense
Council, or NRDC, with the help of a paid
public relations firm, was able to sell the
Alar story to CBS's "60 Minutes" as a prime
example of what the NRDC claimed was the
deadly threat of pesticides to the safety of
the U.S. food chain.
25. 25.
"60 Minutes" ran the story in February,
1989, complete with a skull and crossbones
superimposed over an apple. In the report
by Ed Bradley, Alar was branded as, quote,
"The most potent cancer-causing agent in
the food supply today," unquote.
The report contended that thousands of
schoolchildren risked dying from cancer
caused by Alar on apples.
The "60-Minutes" story set off a media
storm that rolled right over the apple
business, which is one of. few remaining
family-run, small-farm businesses in the
country.
26. 26.
In the wake of the "60 Minutes" story,
and congressional testimony by such Alar
"experts" as Hollywood's Meryl Streep, the
farm price for apples fell 50 percent.
From New York to Michigan to
Washington State, 130 million dollars in
apple farm income was lost in that one 1989
season alone. Scores of small family-run
Apple farms went under.
Farmers who never even used Alar, and
85 percent of them didn't, lost their farms
simply because of the Alar halo effect.
At one point, and this is true, people
were calling the EPA to ask if it was safe to
pour their apple juice down the sink, for fear ~
that doing so would contaminate their local N
~
river systems. ~
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27. 27.
And what was the Alar scare based on?
A single study, conducted privately in 1973,
and one follow-up study, both of which were
later discredited by the EPA because of
errors in the data.
These highly suspect studies involved
feeding mice with pure Alar, in doses that
were 35,000 times higher than the highest
esti mate of the dai ly i ntake by
schoolchildren. And it was these so-called
scientific studies that sparked the entire
Alar fiasco.
Today, again based on more careful
study and analysis, the consensus of the
scientific community is that there was never
any hard evidence that Alar was a threat to 0
human health. ~
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27. 27.
28. 28.
[pause]
Now let me give you a couple of
examples of junk science that bring the
message even closer to home -- or to my
home anyway. The studies have to do with
categories where Philip Morris sells
products -- coffee in one case, and
cigarettes in the other.
But let me say in passing I could have
picked, as examples, any of hundreds of
other questionable studies that relate to
various Philip Morris products.
29. 29.
The coffee study comes from the
March, 1992 issue of the journal entitled
Epidemioloay, and purports to find a link
between coffee consumption and the risk of
cancer of the pancreas.
In their summary, the authors state,
quote, "Increased risk of cancer was
present for users of regular and
decaffeinated coffee, but the risk was
higher for users of decaffeinated coffee
than users of regular coffee." Unquote.
It sounds scientific. It was written by
medical scientists. The media reported it as
science. But let's take a closer look.
30. 30.
The subjects in this study were not
examined by the study's authors. Rather,
the data were obtained by telephone. The
researchers picked up their phones,
reached out and touched someone. This
survey approach is most often the case in
epidemiological studies.
In this case, however, the researchers
did not even talk to the people who had had
the pancreatic cancer being studied.
Instead, they took hospital records of
people who had succumbed from the
disease, got the name of the next-of-kin,
and asked them, i n tu rn, to refer the
researchers to a person most likely to have
known the deceased's particular coffee
drinking habits.
It was ultimately that person -- the
person thought by next of kin to have been
most likely to know the deceased subjects'
coffee drinking habits over 30 years or so --
who supplied the primary data for this study.
Now, information obtained, even from a
s ouse, on a person's habits reaching back
20, 30 years and more, is chancy at best.
Relying on a cousin, a niece, the wife of a
nephew seems absurd. Yet this is exactly
what was done in this study.
And how many interviews were
obtained? Well, most public opinion
researchers will say that you need sample
sizes of 1,000 or more to be able to project
the results onto a large population with an
acceptable margin of error. The sample
size in this study was 169 cases.
31. 31.
32. 32.
Finally, the results were limited to
correlations, and as any first year student of
statistics knows, correlation does not prove,
or even necessarily imply causation. Yet
the press coverage of this study most
definitely implied that de-caf coffee causes
pancreatic cancer.
[pause]
Now let me turn to an example of
questionable science that affects our
tobacco business. It is the so-called
science of environmental tobacco smoke,
or ETS.
33. 33.
On June 18, the EPA released a series
of recommendations on environmental
tobacco smoke that was welcomed by anti-
tobacco activists, because it gave them
another opportunity to attempt to push
through bans on smoking in the workplace
and public places.
Central to the EPA recommendations
are studies that purport to link ETS to lung
cancer in non-smokers.
The EPA chose to examine 31 such
studies. Twenty-four of those studies, 24
out of 31, including the study with by far the
largest sample size, found no statistically
significant relationship between exposure to
ETS and lung cancer in non smokers. ~
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33. 33.
