Second draft of a speech on behalf of PM addressed to Stanford. Argues that Stanford should not divest. Discusses PM and the economic significance of PM, Kraft General Foods, and Miller Brewing. Stresses the high return on PM stock. Asserts that PM is responsible because it works to prevent youth smoking, places warnings on all cigarette packages worldwide, and supports scientific research on tobacco-related health risks. Presents selective facts about regulations affecting tobacco. Argues that advertising is designed only to promote brand-switching. Presents problems with divestment, including the difficulty of drawing a line as to which companies to divest from. Mentions targeting of minority groups. Asserts that no sponsorship by PM rests on a "quid pro quo." Presents alternatives to divestment.
Outline of Major Points
A. Philip Morris is the world's largest consumer packaged products
company. We manufacture and sell thousands of brand name
food, beer, and tobacco products around the world.
1. Kraft General Foods is the largest food company in the United
States and is the second largest the world.
2. Miller Brewing is the second largest brewer in the United
States and is the third largest in the world.
B. The Company employs 166,000 people worldwide and has
operations in 44 states. We have extensive contacts in California,
with 53 facilities and over 10,000 employees in this state.
C. In 1991, non-tobacco sales accounted for nearly 60% of revenues
of $56 billion.
D. Over the last five years, Philip Morris stock has yielded an average
return of 31% per year, three times greater than the Standard &
Poors average return over the same period. We recently
announced a 23.8% increase in our dividend.
E. Philip Morris is the second most valuable company among the
Standard & Poors 500, with a market capitalization of
Presentation to Stanford University
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approximately $76 billion.
F. Philip Morris is widely held by institutions, which account for over
70% of our shareholder base.
G. Our cigarette business contributes roughly $3 billion (favorable) to
the U.S. balance of payments.
II. We Believe that We Are Responsible
A. Prevention of Youth Smoking
1. Philip Morris USA adheres to a strict industry code designed to
prevent cigarette sales to minors. For example,
a. All models in advertisements must be, and must appear to
be, at least 25 years old.
b. No advertising in publications directed to minors.
c. No sampling to minors.
d. Billboard advertising must be at least 500 feet away from
schools, playgrounds, and youth centers.
2. The Company supported the development of Tobacco:
llelpfng Youth Say No, a booklet to help parents teach their
children to recognize and resist peer influence to smoke.
Prominent educators, including the former chairwoman of the
California State Board of Education, participated in preparing
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3. Trademark Program
a. We aggressively sue any companies which make
unauthorized use of cigarette trademarks, including
manufacturers of youth-oriented products (e.g., Sega
b. The Company extensively advertises its position on
trademark use -- "If you use these trademarks, we'll see you
B. International Marketing Practices
1. The vast majority of Philip Morris's cigarettes are sold in
countries which require a warning notice.
2. More than ninety percent of the world's population lives in
countries where health warnings are already required by law.
3. Philip Morris International has voluntarily adopted a policy of
placing a health warning on a!l cigarette packages worldwide.
C. Smoking and Health
1. Philip Morris has a!ong-standing commitment to the support of
medical and scientific research relating to diseases statistically
associated with tobacco.
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2. We recognize that smoking is a risk factor relating to certain
diseases and have contributed millions of dollars to support
independent research in an effort to discover the causes of
3. In the last 10 years, the Company has made direct grants of
over $25 million for such research.
4. Philip Morris has contributed $55 million as its share of CTR
grants totalling over $160 million.
5. The CTR has made a number of grants to Stanford
researchers, totaling approximately $x.
I II. Facts about the Tobacco Business
A. Smoking is lawful in every country in the world. There are over 50
million smokers in the United States. The tobacco industry makes
a substantial contribution to the economy.
B. fndustry Regulation.
1. The manufacture and marketing of cigarettes are subject to
hundreds of regulations enforced by the FTC, the BATF, and
various state agencies. In addition, there has been substantial
Congressional oversight of the industry for decades.
2. Since 1966, all cigarette packages in the United States have
carried a warning notice. Since 1970, all advertising in the
United States has carried a warning notice.
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1. Independent surveys establish an extremely high awareness of
the claimed risks of smoking..
2. In 1985, the Surgeon General stated: "The smoker today is
well educated about the health hazards of smoking."
3. In a poll by Audits and Surveys, Inc., 99% of those questioned
had heard that smoking is dangerous.
