CSR Analysis: Phillip Morris and British American Tobacco Case Study

This case study provides a comprehensive analysis of the Corporate Social Responsibility (CSR) initiatives of Phillip Morris (PM) and British American Tobacco (BAT). The report begins with an executive summary, followed by an introduction that highlights the importance of CSR in the global business environment and its impact on brand image and stakeholder relations. It then delves into the background of both companies, including their profiles, core operations, locations, governance structures, workforce, recent performance, and other relevant information. A detailed examination of their CSR practices, including unethical practices, stated commitments, and major issues or events, is presented. The analysis section evaluates the companies' performance on corporate governance and CSR, followed by recommendations for improvement. The report concludes by summarizing the key findings and providing references. The study also includes appendices with additional supporting information. The assignment highlights the different approaches of both companies and suggests ways they can enhance their CSR efforts, particularly in areas like sustainability, ethical practices, and market expansion.

Phillip Morris
British Tobacco Company and Phillip Morris Case Study
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Phillip Morris
Executive Summary
British-American Tobacco and Phillip Morris are international tobacco retailers. Phillip
Morris has the largest share of the tobacco market in the world, while the British Tobacco
Company is one of the key players. Being the oldest players, these companies are known to
supply tobacco to majority areas of the world. Not just these, but both British American
Tobacco and Phillip Morris have been involved in various other ethical issues; British
American Tobacco was criticised a lot when the news broke how the company was known to
have exploited war zones and the people affected there. BAT promoted its sales in some
really sensitive and war zone of Africa, while Phillip Morris was found spreading false
claims about the healthy nature of e-cigarettes!
While many have been sceptic about how well the company will perform considering, it is
after all a tobacco company, Phillip Morris has made it clear that irrespective their line of
business, they are committed to ensuring the best for the society. British American Tobacco
is focussing on sustainability through its CSR initiatives by focussing on their suppliers and
other underprivileged people or sections of society. The approach of both companies here is
quite different. Phillip Morris has focused on creating sustainable processes for all its
operational needs. However, British American Tobacco is the first, and the only tobacco
company which includes the DJSI or the Dow Jones Sustainability Index as a measure. The
report has several recommendations for both PM and BAT to ensure that they are able to
work better towards their CSR such as how PM should work hard on establishing itself on the
DJSI, expanding CSR and operations to the Asian market, how British American Tobacco
can focus more on undertaking a certain environment-related project so that the company is
better able to vouch for its environmental friendly approach and how it cares about the
environment to name a few.
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Glossary
PM: Phillip Morris
BAT: British American Tobacco
DJSI: Dow Jones Sustainability Index
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Table of Contents
1. Introduction...............................................................................................................5
2. Background...............................................................................................................5
2.1 Company Profile.............................................................................................................5
2.1.1 Core Operations...............................................................................................................................6
2.1.2 Locations..........................................................................................................................................6
2.1.3 Governance Structure.......................................................................................................................6
2.1.4 Workforce........................................................................................................................................7
2.1.5. Recent Performance...........................................................................................................................7
2.1.6 Other Information.............................................................................................................................8
2.2 Phillip Morris and British-American Tobacco Corporate Social Responsibility............8
2.2.1 Unethical Practices.............................................................................................................9
2.2.2 Stated Commitments..........................................................................................................9
2.2.4 Major Issues or Events.....................................................................................................12
3. Analysis...................................................................................................................12
3.1 Performance on Corporate Governance......................................................................12
3.2 CSR Analysis................................................................................................................12
4. Recommendations....................................................................................................13
5. Conclusion...............................................................................................................14
6 References................................................................................................................16
Appendix 1.......................................................................................................................17
Appendix 2.......................................................................................................................19
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1. Introduction
All organizations who function in a global environment should always understand that it is
essential to always contribute to society. In a global business environment, all these
companies consume a lot of resources of the public and nature and tend to sometime either
harm them or overuse them. Hence, it becomes essential for them to contribute towards
sustaining these resources further, and towards the growth of the society itself. many
companies take up these contributions under their Corporate Social Responsibility or CSR
initiatives. The companies simply identify the projects of their interest and ways in which
they will be interested in contributing to the society for all that they took. CSR is essential as
not only helps in building the brand image of the company, but also helps in various other
areas such as tax benefits and in associating with the customers. Phillip Morris (PM) and
British-American Tobacco (BAT) Company are such multinational giants which have
focussed a lot of their efforts on maintaining the Corporate Social Responsibility across a lot
of areas to not only contribute to the society, but to also reach out to various stakeholders;
internal and external for the overall benefits of the company.
