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NUS BUSINESS SCHOOL

BMK5001 – Ethics, CSR & Sustainability
Project Report

Company: Philip Morris International

By Mahdi Al Muzaddid (A0041762L)

Executive Summary
Company: Philip Morris International

Philip Morris International inc is an American global cigarette and tobacco company listed on NYSE. Philip Morris International (PMI) manufactures and sells cigarettes under brand names like Marlboro, Red & White, Longbeach, L&M among many others. Philip Morris has had a very controversial history due to various ethical shortfalls. A study by Swiss research company Covalence in 2010 listed the most unethical companies in the world and Philip Morris ranked 5th in the list. It has been reported that in the past the company has targeted children and exploited their vulnerability to cigarette addiction. The company employed underage girls to handout free Marlboro cigarettes to children at clubs and concerts. In 2010, Philip Morris was also forced to admit that at least 72 children were working on tobacco farms that sold to Philip Morris, some of whom were as young as ten years old. While the company has a list of guiding principles that would ensure that the company would operate in a socially responsible manner, the guiding principles are extremely vague and are not backed-up by any significant results. This report analyzed the current code of conduct at PMI to establish the need for a more comprehensive CSR program, and thereby provided recommendations for the vision and design of the said program. It is expected that with the implementation of the proposed CSR program as per the given recommendations, PMI will be able to embark on the path of long-term sustainability and profitability, thereby increasing value for its shareholders.

...........5 Standards and Benchmarks......................... 6 4....................... 2 2....................2 Key Issues and Drivers ....... 18 3 4 5 6 7 8 9 10 .......................... 12 7........1 Consumers ..................................................... 7 Building Support and Leadership ........................................... 8 7......... 5 4...................................4 Suppliers .. 2 2.. 4 PMI Code of Conduct ..............................7 Society ................................ 11 7...................................1 Human Rights & Labor Practices ............................. 10 7. 10 7...3 Youth Smoking Prevention Programs ...............................................................................4 Setting Goals ...................................5 Investors ......................................................................................................................................4 Illicit Trade of Cigarettes ...................................................................................... 15 References .......2 Tobacco Advertising & Marketing ...............................................................................................................................................................................10 Feedback and Learning ..............3 Dealers and Retailers ......................Contents 1 2 Philip Morris International – The Company ... 5 4....................................9 Sustainability Reporting .......................................................1.......8 Monitoring ........................ 7 Design of New CSR Program ....................... 6 4........................................................................................................................................................................ 6 Vision for a New CSR Program ..............................................................................................7 Communications ............ 1 Current Ethical Issues . 3 Need for CSR Restructuring....... 9 7............................... 12 7....................... 10 7.............................................1.......................2 Employees ......................................... 14 7.................................................................................................. 11 7..................1..............6 Governments & NGOs ...............................................................1 Key Stakeholders ............................................. 13 7...........................1......................................................................... 11 7.................................5 Impact on Environment ............. 6 4................................ 16 Appendices .......6 Managing Risks & Problems ....................................................... 9 7........................................................1 Health Effects of Smoking............... 13 7..............................................1..................... 14 Conclusion ............2 Tobacco Regulations ........................................................................................................................... 9 7.......................................................................................................................................................................................1..................................................................................................................................................................................................3 Strategic Alliances ............ 14 7....................................................... 10 7...................................................................... 6 4......................................................................6 Charitable Giving .................1..............................................................................

