Philip Morris Image a Tough Sell

The reaction was passionate and swift when Western Michigan University crowned tobacco king Philip Morris USA its “Employer of the Year.”

About 400 protest letters poured in from the U.S. and 37 foreign countries. Honoring Philip Morris “is not only a mistake but a terrible blow to humanity,” fumed a writer from Nigeria. “I think to be able to teach and preach to your students about good moral, this robust romance with PHILIP MORRIS should stop.”

Defending the award, bestowed in October, university officials said they weren’t endorsing smoking, only recognizing the company’s exemplary support for student job fairs and recruitment programs.

The uproar over an obscure award underscores what Philip Morris is up against as it seeks to bury its past and craft an image as a good corporate citizen.

The company and its parent, Altria Group Inc., have moved aggressively to separate themselves from the rest of the tobacco industry. Philip Morris has spent $500 million over the last five years on programs to fight underage smoking, such as paying incentives to retailers to keep cigarettes behind the counter. The company’s TV commercials state flatly that smoking is dangerous and addictive.

Altria is the only major tobacco company to voluntarily stop advertising its brands in magazines. And it has broken ranks with its competitors by joining top health and anti-smoking groups in seeking authority for the Food and Drug Administration to regulate tobacco products.

Long known for charitable giving, Altria has donated about $60 million this year to 1,200 nonprofit groups involved in its pet causes: the arts, hunger relief and curbing domestic violence.

But many aren’t buying Altria’s new look. Tobacco foes -- and some neutral observers -- say there’s a disconnect between the image it presents and the way Altria makes its living as the world’s largest and most successful marketer of a deadly product. They contend that the company still promotes its brands in foreign markets by methods long banished here. And they say that in the U.S., the company continues to resist measures that would cut the death toll from smoking.

“The whole thing is sort of a semi-charade, in my opinion,” said Alan Siegel, chairman of Siegel & Gale, a strategic branding and consulting firm. “You can do all the cause marketing and philanthropic things you want. It still doesn’t overcome the fact that you’re making money with a product that can kill you.”

Still, there are signs that hostility toward the company may be softening. For example, state attorneys general credit Philip Morris with sticking faithfully to marketing curbs contained in the 1998 agreement that settled anti-tobacco lawsuits by the states.

“In terms of keeping their agreement, Philip Morris has done a much better job of staying in compliance than ... some of the other companies,” said California Atty. Gen. Bill Lockyer.

And the Reputation Quotient, an annual corporate image rating, suggests Altria is gaining in esteem. This year, the company rose to 48th place in the ranking of the 60 most visible U.S. companies, according to the survey developed by the Reputation Institute and Harris Interactive Inc. In previous years, Altria had ranked as low as 60th and never above 52nd.

“We assumed and believed that it was going to take a while before people accepted our actions for what we think they are,” said Steven C. Parrish, Altria’s senior vice president of corporate affairs. “It is not part of a public relations strategy, but I’m fully aware that me saying that is not going to convince longtime critics of what our motives are.

“The fact is, things have changed.”

Altria’s holdings include 84.6% of Kraft Foods Inc., the largest U.S. food company, and a 36% stake in SABMiller, a global brewing concern. But cigarettes still provide more than half the company’s operating income. In the U.S., where Philip Morris’ market share has grown to 49%, it has become so dominant that the term “Big Tobacco” is something of an anachronism: It’s really Philip Morris and everyone else.

Last year, the parent company finalized a name change from Philip Morris Cos. to Altria, a lofty-sounding but made-up word. The explanation -- that the change was needed to clarify the diverse array of the company’s businesses -- was widely greeted by winks and smirks.

“When you hear Altria, you don’t think about cigarettes, do you?” said Lou Colasuonno of Westhill Partners, a New York-based management consulting firm. “Altria” banished the “instant association with cigarettes, lies, lung cancer,” he said.

The company has also undertaken more substantive changes. Its support for FDA regulation was a radical break from the tradition of cigarette makers marching in lock step against all manner of oversight. The bill, which passed in the Senate in October but failed in the House, would have given the FDA the power to expand tobacco warning labels, limit advertising, disclose ingredients and order the removal of harmful compounds. It is likely to come up again in the next Congress.

To drum up support for the bill, Altria lobbyists brandished ads for candy-flavored versions of R.J. Reynolds Tobacco Co.’s Camel and Brown & Williamson Tobacco’s Kool cigarettes to illustrate problems that regulation would address.

Many observers view the company’s support for the bill as a shrewd business decision, even though it would probably bring a decline in smoking rates. As the richest of the tobacco companies, Philip Morris would be most likely to prosper under a regulatory regime, analysts say. Compliance costs would be a heavier burden on smaller firms, and Philip Morris would probably boost its market share.