4. According to an HHS survey, only 1%o to 3% actively disbelieve
the claims concerning the health risks of smoking.
5. The 1989 Surgeon General's Report reported high awareness
levels among high school students: 97% of those surveyed
stated that smokers face a slight, moderate, or great risk of
harm by smoking.
D. Impact of Advertising
1. Cigarette advertising is designed to maintain brand loyalty and
2. There is no clear correlation between advertising and the
initiation of smoking or consumption levels.
a. In 1989, Surgeon General Koop stated: "There is no
scientifically rigorous study available to the public that
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provides a definitive answer to the basic question of
whether advertising and promotion increase the level of
b. In striking down Canada's ban on tobacco advertising as
unconstitutional, a Canadian court, after hearing extensive
expert testimony, found that the government could not
establish a nexus between advertising and consumption.
c. Research by various universities, the World Health
Organization, and the federal government has revealed
i. Changes in total advertising have little or no effect on
ii. There are no systematic differences between
juvenile smoking in countries where advertising is
banned and in countries where it is permitted.
iii. Those countries which have experienced the
sharpest declines in consumption are not those
which have banned advertising.
IU. Problems with Divestment
A.. Informed adults have the right to choose whether or not they wish
to smoke. The anti-smoking movement seeks prohibition, but
Congress and state legislatures will not embrace such a proposal.
Pressure on trustees to divest tobacco stocks is an inappropriate
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alternative to the legislative process. Presumably, Stanford does
not support prohibition or the elimination of freedom of choice for
B. Divestment simply results in an exchange of shares from the seller
to the buyer.
1. Divestment does not (i) affect smokers' choices regarding
smoking or (ii) lead companies to abandon the tobacco
2. There are many willing buyers of Philip Morris stock.
3. Even if divestment, were to drive a company out of the tobacco
business, other sellers would step in.
C. Divestment Demands are Insatiable.
1. If Stanford divests its tobacco stocks on moral grounds, how
will it avoid future requests to divest the stocks of other
companies based on similar moral arguments?
2. The stock of many companies could be the target of a
divestment demand: defense contractors; marketers of
Salvadoran coffee; alleged polluters; and companies that
market inferior infant formulas or drugs in Third World
3. The slippery slope is not hypothetical (e.g., shareholder ~
proposals on a variety of subjects which 3M, Time Warner,
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Gannett, Eastman Kodak, Mobil, General Reinsurance, Bristol.
Myers, and' Travelers Insurance have received).
4. If Stanford sells its Philip Morris stock will it also sell stock it
may hold in companies which are suppliers and customers of
our tobacco business? Will it refrain from investing in index
funds which include Philip Morris stock in their portfolios? Will
it reject grants from the tobacco industry?
D. Divestment entails significant transaction costs and lost profits.
1. Even without knowing the costs Stanford would incur in selling
Philip Morris stock, it is clear that divestment entails significant
costs, such as those relating to brokerage, research, lost
dividends, and lost appreciation.
2. A New Jersey study indicated it would cost the State's
Employee Compensation Fund between $330 and $515
million in broker fees and lost profits to divest of South Africa
3. Harvard divested of roughly 1.2 million shares of Philip Morris's
stock. Since that time, the stock has nearly doubled in price.
Considering appreciation and dividends, Harvard gave up
roughly $50 million.
4. Rice University rejected a divestment proposal in order to
preserve the high returns it receives from Philip Morris stock.
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E. Role of Trustees
1. Trustees should not make financial decisions as a means to
effectuate social policies which are more properly addressed in
the political arena.
2. As stated in the University of Chicago's Kalven Committee
Report: "The university...cannot take collective action on the
issues of the day without endangering the conditions for its
existence and effectiveness.... In brief, it is a community which
cannot resort to majority vote to reach positions on public
V. Specific Questions
1. Philip Morris markets cigarettes in a responsible and lawful
manner to all adult smokers, and we actively support efforts to
prevent minors from smoking.
2. Many minorities and women choose to smoke our products.
We advertise to these and other consumers in an appropriate
manner. A requirement that we advertise only to white males
implies that only that category of customers is capable of
making an informed choice regarding smoking.