The company can trace its roots back to its founder Philip Morris.. soon after launching its Marlboro brand. the American TV magazine ABC’s 20/20 accused the company of unethical marketing strategies by targeting children and exploiting their vulnerability to addictive habits. The company has over the past few years attracted major negative press and scrutiny from NGOs over unethical practices within the company as well as by its suppliers. In 2010. By 1854. led to the incorporation of a separate subsidiary. Philip Morris International. the world’s 1st and 3rd most popular cigarette brands.1 Philip Morris International – The Company Philip Morris International Inc. Furthermore. the Swiss research company Covalence. a separate company manufactures and distributes their cigarettes using the same brand name. United States in 1902 and began US manufacturing operations in Richmond. These issues and resulting controversies would harm the reputation of the company. Its products are sold in 180 countries and it holds an estimated 16. Since 2008. a tobacconist and importer of fine cigars who started the business with a single shop in London’s bond street in 1847. breweries and wine companies (Miller Brewing and Ste.1 Billion as of 20 th November 2012 with annual revenues of US $ 76. VA in 1929. In the following years. In 2009.0% of the international cigarette market share outside of the United States. in 1965.3 Billion (2011). The 1990s and early 2000s saw increasing pressure on the company due to ethical and regulatory issues mainly related to its tobacco units which are discussed in the next section. Philip Morris started manufacturing its own cigarettes and first went public in 1881 as Philip Morris & Co. and especially its packaged food company Kraft General Foods. the company had grown into a huge conglomerate of tobacco and cigarette companies (Philip Morris and John Middleton). The firm was incorporated in New York. which would become the world’s number one selling cigarette by 1972. the company would grow steadily both domestically and overseas. Michelle) as well as packaged food products (Kraft Foods and General Foods). Human Rights Watch documented the abuse and exploitation of migrant workers through forced labor in farms in Kazakhstan that supplied tobacco to PMI. The domestic division catering to the US market was simultaneously incorporated as Philip Morris USA. Ltd. The establishment of overseas division. This led the parent company to spin-off Kraft Foods as well as its most controversial unit Philip Morris International (PMI) in 2008. started in 1955. in their annual review of multinational corporations ranked PMI 5th among the world’s most unethical companies. The company has a market capitalization of US$ 145. PMI has manufactured and distributed the Marlboro brand in all countries except the United States where Philip Morris USA. By 1990. (PMI) is a leading international tobacco company with a vast brand portfolio led by Marlboro and L&M. Page | 1 .

its agronomists had conducted 171 unannounced audits in Kazakhstan’s tobacco farms. provide below sustenance level wages and in some cases. especially children. In its defense. HRW reached the conclusion that the measures put in place by PMI were not sufficient to prevent and remedy the range of abuses and exploitation. HRW made its recommendations to PMI that included a thorough revision of the Good Agricultural Practices (GAP) policy and establishment of a monitoring department within PMI to prevent and remedy the human rights issues plaguing the company and its supply chain. The company said that in 2009. Furthermore.These aforementioned ethical breeches will be looked into in detail in the next section 2 Current Ethical Issues The two areas that the code of conduct of PMI fails to address are human rights and labor practices. the international non-governmental organization Human Rights Watch (HRW) published a report called Hellish Work that revealed 72 cases of children as young as 10 years old working 12-hour days in Kazakhstan’s tobacco fields for PMI. and tobacco advertising and marketing. Despite PMI’s defense of its efforts. lack of accessible drinking water and the level of nicotine that is absorbed through the skin in tobacco workers. Page | 2 . 2. PMI referred to its Good Agricultural Practices (GAP) policy that it had put in place to as a part of its commitment to social responsibility. The report detailed how some employers confiscated migrant tobacco workers’ passports. The report also stated that PMI did not have adequate procedures in place to assess its human rights risks. it stated that it had agronomists among its employees whose responsibility was to conduct both routine (2-3 times per month) and unannounced audits of tobacco farms. failed to provide them with written contracts. no wages at all. including child labor and forced labor in Kazakhstan. The GAP stated that PMI had a company policy regarding child and forced labor and it communicates this policy to tobacco leaf suppliers. The report also detailed HRW’s multiple correspondences with PMI on the issue that they first brought to PMI’s notice in October 2009. There were also concerns raised about workers exposed to fertilizers and pesticides. Nor did the company have any mechanism to provide remedy to those children and adults whose rights were violated.1 Human Rights & Labor Practices In June 2010. The companies stand on these two areas and ground realities are described below. examine the scope of its problems and effectively mitigate those human rights problems. PMI had responded stating that the company and its affiliates do not engage in or condone child labor or forced labor and its employees would work with others to eliminate the abuses in the labor market related to their supply chain.