And the company was well aware of the halo effect of supporting the legislation. As a company consultant noted in a memo in 2001, “The simple fact that other tobacco companies will likely come out [against FDA regulation] provides Philip Morris a chance to distinguish itself from its competitors as a good corporate citizen.”

Whatever the motive, Rep. Henry A. Waxman (D-Los Angeles), a sponsor of the bill, said he welcomed the company’s support. “But I don’t think anybody can escape the fact that they’re in the business of selling a product that kills millions of people around the world each year,” Waxman said. “Based on that fact alone, it’s impossible to call Philip Morris socially responsible.”

The company has gained mileage from its FDA stand -- and in doing so, struck a raw nerve in the tobacco control movement, which is image-conscious itself.

In a speech in October at UC Berkeley’s Haas School of Business, Altria Senior Vice President David Greenberg, who once worked for Ralph Nader, boasted that the company had “partnered with” the pillars of the anti-smoking world, including the Campaign for Tobacco Free Kids, the American Cancer Society, the American Lung Assn. and the American Heart Assn.

After being bombarded by e-mails from irate activists, the heads of the four groups fired off a protest letter to Altria Chairman and Chief Executive Louis C. Camilleri.

“Philip Morris should stop trying to borrow legitimacy from our reputations and decades of work in tobacco control and public health,” their letter said. Common ground on FDA “does not make us ‘partners’.... We call on Altria/Philip Morris to immediately cease such claims.”

Parrish of Altria wrote back to apologize for “this inadvertent misstatement.”

Critics say other actions by Philip Morris contradict claims that it has fundamentally changed.

Despite investing to fight teen smoking, the company’s powerhouse Marlboro brand is even more popular among underage smokers than adults. Marlboro has a total market share of 38% but is the favorite brand of about 49% of 12- to 17-year-olds, according to a 2003 survey by the federal Substance Abuse and Mental Health Services Administration.

Opponents say the industry must entice youths because few smokers take up the habit after their teens. It’s “completely disingenuous that they don’t want kids to smoke because they have to have kids smoke,” said Ruth Malone, an associate professor of nursing and health policy at UC San Francisco’s medical school.

And critics complain that Philip Morris continues to oppose tobacco tax hikes, even though higher taxes discourage smoking, particularly by cost-sensitive teens.

In November, for example, Altria and Philip Morris spent $1.35 million in a failed effort to defeat a tobacco-tax increase in Oklahoma, according to records filed with the state’s ethics commission.

Peggy Roberts, senior director of communications and media affairs for Philip Morris USA, said the company fought the measure partly because excessive taxes promote contraband and Internet sales, where age verification is absent.

“As a manufacturer of a product that has serious health effects and is addictive, we do have a responsibility to help keep kids from smoking,” Roberts said. “We’re trying to make an effort in other ways” to do that.

In league with tavern and restaurant associations, Philip Morris also has continued to battle indoor smoking bans, including in Idaho and New York this year.

Roberts said the company from now on would sit out these fights, an internal decision that she said was made about two months ago.

“It’s a big departure from what we’ve done traditionally,” Roberts said.

Despite advertising restrictions in their settlement with the states, promotional spending by Philip Morris and its rivals has increased 85% since the deal was signed -- a sore point with health groups. According to the Federal Trade Commission, the total rose from $6.7 billion in 1998, the year of the agreement, to $12.5 billion in 2002, the most recent year for which figures are available. Roberts would not disclose Philip Morris’ share of that, saying the figure was proprietary.

Of the rising flood of promotional dollars, relatively little goes for traditional advertising, such as tobacco billboards that were banned by the settlement. Instead, the companies are spending heavily on in-store ads and consumer discounts such as coupons -- in other words, critics say, trying to keep people smoking by blunting the effect of higher taxes.

Like its major global rivals, Altria’s Philip Morris International unit continues its aggressive push to win customers abroad, including sponsoring sporting and artistic events in countries where knowledge of the risks of smoking is more limited than in the U.S., industry foes say.

Philip Morris has made Marlboro, the world’s bestselling brand, such a popular symbol that it now finds itself fighting to keep the logo off everything from baby bibs and toy cars to kiddie amusement rides.

“It’s inappropriate, we don’t want to see it, and we suffer from it,” said David Davies, senior vice president of corporate affairs for Philip Morris International. Davies said company sales reps had been instructed to report such things to the legal department.

“No one is authorized to use our [trademark] on anything -- let alone something that is of an appeal to children.”