FOOL PLATE SPECIAL
Philip Morris in Hot Water Again

Philip Morris funded a report that concluded cost savings from the early deaths of smokers was one of the positive effects of cigarette use. Why the company would be stupid enough to fund such a report boggles the mind, but it's equally perplexing why Philip Morris critics would be surprised by the news. Reports like this remind us what harmful industry cigarette makers are engaged in.

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By Mike Trigg (TMF Tonto)
July 26, 2001

Philip Morris (NYSE: MO), the world's largest cigarette company, has spent millions of dollars trying to convince the mass public that it's a solid citizen of corporate America. With commercials highlighting its contributions to battered women and homeless children shelters, you also got the sense the company was trying to convince itself that it wasn't as bad as its critics have suggested. 

Some of that public relations work was wasted recently when the The Wall Street Journal reported that Philip Morris funded a report that concluded cost savings (e.g. health care) from the early deaths of smokers was one of the positive effects of cigarette use. The report, which came from consultant Arthur D. Little, was an economic analysis weighing the positive and negative effects of smoking on the Czech Republic.

The report was made as Philip Morris gears up for a debate on excise tax increases in the Czech Republic. The company remains staunchly opposed to higher taxes because they raise cigarette prices and reduce demand. With bad press spreading, Philip Morris has cancelled similar studies in neighboring countries and a Journal story today quoted this Philip Morris apology: "To say it's totally inappropriate is an understatement.''

Why the company would be stupid enough to come within a Martina Navratilova lob of the report boggles the mind, but it's equally perplexing why Philip Morris critics would be surprised by the news. Philip Morris happily owns more than half of the U.S. cigarette market, from which 400,000 people die annually. Still, it's a legal and highly profitable business that's sent the stock soaring 80% over the past year. (For more on the consumer brands business, visit our InDepth page on the subject.) 

Smokers need to claim responsibility for engaging in a well-known risky behavior. Long before the federal government mandated a warning label on cigarettes, the health risks linked with smoking were widely recognized. Even the head of the American Medical Association wrote in 1966 that a warning label on cigarettes was unnecessary because the associated health risks were so commonly known. That's my quick pitch why Philip Morris investors aren't the scum of the earth.

The issue investors must still wrestle with regarding Philip Morris is one of social responsibility. The company can spend all the money in the world on good deeds, but it spends more on marketing those deeds, and light-years more on making and selling cigarettes. And while news of the study might make for good late-night TV jokes, it will likely have no meaningful long-term impact on the company's business. Philip Morris can make all the ads in the world, but it still sells and markets cigarettes, and it's news like this that reminds us what an ugly business that can be.

Mike Trigg doesn't smoke or have a problem owning Philip Morris.  His other holdings can be viewed in his personal profile. The Motley Fool is investors writing for investors.