cool and trendy” and “the voice of a new generation of Indonesians”. While the absence of any age regulation on sales of tobacco in Indonesia was noted. The program also alleged that PMI routinely sponsors outdoor rock concerts and the Indonesian version of American Idol as well as running TV ads featuring attractive young people. ABC reported of kiosks that were sponsored by PMI and featured Marlboro billboards just steps away from a school where the students would come and buy individual cigarettes.2. another ABC News program. they responded reverently to the ads with boys saying they wanted to be “cowboys” like the Marlboro man and girls saying they found him attractive.” Page | 3 . Many more similar videos of children smoking heavily began showing up on YouTube soon after. A-Mild as a “destination brand for aspirational young adult smokers”. In September 2011. “there are marketing freedoms that we don’t have in a number of other places. the American news magazine program ABC’s 20/20 reported on the widespread prevalence of children as young as 2 years old smoking up to 40 cigarettes a day in Indonesia. calling the country to be in the throes of an “uncontrolled tobacco epidemic”. 20/20 started an investigation into the issue of children smoking in Indonesia. Furthermore. The documents also show evidence of trying to build another PMI brand. Even though the company insisted it did not target kids. things it would never be able to do back in the United States or Europe where Tobacco advertisements on TV has been banned for over 40 years. Even the famous “Marlboro man” advertisements which had been pulled off air in the United States after intense public pressure in the 1960s were shown to be prominently displayed across the country on billboards. the blame was put squarely on PMI. puffing a cigarette in the presence of his family went viral garnering over 13 million views and provoking outrage. The company declined to be interviewed by ABC and instead said they had repeatedly urged the government to impose the ban on selling cigarettes to minors.2 Tobacco Advertising & Marketing In 2010. In July 2012. which is the country’s largest tobacco manufacturer and marketer with a 30 percent market share. a YouTube video of an Indonesian two-year old child. took up the issue with PMI again after an ABC News journalist confronted PMI’s CEO Louis Camilleri at the company’s annual shareholder meeting in New York City. When 20/20 asked teenagers about the Marlboro advertisements. ABC News obtained internal documents of the company from 2005 that plotted a strategy to market to young people. after a year-long investigation. Nightline. Camilleri defended the company’s practices saying that in Indonesia. Following this. and we need to compete. dubbed “The smoking baby”. This included making its brand Sampoerna “young. the investigation revealed that the company had also employed a “small army of attractive young women” to go out and hawker its cigarettes to young and susceptible men.

originally designed by the Business for Social Responsibility (BSR). As part of its policy. 3 Need for CSR Restructuring The ethical issues that PMI currently faces shows that its existing code of conduct may have failed in guiding the company’s actions. models under-25. is used.Although PMI’s code of conduct does not include any guidelines on responsible marketing and advertising. Put health warnings on all marketing materials and packing. As such depending on the depth of the problem. To establish this. product placement in movies or televisions or brand name or logo placement on promotional items likely to be used by minors. advertising on front and back cover of general publications. as can be seen from the insurmountable evidence of its marketing efforts in Indonesia. a framework. a complete restructuring of the CSR program may be required at PMI. Analysis of Current CSR System Designing a New CSR Structure Establishing Vision for a New CSR Program Building Support and Leadership Page | 4 . a global non-profit organization involved in providing advisory services in corporate social responsibility. Respect global standards of decency as well as local cultures and practices. However. the company has separately established three fundamental principles to guide its marketing efforts:    Do not market to children or use any images or content that might appeal to minors. An adapted version of the framework is presented below. the company claims to not use youth-oriented celebrities. PMI seems to do little to follow its own principles on advertising to children.