The report will focus on identifying the CSR activities and vision of Phillip Morris and
British-American Tobacco Company recommend best practices as well, and how these
companies fair on the DJSI. Also, the report will cover a detailed analysis of the CSR
initiatives of the company and how both the companies are different in their approach. Also,
the report will aim to rank both the companies in superiority of their CSR practices and give
relevant recommendations to further improve the current situation.
2. Background
2.1 Company Profile
Phillip Morris is an international tobacco retailer. The American company has the
largest share of the tobacco market in the world. Being the oldest player, Phillip
Morris has established itself world by supplying a variety of tobacco-based
products in more than 80 countries all over the world (Phillip Morris, 2019).
British-American Tobacco is a British multinational cigarette and tobacco
manufacturing company headquartered in London, United Kingdom. It is the
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second-biggest cigarette maker in the world as of 2012. It has its operation spread
wider than Phillip Morris, in over 180 countries (British American Tobacco, 2019).
2.1.1 Core Operations
The core operations of the companies include selling of tobacco-based
products such as cigarettes and e-cigarettes of various qualities and types. The
company calls itself the provider of a smoke-free future by giving various
alternates to traditional smoking which does not harm the environment and
the human body.
Fig 1: Market distribution PM and BAT
2.1.2 Locations
Phillip Morris has a wide international presence in more than 80 countries all
around the world. British-American Tobacco is a British multinational
cigarette and tobacco manufacturing company serving in 180 countries.
2.1.3 Governance Structure
Phillip Morris Inc. is a public limited company listed on the stock exchange.
The company has a robust share value in the market. Being a public company,
it is governed traditionally with an active board of members. British-
American Tobacco too is listed on LSE and has a proper board of
governance.
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2.1.4 Workforce
Phillip Morris has a very active base of as many as 77,000 employees spread
all over the world. The company also functions with other companies under
associations etc. The company gives special focus on its Research and
Development team, which currently employees 500 (Phillip Morris, 2019).
British-American Tobacco has about 50,000 employees currently employed
all over the world.
2.1.5. Recent Performance
Until 2017, Phillip Morris was enjoying its innovations in the market of e-
cigarettes. The company, however, saw a major drop in stocks when the
various countries in the world banned the e-cigarettes after worldwide
protests and several studies showing the harm they do to the human body, and
the environment indirect as well as passive manner. For the FY 2017, Philip
The share prices went up to as much as $105 per share, and the market
capitalisation too was valued at around US$138.4 billion in October 2018. For
FY 2019, Q3, Phillip Morris had a slump of 0.29% in its growth (Cooper,
2019)
British-American Tobacco has seen some tough times as of now, and the
number in FY 2018 have not been that impressive.
Fig 2: Phillip Morris Revenue Growth (Nanjpala, 2019)
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2.1.6 Other Information
Currently, Phillip Morris and British-American Tobacco are undergoing
several transitions to save themselves after the ban on e-cigarettes. The
decision has hit the business of the company potentially, and it is now
looking for alternative solutions for its product line. The companies currently
venturing into research about alternates and healthier option of electronic
smoking devices and how it can come up with new products to boost its sales.
Also, Phillip Morris had rounds of acquisition and merger talks with Altria,
which are being held currently as well. (Monica, 2019). British-American
Tobacco, however, has been going low and sees no major fluctuation.
2.2 Phillip Morris and British-American Tobacco Corporate Social Responsibility
Phillip Morris and British-American Tobacco have aimed to contribute a major chunk
of its efforts and initiatives into building its brand image. After several controversies,
the companies now realise the importance of image and being recognized neutrally.
The companies have faced a lot of criticism from environmental groups and people
rooting for a ban on electronic tobacco product. This has also impacted the image of
both companies a lot. Phillip Morris has identified, that along with good and spread
across marketing campaigns, it should also focus on leveraging some of the brand
rebuildings through its Corporate Social Responsibility. This move will not only
allow the organization to get in touch with the consumers and the stakeholders, but to
actually contribute towards something (Phillip Morris, 2019), and so is the stand of
British-American Tobacco.
