A Stateless Philip Morris?

[posted on corp-focus, April 27, 2006]

A Stateless Philip Morris?

By Russell Mokhiber and Robert Weissman

Shareholders in Altria, the parent company of Philip Morris, are meeting today in East Hanover, New Jersey and singing “Happy Days Are Here Again.”

Happy shareholders in a cigarette company is bad news for public health.

In the short term — and never underestimate shareholders’ obsession with the short term — the shareholders are pleased that Philip Morris has managed to capture an increasing share of a declining market. While U.S. cigarette sales fell more than 4 percent in 2005 and 20 percent in the last decade — perhaps the greatest and most unsung public health achievement in the United States in recent decades — Philip Morris’s U.S. market share has risen, to just over 50 percent.

In the medium term, however, what has the shareholders so excited is the potential breakup of the company. If a handful of major lawsuits break Philip Morris’s way over the next year or so, Altria plans to split into three independent companies: Philip Morris USA, Philip Morris International, and Kraft. Wall Street analysts say such a move is likely to result in a 20 percent to 33 percent premium for shareholders, primarily because the assets of Kraft and Philip Morris International will no longer be vulnerable to lawsuits related to the actions of Philip Morris USA.

The liberation of Philip Morris International from Philip Morris USA has potentially grave consequences, however.

An independent Philip Morris International might be incorporated in the United States (though it very likely will not make sales in the United States), or it might be located in Switzerland, where the Philip Morris International subsidiary is now based (but to which it has no historic connection and which it could leave quickly, if there were cause). Either way, an independent Philip Morris International is likely to feel almost no ties to its home country.

In other words, Philip Morris International may effectively be on the verge of converting itself into a corporation that is, from a practical standpoint, close to stateless.

Philip Morris has for decades been a rogue company, committing some of the most egregious marketing abuses and flagrant exercise of illegitimate political influence around the globe. (See http://www.philipmorrisbreakup.org/photos/worldtour for recent marketing examples.)

But things could always be worse. Up to now, Philip Morris has felt at least a little constrained by public opinion in its home country and most important market, the United States, as well as by the (dormant) possibility of U.S. domestic regulation of its overseas operations and the possibility that it might be held liable in U.S. courts for what it does overseas.

How an independent Philip Morris International chooses to conduct itself is a matter of the utmost importance: Philip Morris is the world’s largest tobacco multinational, and 80 percent of its sales are made by Philip Morris International. The company has been a leader in innovating new marketing techniques to attract new smokers, with deadly effect. The World Health Organization estimates that 10 million people will die annually from smoking-related disease by 2030, 70 percent in developing countries. Half the people that smoke today — about 650 million people — will eventually die from cigarette-related disease, according to WHO.

In the deregulated world in which we live, no governmental authority has much power to do anything to block or condition an Altria breakup.

Governments can take steps to mitigate the potential harms, however. The most important is to ratify and implement the terms of the Framework Convention on Tobacco Control, a global treaty with strong public health measures.

Pressure on Philip Morris International could also make a difference.

More than 100 organizations in 50 countries have called on Philip Morris International to “make commitments — in advance of a breakup — to ensure that the separation of Philip Morris International and Philip Morris USA does not worsen the tobacco epidemic.” (See http://www.philipmorrisbreakup.org.) Essential Action organized this effort.

Among the groups’ demands are for Philip Morris International to commit to:

– Adhere to the provisions of the Framework Convention on Tobacco Control, including by ending all advertising and marketing of tobacco products;

– Not lobby or work — including through front groups — against proposals to implement the terms of the Framework Convention, or against proposals to enact 100 percent smokefree places;

– Not invoke provisions of any trade or investment agreement to challenge any tobacco control-related law or regulation.

– Fully disclose all political contributions, lobbying costs, and charitable/educational donations in every country in which it operates; and

– Refrain from tobacco product placements in movies, TV or other media.

From creation of front groups to inventing “tort reform” (the effort to deny victims’ the right to sue corporate wrongdoers), the tobacco industry has long been on the cutting-edge of developing new forms of corporate nefariousness. The evolution of an effectively stateless operating company threatens to be a new chapter in this terrible saga, making efforts to confront Philip Morris International before it is set free all the more important.

Russell Mokhiber is editor of the Washington, D.C.-based Corporate Crime Reporter, . Robert Weissman is editor of the Washington, D.C.-based Multinational Monitor, and director of Essential Action . Mokhiber and Weissman are co-authors of On the Rampage: Corporate Predators and the Destruction of Democracy (Monroe, Maine: Common Courage Press).

(c) Russell Mokhiber and Robert Weissman

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