34. 34.
And with the exception of one
incomplete study, the handful of studies
that did find statistically significant results
were conducted outside the U.S., principally
in Asia, where cultural effects such as the
widespread use of coal stoves and the way
in which food is prepared make any
conclusions about ETS highly questionable.
When the EPA held a press conference
last year where its draft recommendations
were released to the public, Dr. Morton
Lippmann, Chairman of the Indoor Air
Quality Panel of the EPA's Science
Advisory Board was asked to assess the
magnitude of the potential risk from ETS.
35. 35.
Dr. Lippmann answered by saying that it
was, quote, "a small added risk, probably
much less than you took to get here through
Washington traffic," unquote.
[pause]
Now, hearing these examples, one
might say, "OK, too bad for the farmers and
the coffee and cigarette makers, but so
what? It doesn't really affect me."
Well, let me give you one final example
that touches on the everyday life of
everyone in this room. In the spirit of my
remarks on "science fiction," I'll call this
example "Killer Showers."
36. 36.
The Environmental Protection Agency,
and I am not making this up, has begun an
investigation into the potential
environmental health risks of taking a long,
hot shower.
In fact, a session was held recently, as
part of the EPA investigation into indoor air
quality, under the title "Guidance to
Estimating Exposure ta Volatile Organic
Compounds (VOCs) During Showers."
It seems that VOCs, which are present
,
in ordinary household tap water, can emit
certain gasses when heated. Water is
heated for showers, the EPA reasons, and
therefore showers, especially long hot
showers, are VOC suspect.
0
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36. 36.
37. 37.
The fact that scores of millions of
Americans have been taking hot showers
daily for decades, without noticeable ill
effect, has not seemed to deter the EPA
personnel from pursuing this particular
threat to your and my health and welfare.
If there is a potential risk present in
showers, no matter how small, they will find
it, and you can assume that some anti-
shower group will shortly be out there
pushing for hot shower regulation.
38. 38.
One imagines the chilly prospect, as we
enter the Twenty-First Century, of being
forced to take short, cold showers, under
the watchful eye of the Shower Police ... or
better, not showeri ng at al I... and of Wal I
Street reporting the demise of Teledyne
Shower Massage, counterbalanced by
booming sales in deodorants.
[pause]
Well finally and fortunately, the problem
of junk science is beginning to attract some
attention. Even William Reilly, head of the
EPA, has recently admitted, quote, "Our
society is being forced to make enormously
costly decisions on a very small science
base," unquote.
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06
38. 38.
39. 39.
Reilly, increasingly under pressure from
critics in Congress regarding the
questionable scientific underpinnings of
EPA regulatory decisions, was recently
forced to appoint an independent panel of
prominent scientists to look at EPA's
standards.
The panel concluded that, quote, "The
EPA often does not scientifically evaluate
the impact of its regulations," unquote.
It also found that the agency's studies
frequently are carried out without benefit of
peer review or quality assurance. But, in
spite of this, the studies then escalate into
regulatory proposals, leaving EPA on shaky
scientific ground, business with
unreasonable new rules and regulations,
and taxpayers with the ultimate bill to pay.
40. 40.
I don't know the total answer to the
problem of junk science.
Part of the answer is alerting and
educating the public. This isn't an easy
task. Explaining flawed scientific practices,
results and standards doesn't lend itself to a
ten second sound bite or a 30-second public
service announcement.
Part of the answer is building a coalition
of local governments, businesses, and
taxpayers who will begin saying enough is
enough.
Part of the answer is regulatory, like the
executive order that would standardize risk
assessment procedures.
Part is legislative. Science magazine,
following the Alar hysteria, wrote that
"Businesses today have product liability and
can incur legal damages...Public interest
groups have no such constraints at the
moment; it may be time to develop
appropriate legal safeguards so that victims
of irresponsible information have redress."
And part of the answer is a more
responsible press that is as skeptical and
inquiring about scientific studies as it is
about big business and political candidates.
In closing, let me say that junk science
undermines the standards and integrity of
true science. It undermines our economic
strength and competitiveness. It
undermines the integrity of regulation and, ~
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ultimately of government itself. o
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&b
41. 41.
42. 42.
In the consumer products area, where
Philip Morris does business, we are very
much aware of the impact of junk science.
We offer our products based on
consumer needs and desires, scrupulously
adhering to all government-required content
listings, warnings and other regulations.
Clearly, it is in our self-interest to
vigorously oppose regulations without merit
that are the sole result of junk science.
But we also think -- and I hope you
agree with me -- that becoming more critical
about junk science is in the interest of
consumers, of the business community and
of the American public in general. ~
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42. 42.
Thank you.
[PAUSE]
That concludes my prepared remarks.
Now I'd be delighted to take any questions
you might have.
# # #