As rightly assessed, the company is trying to cover for its poor publicity by using their
CSR to advantage. While many have been sceptic about how well the company will
perform considering, it is after all a tobacco company, Phillip Morris has made it clear
that irrespective their line of business, they are committed to ensuring the best for the
society. Phillip Morris has focused on creating sustainable processes for all its
operational needs. This is where it starts by calling itself a green tobacco
manufacturer. Using green energy whenever possible, using sustainable products
which do not harm the environment etc. Phillip Morris has tried to compensate for the
nature of its highly polluting business by working on the process itself. British-
American Tobacco, however, is taking another approach. British-American Tobacco
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has taken the CSI or social investment initiative by adopting several areas of need to
flood their support to them, and at the same time stressing on clean smoking habits
(British American Tobacco, 2019). Even though both these companies have been
working hard, they still have the certain fallback, especially when it comes to their
corporate governance and ethical practices.
2.2.1 Unethical Practices
British American Tobacco was criticised a lot when the news broke how the company
was known to have exploited war zones and the people affected there. BAT promoted
its sales in some really sensitive and war zone of Africa. For example, BAT illegally
traded its products in Somalia even after a sharia ban (Boseley, 2017). Furthermore,
BAT made plans to launch in South Sudan just two days before it gained
independence from the north after years of destruction from a civil war that left 4
million people displaced.
PM, however, has been better off. While it has seen its share of issues relating to its
unethical practices, they were more contained towards making false claims about e-
cigarettes to boost sales.
2.2.2 Stated Commitments
Phillip Morris revolutionised the tobacco industry by coming up with alternatives
for cigarettes to enable for a better product range than its existing competitors. If
industry analysis is to be done, in 2018 alone 5% of tobacco products were
smoke-free, of which Phillip Morris had a major contribution to make. The
company has taken its smoke-free' commitment so seriously that it in 2018 it
spent about 95% of its revenue on R&D alone to come up with smoke-free
options for its product line.
Likewise, British-American Tobacco too is working on sustainability along with
the UN. It has its CSR initiatives spread across: Harm Reduction, Sustainable
Agriculture and Farmer Livelihoods and Corporate Behaviour.
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Fig 3: E-cigarette Market
Position on smoking “If you don’t smoke, don’t start; if you do smoke, quit; and
if you don’t want to quit, change to a better alternative”. The Phillip Morris
ideology revolves around giving people this better alternative to ensure that they
can enjoy their smoke and live healthy as well (Phillip Morris, 2019). Not just the
fancies of the western world, but Phillip Morris now plans to expand take and
these alternative smoking or clean smoking products to the developing nations in
the eastern part of the globe as well.
Also, Phillip Morris promotes nicotine-free smoking devices. Again, the
company reiterates that they simply appeal to people who do NOT want to quit
smoking. And it is for people like these that they come up with products such as
vapes without nicotine (McDaniel & Malone, 2012). Phillip Morris has clearly
stated that none of their products, epically the ones catering to the youth will
have nicotine since it is unhealthy, addictive and can destroy the human body in
the long run; something the company does not support. Hence, sticking to its
initial commitment of clean and green tobacco products has not been that difficult
for Phillip Morris after all.
2.2.3 Past Performance
In exploring corporate social responsibility, Philip Morris executives sought to
identify the company’s social value—its positive contribution to society. For
this, the company had taken drastic measures of changing their marketing
techniques and how they branded themselves. From premium tobacco seller to
creating a healthy alternative of smoking, Phillip Morris came a long way. The
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company also apologised for its past views and actions, and committed itself to
provide a healthy alternative to smoking for the future generation that did not
want to quit smoking! However, even these ideas were abandoned and the
company had to choose between the social value of economic value trade-off. It
chose social values for the sake of its shareholders and investments (McDaniel
& Malone, 2012).
Phillip Morris has also spoken strictly against illegal tobacco farming and
procession, and how it affects the business and the customers because of the
poor process of making the tobacco.