understanding the underlying mechanisms of diseases caused by smoking and developing methods to assess whether a product can reduce the risk of smoking-related diseases. The code of conduct put forth by PMI includes:        Communicating on the health effects of smoking Advocating comprehensive tobacco regulation on harm reduction. Enforcement of laws on minimum age for tobacco purchase and implementing youth smoking prevention programs Combat illicit trade in counterfeit cigarettes Reduce impact on environment Promote sustainable tobacco farming Support local communities through charitable giving As can be seen. While it covers some of the most important aspects related to the tobacco industry.1 Health Effects of Smoking The company recognizes the ill-effects of smoking on both smokers and non-smokers. The Imperial Tobacco group also includes what the company expects its employees and other stakeholders to do and not do. responsible commercial practice and code of conduct in the workplace. The company claims to focus a significant part of its R&D efforts on developing products with the potential to reduce the risks of smoking-related diseases. They also have a social responsibility program. They have not yet adopted a triple-bottom-line approach towards corporate social responsibility nor do they have a sustainability program in place. It also recognizes that smoking is addictive. and especially on pregnant women. 4.4 PMI Code of Conduct PMI has a basic code of conduct or set of principles in place. two issues that have plagued the company in the past. which guides their operations and the way they do business and interact with the world. Page | 5 . it does not cover important areas like responsible advertising and marketing as well as human rights. the code of conduct is very basic and not comprehensive. For the areas that are included in the code of conduct of PMI. Philip Morris also lacks a system for administering the code of conduct is followed throughout the company as well as outside it by its suppliers and customers. something which is missing in the code of conduct of Philip Morris. This short list can be contrasted to the code of conduct of the Imperial Tobacco Group of UK which has published a 65 page long document detailing the group’s stands on a much more comprehensive list of issues including business and trade integrity. There is no system for recording or reporting code breeches. the following sections provide a description to the extent they truly guide the actions of the company. although its focus is limited to charitable giving.

3 Youth Smoking Prevention Programs The company supports regulations to prevent youth smoking like age bans on the purchase of cigarettes and claims to train retailers to refuse to sell cigarettes to minors.The company however publishes no further information about their research activities making it difficult to analyze the extent of their efforts of how they are progressing on achieving these objectives. It has developed a Good Agricultural Practices (GAP) program for its suppliers that outlines expected standards for agricultural labor practices.4 Illicit Trade of Cigarettes Counterfeit and contraband products affect the business of PMI negatively. 4. This means PMI will support any government activity that seeks to reduce the harm caused by smoking but not to reduce the prevalence of smoking itself. It also financially supports educational programs aimed at preventing youth smoking. It does not support efforts to prevent people from beginning to use tobacco products or encouraging people to quit using tobacco products. It has started publishing an annual report on its agricultural labor practices which will be further elaborated on in the next sections. 4. licensing. crop management. Its charitable contribution amounted to US$ 34 million in 2011. The company has also signed a cooperation agreement with the European Commission to fight illegal trade of cigarettes.05% of its net revenues and 0. Page | 6 . education. monitoring and tracking movement of cigarettes through product marking. 4. but has limited reporting on other areas. representing a mere 0. prevention of domestic violence and disaster relief. The benefits of its charitable program reached 58 countries in 2011 as detailed in its annual publication of charitable contributions. 4.6 Charitable Giving PMI has a well-established charitable giving program that focuses on reducing hunger and extreme poverty.2 Tobacco Regulations PMI claims to support comprehensive regulation of tobacco products based on the principle of harm reduction.4% of its net income. 4.5 Impact on Environment The company has done significantly better in this area as compared to implementation of other areas in their code of conduct. maintenance of forests and other ecological sustainability programs. improving living conditions. water resource protection. and it takes a strong stand against the illicit trading of cigarettes through record-keeping.