3. Addressing criticism of cigarette advertising in minority
publications and on billboards in minority neighborhoods,
Benjamin Hooks stated: "Buried in this line of thinking...is the
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rationale that blacks are not capable of making their own
choices and need some guardian angels to protect their best
interests. This is an insidious form of paternalism. Blacks, like
the rest of the populace, can make the choice of whether to
smoke or not. " (Outdoor Advertising Association of America
Newsletter, January 1990).
B. Contributions to Minority Groups
1. We are proud of corporate citizenship and of our contributions
to minority groups, cultural organizations, and other social
2. Philip Morris has been an important contributor to the minority
community for decades. In the 1950's we supported the
NAACP, the Urban League, and other groups when few other
companies were willing to do so. We maintained our support
even though we were the target of a boycott led by
3. Many minority groups support our positions on such issues as
discrimination against smokers, smoking restrictions,
regressive taxes, and marketing freedoms. We welcome such
support. None of our contributions to any charitable
organizations is contingent upon a quid pro quo.
C. International Practices
1. Nearly every country in which we sell cigarettes requires a
warning notice. Philip Morris International has adopted a
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policy to use a warning even in the absence of a legal
requirement to do so.
2. In many countries, the cigarettes sold by government
monopolies have tar and nicotine deliveries far higher than
those of American cigarettes. Partly for this reason, American
cigarettes are popular overseas. Philip Morris sells many low
delivery brands around the world, including Philip Morris Ultra
Lights, which are comparable to the lowest delivery product we
sell in this country.
D. Promotion and advertising at sporting events
1. The use of cigarette brand names at sporting events is
designed to appeal to adults who smoke. Many Philip Morris
customers attend: the sporting events which we sponsor,
including auto racing and tennis.
2. Sports promotions are not designed to, and do not, encourage
minors to smoke.
a. Sports figures (and other celebrities) do not endorse
b. Promotional clothing items bearing cigarette brand names
are available only in adult sizes.
c. Advertising generally, and event sponsorship in particular,
do not affect the decision to smoke or consumption levels. 04
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d. All sponsorships and promotions are conducted in
accordance with legal requirements (e.g., the broadcast
ban) and self-imposed policies.
3. Many corporations provide essential to supports as well as
cultural events. For example, the emergence of professional
women's tennis, for example, was a direct result of support by
4. As long as cigarettes remain a lawful product, we should be
free to advertise and promote our products to adults in a lawful
manner, including through the promotion of sports events.
E. Advertising the Dangers of Smoking
1. in a sense, we do advertise the claimed dangers of smoking in
that every cigarette package and advertisement in the United
States carries a federally mandated warning.
2. tn connection with the Marlboro Grand Prix in New York, we
have agreed to underwrite messages to discourage youth from
3. In light of the extremely high level of awareness of the risks
associated with smoking, additional warnings would serve no
4. It is unreasonable to expect a manufacturer to advertise to its N
consumers that they should not use its products. N
- - r
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F. Minimum Age Legislation
1. Philip Morris USA supports the passage and strict enforcement
of laws that would set a minimum age of 18 for cigarette
purchases in all 50 states.
2. We believe that 18 is an appropriate minimum age. If
legislatures set a higher age, we would fully comply with the
G. Future of the Tobacco Business
1. Philip Morris is committed to the tobacco business. We derive
substantial revenues from the sale of cigarettes and must
honor our obligations to the shareholders.
2. Philip Morris cannot simply shut down its tobacco business.
Absent outright prohibition, there will always remain a market
3. Prohibition would have significant ramifications, from the
emergence of a black market to lost tax revenues for
A. Earmarking Research
1. Stanford could earmark all or a portion of the income that it
derives from its tobacco stocks for scientific research projects
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relating to those diseases that have been statistically
associated with smoking.
2. Other institutions might follow Stanford's lead. Stanford could
consider organizing a combined research program with other
institutions to be funded by income derived from their tobacco
3. Research could be combined or coordinated with related
research that has already been funded by CTR and the
B. Policy of "Voice°
1. Another alternative to divestment would be to play a more
active role as a shareholder and engage in discussions with
Philip Morris on topics of concern to Stanford.
2. Doing so would be consistent with the position a number of
universities have taken in response to divestment proposals in
other contexts, including South Africa.
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1. 1991 Annual Report
2. Second Quarter Report
3. Divestment Position Paper
4. Actions and Initiatives: What Philip Morris USA is doing to prevent
minors from smoking.
5. Tobacco: Helping Youth Say NO
6. "ITS THE LAW°