Fig 4: Tobacco Farming
CSR affects the general perception of the company a lot. For a lot of time,
Phillip Morris was underwater for its practices and products which were known
to harm its customers and the environments. However, these past two years, the
company has changed a lot in terms of process and approach. The company is
showing genuine efforts towards bringing about a change, and has been known
to "not promote smoking" but simply promotes a healthier way for people who
do not aim to quite it (Noonan, 2019). The company has invested a lot on
coming up with products which are healthy and focus on giving the company a
good name in the market. Phillip Morris has aimed to make the world a better
place through its CSR wing. It also took into account how cigarette buds were a
matter of concern for animals, and hence, came up with products which do not
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have any, or are degradable so that no animals are harmed at all in the process of
disposing of them. This was highly appreciated by the community and thus,
came to be a star for the company (Hirschhorn, 2014).
2.2.4 Major Issues or Events
The only major events in these past days for Phillip Morris would be a
crackdown on the e-cigarettes and how the company is defending these
alternatives to smoking; terming them as more environment-friendly and less
toxic for the human body. After several controversies, the company now realises
the importance of image and being recognized neutrally. British American
Tobacco has managed to remain too much out of controversy, however, it too has
been affected by the recent developments/ban one-cggerates.
3. Analysis
3.1 Performance on Corporate Governance
The company has performed decent in its corporate governance evaluation and has
come at a position where the board and all the stakeholders; internal as well as
external have expressed contentment with the company in all terms (Phillip Morris,
n.d.)
The British American Tobacco company is focussing more on transparency and
involving more people in its decision making to ensure that the company does not get
into any trouble concerning its governance issues.
3.2 CSR Analysis
In exploring corporate social responsibility, Philip Morris executives sought to
identify the company's social value—its positive contribution to society. Struggling
to find an answer, they considered dramatically changing the way the company
marketed its products, apologizing for past actions, and committing the company to
provide benefits for future generations (Phillip Morris, 2018). The British
American Tobacco company to has further tried to appeal to a lot of people in
terms of how it is spreading awareness in this market segment and how it is better
and more responsible than other companies. Their activities have gained them a
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good reputation, especially because they have focussed on the farmers providing
them with the raw material and taking care of their health.
BAT is listed on the DJSI for 18 consecutive years, however, Phillip Morris is still
not a part of it. This is a big deal. Created jointly by S&P Dow Jones Indices and
RobecoSAM, the DJSI represents the gold standard for tracking corporate
sustainability performance of the world’s largest companies (British American
Tobacco, 2019). This index provides an understanding of the CSR working of both
these companies, and not being listed on it simply means not doing enough.
However, this is not the only parameter.
4. Recommendations
Phillip Morris needs to identify ways in which can sustain itself, especially under the
CSR game. CSR will help Phillip Morris a lot in terms regaining lost reputation and
expanding customer and stakeholder base.
1. Focussing on developing cleaner and healthier alternatives to e-cigarettes. Since
the companies have always pitched how concerned they are about the
environment, it is important to focus on how they can create an even healthier
smoking experience for its customer.
2. British American Tobacco can focus more on undertaking a certain environment-
related project so that the company is better able to vouch for its environmental
friendly approach and how it cares about the environment. Like the cigarette bud
initiative, it took for environmental concern and how people should decently
dispose them so that the animals are not harmed in the process
3. Adapting more on the UN SDG; both the companies follow this and hence, can
work on this suggestion equally. This may give it a lot of head start with
convincing the government about not banning the e-cigarettes. Again, this can
give the company a lot of social makeovers that the company requires and can
help to come out as a socially responsible organization even in the tobacco
business; something which is always tough to justify.
4. Not promoting any material which is harmful for the youth since its majority
customer base in under the age of 35 years. Phillip Morris has focused and
stressed on nicotine-free products. This will again be a potential image makeover.
British American Tobacco, however, has to be a lot more aware in this context.
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5. Expanding to the eastern side of the globe with a focus on better and healthier
smoking alternatives for the people of those countries. This is an open potential
market and will help Phillip Morris to reach out with their innovative and
healthier products to appeal to the people there. British American Tobacco,
however, has nothing to worry here as it is already a known name in the eastern
market
6. The PM should work hard on establishing itself on the DJSI and being a little
more frequent on it. It is because of this DJSI that PM can gain visibility as a more
socially responsible organization.
5. Conclusion
Phillip Morris and British American Tobacco have aimed to contribute a major chunk
of their efforts and initiatives into building their brand image. The companies have
faced a lot of criticism from environmental groups and people rooting for a ban on
electronic tobacco product. This has also impacted the image of the companies a lot.