In fact. It will move the company’s position from being simply law-abiding to adhering to high international codes of conduct that exceed traditional obligations set out by regulations while keeping the company’s bottom-line in perspective. while there is comprehensive reporting in certain areas like Agricultural Labor practices. the future potential costs that will arise inevitably if PMI continues in this path are going to be immense. As such the proposed CSR program detailed below aims to contribute to not just social development.5 Vision for a New CSR Program As evident from the discussion in the previous section. Furthermore. Furthermore. This is especially challenging because CSR is often seen as a cost for many organizations and expanding the CSR program in a way that might not just increase costs for the company but reduce profits may be a difficult proposition. This might have resulted in the unethical practices that were both practiced and tolerated by the company in its operations in Indonesia as discussed earlier in the project. but also contribute to economic development. The first step is gaining buy-in from the board of directors and executive level management of the company. the next step involves influencing and educating the various internal stakeholders with the goal of creating a broad base of support for the new program. other areas lack any reporting at all. This leaves the company vulnerable to scrutiny and criticism as stakeholders are largely unaware of the company’s stands on various issues and its efforts like reducing impact on environment and preventing youth smoking. For example. but it will also lead to increased profitability. The envisioned CSR and sustainability program that is proposed over the next sections will lead to not only ethical practices within the company and among its stakeholders. there is no mention of expected practices in marketing to be found in the code of conduct. 6 Building Support and Leadership Having established the need for an overhaul of the CSR program at PMI as well as the vision for the new CSR program. The World Business Council for Sustainable Development defines CSR as “the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large”. especially as word about controversial practices by the company and its Page | 7 . The limited principles that PMI has since adopted for its marketing efforts are disjointed from the remaining codes of conduct and also do not seem to be enforced well. it reduces shareholder value due to the cost of lost reputation of the firm. management time spent in dealing with the controversies as well as legal costs that may arise from time to time. it is also true that the bad press that PMI receives due to the ethical controversies doesn’t help in maximize shareholder value. However. the code of conduct at PMI is not comprehensive enough and does not cover all the areas that would be expected of it. while the aforementioned costs are already being incurred by the firm.

and that is the path forward for companies that want to be sustainable over the long term. and the frameworks should reflect those unique challenges. Lastly. It is therefore. but rather an attempt towards maintaining the long-term sustainability of the company. Hence. PMI’s competitors like British American Tobacco (BAT) and Imperial Tobacco have already implemented such programs and shown that it is possible to be ethical while being profitable. The following framework is developed for PMI’s implementation of its new CSR program. Analysis of Key Stakeholders Identification of Key Issues Strategic Alliances Setting Goals & Targets Standards & Benchmarks Managing Risks & Problems Ownership & Communication Preventive Policies & Procedures Roles & Responsibilities Corrective Rewards & Punishments Monitoring Reporting Learning Page | 8 . causing irreparable damage to the firm and its brand’s reputation.ethical breaches spread. 7 Design of New CSR Program There is no single framework for developing a CSR program for a company as each company faces unique challenges based on its business environment as well as the stage of development of its existing CSR programs. in the interest of the company and all its management to adopt a comprehensive CSR program that can effectively guide the company’s actions and create shareholder value while being ethical in its practices. it is prudent upon the management and the board of directors of PMI to adopt the proposed new CSR program and establish it firmwide. This should not be viewed as a cost. A sustainability report that brings together the company’s achievements in these areas as well as set goals for the future will further help in this regard.

as well as society and general public. but also meet their expectations in terms of ethical and responsible behavior. suppliers. It should communicate to consumers about the limited effects of low-toxicant smokeless tobacco among its product range by publishing such information that can help consumers make an informed choice.1 Key Stakeholders The first step involves identification of key stakeholders. 7.e. However. employees do not like to work in companies that are perceived as unethical and therefore it makes it difficult for such companies to attract and retain good employees. the company should put the consumer at the center of not just its strategies and operations. 7. governments & NGOs. dealers & retailers. Since PMI is an international company with operations in many developing and underdeveloped countries. It is important to not just meet consumer needs. As such. investors.The above framework has been specifically developed as part of this study based on the Socially Anchored Competency Model (Dan O’Brien. but also its day-to-day conduct. the code of conduct states that the company will communicate the negative health effects of smoking to consumers and is putting efforts into researching ways to reduce or eliminate the health repercussions of smoking. PMI needs to have transparent and high standards which employees would be expected to follow irrespective of which country they work in. consumers. the company can do more in terms of communicating with consumers about how their research is progressing as well as the different products PMI and its competitors carry and the varying harm level of each product. The sections below provide an analysis of PMI’s key stakeholders. The implementation of the proposed CSR program would be based on the following steps according to the above framework. This is because these countries often lack clear rules and laws regarding ethical behavior but as an international company.2 Employees PMI’s code of conduct says very little about the expected behavior from employees both inside the company as well as when dealing with outside stakeholders like suppliers and customers. PMI’s code of conduct does put significant importance on the consumer. Page | 9 .1.1. For example. Furthermore. 2001) and the CSR frameworks used by companies like Imperial Tobacco. employees.1 Consumers Consumers are the key stakeholders to the company who are the drivers for the company’s revenues. it is even more important to do so. 7. i.

for example. as was seen in the case of Indonesia.5 Investors For a publicly traded company.e. it will constantly suffer from attacks by NGOs making the company’s efficient operations impossible. this may not seem like a major concern but every controversial issue damages the company’s reputation and results in its stock prices to plummet. 7.7. Furthermore.1. resulted in lots of bad press for the company when forced labor and child labor practices were discovered in those farms in Kazakhstan. 7. i. conflicts of interest and prevention of insider trading. as well as ensure that similar occurrences are prevented through comprehensive standards and benchmarks as discussed later. it will have harder time acquiring finances. they have to deal with NGOs and Governments.3 Dealers and Retailers Dealers and retailers are the main point of contact with the end-consumers and therefore they often are the ones who shape consumers perceptions about the brand and company.6 Governments & NGOs The current path of PMI has put it at cross-roads with Government bodies and NGOs in various occasions. transparency with presentation of data.1. Even if PMI wishes not to. In the past. having a comprehensive sustainability program is important for the company’s primary objective.1. and in extreme cases remaining solvent. For PMI which currently enjoys high stock prices. lack of control over farmers. the CSR program will include specific codes of conduct so that shareholder interests are not compromised. many of the retailers sell cigarettes to even youngsters. Their participation is especially important if PMI is serious about preventing youth smoking as is stated on its code of conduct. The CSR program will bring together all the steps that PMI has already taken to eradicate the problem.4 Suppliers Suppliers are the other part of the supply chain that not only affects PMI’s performance but its reputation as well. 7. If PMI is seen as an unethical company. This will mean codes of conduct governing accuracy of accounting and financial reporting.1. PMI needs to therefore strengthen its communication with dealers and retailers and ensure that the values the company stands for are not infringed upon by its supply chain partners. As such it is important that they follow the same standards of conduct that PMI expects of its employees. Page | 10 . However. maximizing shareholder value. As such. Dealers and retailers are also crucial in helping curb the illicit trade of cigarettes and PMI can achieve a lot of success in this regard by managing their relationship with them well and getting their support for its causes. investors and bond holders are critical in ensuring the viability of the company and if investors lose faith in the company. and therefore it is important for PMI these relationships well.

PMI has already formed an alliance with Verite consulting to manage the issue of responsible labor practices.7 Society Finally.1.e. just like PMI has done with its Agricultural Labor Practices (ALP) reporting (See Appendix). codes of conduct governing business integrity issues like money laundering and bribery and employee treatment issues like discrimination and harassment can be included. specific to each identified stakeholder group can be included in the CSR program. However. Other issues. it continues to be plagued by issues like that of youth smoking in Indonesia as well as other weaknesses in its code of conduct show that much more needs to be done by PMI to achieve international standards in ethical practices and sustainability. it has some responsibilities towards society. The two additional issues that were discussed earlier and needs to be included in the CSR program are responsible marketing and responsible labor practices. 7. Alliances of this nature. 7. tobacco regulations. the biggest stakeholder for PMI is society in-large and like every organization. health effects on smokers. to address the issue of youth smoking. PMI can partner with organizations like the Center for Disease Control and Prevention or World Health Organization. However.2 Key Issues and Drivers The second step involves identification of key issues and drivers. i. PMI seems to recognize these responsibilities from its stated efforts towards funding education for children with the aim of preventing youth smoking and its charitable giving program. impact on environment and impact on society. For example. illicit trade of cigarettes. The proposed CSR program will enable the company to manage these relationships effectively by transparent reporting and working with partners. there is little information that is currently published by PMI regarding these claims because of which it will attract more unwanted attention from NGOs. either with third-party consulting firms or NGOs specialized in the specific area lends credibility as well as expertise. Similarly. smoking among youth. For example. These issues are addressed through this CSR program through the use of strategic alliances as well as transparent reporting of its activities to the public through a sustainability report. Page | 11 . These issues include the issues already identified in PMI’s Code of Conduct. with regards to employees. For example.The current Code of Conduct mentions PMI’s role vis-à-vis Governments in terms of Tobacco regulations which it claims to support.3 Strategic Alliances The third step involves finding partners and forming strategic alliances for each of the issues identified above. the concerning issues to be included would be accuracy of accounting and financial record keeping as well as prevention of conflicts of interest and insider trading. 7. with regards to investors.