Phillip Morris has identified, that along with good and spread across marketing
campaigns, it should also focus on leveraging some of the brand rebuildings through
its Corporate Social Responsibility. While the activities of British American Tobacco
have also aligned with their thought of clean smoking and healthy smoking to not let
these developments affect their business. Both companies are investing a lot in R&D.
The Phillip Morris ideology revolves around giving people this better alternative to
ensure that they can enjoy their smoke and live healthy as well. Phillip Morris has
aimed to make the world a better place through its CSR wing. British American
Tobacco is focussing on sustainability through its CSR initiatives by focussing on
their suppliers and other underprivileged people or sections of society. The approach
of both companies here is quite different.
It also took into account how cigarette buds were a matter of concern for animals, and
hence, came up with products which do not have any, or are degradable so that no
animals are harmed at all in the process of disposing of them. Also, it has undertaken
the UN SDG as well to promotes a safe and healthy environment for the people.
For the company to build on its CSR, it is important to go stick with mentioned
recommendations. An image makeover is essential for the company right now, and for
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this, Phillip Morris has to focus on letting people know how it is aiming to promote
nicotine-free brand so that the youth do not hamper their health.
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6 References
Phillip Morris, 2019. About Us. [Online]
Available at: https://www.pmi.com/who-we-are/overview
Cooper, M., 2019. Philip Morris Revenue 2008-2019 | PM. [Online]
Available at: https://www.macrotrends.net/stocks/charts/PM/philip-morris/revenue
Nanjpala, R., 2019. Can IQOS Sales Drive Philip Morris’s Revenue in Q1 2019?. [Online]
Available at: https://marketrealist.com/2019/04/can-iqos-sales-drive-philip-morriss-
revenue-in-q1-2019/
Monica, P. R. L., 2019. Altria and Philip Morris end plans to reunite. [Online]
Available at: https://edition.cnn.com/2019/09/25/investing/altria-philip-morris-end-
merger-talks/index.html
Phillip Morris , 2019. A sustainable future. [Online]
Available at: https://www.pmi.com/sustainability
Phillip Morris, 2019. Can a tobacco company be sustainable?. [Online]
Available at: https://www.pmi.com/media-center/news/transforming-our-business-the-
sustainable-way
McDaniel, P. A. & Malone, R. E., 2012. “The Big WHY”: Philip Morris’s Failed Search for
Corporate Social Value. Am J Public Health, 102(20).
Hirschhorn, N., 2014. Corporate social responsibility and the tobacco industry: hope or
hype?. BMJ.
Phillip Morris , 2018. Sustainability Report 2017, s.l.: Phillip Morris.
Phillip Morris , n.d. Sustainability Report 2018, 2019: Phillip Morris .
Noonan, A. M., 2019. The 'vaping scandal' might secure the dominion of 'big business'.
[Online]
Available at: https://realbusiness.co.uk/vaping-scandal-big-business/
British American Tobacco, 2019. About Us. [Online]
Available at:
https://www.bat.com/group/sites/uk__9d9kcy.nsf/vwPagesWebLive/DO52AD6H
British American Tobacco, 2019. Corporate social investment. [Online]
Available at: https://www.bat.com/csi
Boseley, S., 2017. Revealed: how British American Tobacco exploited war zones to sell
cigarettes. [Online]
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Available at: https://www.theguardian.com/world/2017/aug/18/british-american-tobacco-
cigarettes-africa-middle-east
Appendix 1
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This chart summarises how British American Tobacco and Phillip Morris are different in
their financial standing. Phillip Morris is constantly winning over British American Tobacco
gave its better operations prowess and market reach, despite of being present in fewer
countries than British American Tobacco.
Both Philip Morris and BAT have posted huge losses for shareholders lately. Since June
2017, Philip Morris stock is down 33%, and BAT's 29% drop is only a little bit less extreme
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Appendix 2
The graph shows how the top five cigarette makers have experienced a shift in their market,
especially after the introduction of e-cigarettes were introduced.
Altria expects cigarette volumes to continue to drop by 4% to 5% a year through 2023.
Marlboro-maker Altria, which operates exclusively in the U.S., reported the largest decline in
shipments at 5.8%, followed by Imperial Brands' 3.7% drop and Philip Morris' 2.8% decline.
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