strict standards should be set for both the internal marketing department and the external retailers. a CSR Standard or “Business in the Community Corporate Responsibility Index” for its overall CSR program instead of individual areas. realistic and timely. the code of conduct will prevent the marketing department from putting up a billboard with PMI’s brands in the vicinity of a school. but rather set standards for employees or other stakeholders to follow. In such a case.e. The goals should be based on SMART principles. Page | 12 . The reason for such criteria is that in the reporting stage. An example that can be provided is policies regarding acceptance of gifts. i. These standards will be part of the code of conduct expected of employees and stakeholders and will require effective monitoring and reporting.5 Standards and Benchmarks Even as goals are set to reach certain standards. with regards to reducing the harmful effects of smoking. 7. Each goal should come with a deadline for achievement that is either less than one year or should be broken down into distinct segments that can be achieved within a year. or allow kiosks and shopkeepers catering primarily to youth from selling cigarettes to the under-aged. For example. PMI can set specific goals about the research that will be conducted the each area and the number of research papers that will be published or presented in various conferences and seminars. the level of attainment of goals can be stated in annual reports. The code of conduct can specify an amount up to which a corporate gift can be accepted by an employee and above which will require permission and reporting to the department head. it should also be noted that the standards should not be too prescriptive or too specific thereby leaving loopholes that can be exploited. as well as rewards and punishments. These standards should state that the company will not advertise its products near places frequented by youth. However. Rather these standards should be more general and be used as guiding principles.PMI can also seek to achieve certifications like the “ISO 26000”. There should however be rules and procedures regarding how employees should proceed when in doubt over whether an activity breaches any standards. achievable.4 Setting Goals The next step involves setting standards based on benchmarks and short-term goals for reaching the benchmark levels. 7. with regards to a policy of not marketing cigarettes to youth. for instance. For example. specific. measurable. there will be other areas which do not require goals.

the entire program will fall apart. in the case of responsible labor practices. In fact. The CSR program should therefore state policies regarding who should be responsible to tackle any unforeseeable issue that may arise. they need to be communicated firm-wide. be done either through the establishment of an independent CSR department or by creating an executive CSR committee with employees from different departments. the policies and procedures adopted for implementation as well as whose role will be to implement each goal and who will be responsible for monitoring and reporting. For example. 7. the company’s stands on particular issues.7. in the case of responsible marketing. For example. Corrective measures refer to communicating about the rewards for achievement of the set goals or punishments that might be given out for failing to abide by given standards. This is because not all activities relating to the company are under the direct control of its management. This involves communicating with the concerned groups. managers would be responsible for communicating with their teams the acceptable policies and the employees would be accountable for their adoption. However. The procedures for reporting any discrepancies from the set standards by those responsible for monitoring would also have to be communicated to the concerned parties. contracts with farmers may be cancelled as punishment if they are found to have employed child laborers in spite of earlier preventive measures to educate them about company policies against child labor. the company should have the set policies and procedures to deal with them effectively with minimal damage to the company. Effective communication is critical in both getting buy-in from employees and external stakeholders as well as enforcing the CSR program. as well as procedures to deal with such situations immediately. whenever such breaches occur. This may for example. this is the most crucial part in implementation of the CSR program as without effective communication. Preventive measures basically refer to communicating the goals and standards that are set for each stakeholder beforehand. the case of unethical labor practices in Kazakhstan may not have been known to the company management at the outset.6 Managing Risks & Problems Even though goals and standards are set. Page | 13 . It is also important to recognize that is not possible to include every kind of ethical breach that may happen within the company code of conduct.7 Communications Once the goals and standards are set and roles and responsibilities are meted out to employees and management to oversee these issues. the company may still find itself facing a controversial issue or an ethical breach. Communications regarding the CSR program is presented in two parts – Preventive measures and corrective measures. For example.

their communication with stakeholders and effective monitoring are the most critical parts in the implementation of the CSR program.9 Sustainability Reporting While the setting of goals and standards. Furthermore. thereby ensuring that PMI can pre-emptively respond to issues before they can be damaging for the company. As such.7.8 Monitoring Even after communicating the company’s CSR policy. Feedback will also allow the CSR program to improve by including issues and areas that were not anticipated in the initial designing phase. responsibilities for monitoring the enforcement of standards and policies have to be given to appropriate parties. PMI already does so in the case of farmers through agronomists who conduct regular and random checks on farmers to ensure their adherence to the company’s standards.10 Feedback and Learning Lastly. Lastly. they will not be implemented unless they are effectively monitored. the strategic alliances can help here as well with partner NGOs and other organizations keeping a check on external stakeholders. 7. special roles may be created or responsibilities given to some employees to monitor enforcement of standards and goals by stakeholders like suppliers and retailers. it will be a major lost opportunity if PMI does not close the loop in its CSR program by creating feedback channels that will allow the CSR program to evolve with changing needs of time. Page | 14 . it is also important to maintain records and report the achievements of the CSR program. An annual sustainability report is recommended for reporting the company’s achievements in CSR to both internal and external stakeholders of the company. the sustainability report will give confidence to investors and the public that PMI is serious about being an ethical company and its managers are working towards the long-term sustainability of the company like its competitors British American Tobacco and Imperial Tobacco have done. 7. The report will be the essential tool for communicating the vision for the company’s CSR program as well as reporting on goals achieved in the previous year and new goals set for the next year. The reporting stage is where most of the short-term benefits of the CSR program can be realized by the company. Similar responsibilities can be provided to personnel in the distribution or marketing teams to ensure that retailers too adhere to the standards. Furthermore. This responsibility may fall on either the CSR department or executive committee or it may be given out to individual department and team managers.

8 Conclusion The report has provided an in-depth analysis of the existing codes of conduct at PMI in light of the various controversies that engulfed the company in the recent past. PMI will be able to embark on the path of long-term sustainability and profitability. It was found that the existing codes of conduct were not comprehensive enough and therefore insufficient in shaping the actions of the company in an ethical manner. It is expected that with the implementation of the proposed CSR program as per the given recommendations. thereby increasing value for its shareholders. Page | 15 . As such this report provided a new vision for a restructured CSR program for PMI and included recommendations on how the new CSR program can be designed and implemented to provide a comprehensive guiding path for the company’s stakeholders.

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the company has trained field technicians who have subsequently reached out to farmers to provide information about the ALP code. The ALP code. PMI adopted its Agricultural Labor Practices (ALP) Program in May 2011 and published its first progress report in September 2012.000 contracted farmers by the year end. Forced labor. Freedom of association and Compliance with law. Income and work hours.Appendices PMI’s Response to the HRW Report on Labor Practices in Kazakhstan After the report of forced labor and child labor in Kazakhstan’s tobacco farms that supplied to PMI emerged. The company has also partnered with the non-government organization Verité to develop a multi-layered internal and external monitoring system to assess the principles and standards under the ALP code which will be implemented in 2013. The company has so far reached out to 335. establishes the principles and standards expected of PMI and its affiliate’s suppliers in areas of Child Labor. Page | 18 .000 farmers over 30 countries. As part of its ALP program. Fair treatment. It has also joined the Eliminating Child Labor in Tobacco (ECLT) foundation as well as local initiatives like the National Roundtable on Labor Conditions of Workers Engaged in Agriculture in Kazakhstan. which PMI made compulsory for its more than 500.000 farmers and expects to reach over 500. Safe work environment.