British American Tobacco

1.0 Introduction Tobacco industry is one of the world’s most profitable and deadly industries in accordance with the global cigarette business with valued up to $559.9 billion USD. In Australia, this industry has contributes significantly to the economy (British American Tobacco [BAT], 2011). The five leading transnational tobacco companies (TTC) in the international tobacco market includes British American Tobacco (BAT). BAT is a London-based transnational tobacco company that ranks third among the leaders and operates in more than 180 countries. It is well represented in both developed and developing markets (BAT, 2011).

To increase its sales growth internationally, BAT use global branding strategy based on four Global Drive Brands (GDBs) which are Dunhill, Kent, Lucky Strike and Pall Mall. Besides, its marketing strategies in the emerging markets involve fraudulent campaign of “low-tar” tobacco products by using misleading terms and color-coding to signify products are less harmful. It induced the targeted market segments of youth, women and the poor aggressively using specially designed packaging according to their preferences. Furthermore, BAT involved in Corporate Social Responsibility (CSR) programs by engaging in “community investment” initiatives to enhance its image.

The main issues are the uses of misleading terms in advertisements, aggressive marketing strategies on targeted segments, tackle underage smoking through youth smoking prevention (YSP) programs, unpaid child labour and tobacco plantation cause health hazards in farmers. Generally, BAT misused the purpose and efforts for CSR. The stakeholder groups include the shareholders, suppliers, government, competitors, customers, employees, management, local communities, media, anti-smoking group and health organization.

Nestle’s case can be a good lesson for BAT. Its action to market infant formula product in third world countries has caused death and suffering of infants due to inappropriate marketing strategies. Besides, Nestle has overlooked these issues when they are concerned with only sales and profits (Post, 1995). World-wide boycott against Nestle Corporation occurred in 1977.

2.0 Main Ethical Issues

Today’s society is looking at not only if a company makes money but how it contributes to society. BAT has done just that and the subsequent addresses these changes. However, the engagement of BAT in the CSR activities is aimed to improve its image and weaken tobacco control efforts. In fact, those CSR activities do not make effort in addressing social problems but exploit the communities involved instead of improving their lives.

One of the ethical issues that arise is irresponsible marketing. Misleading terms such as “low-tar” and “light” and color-coding are used to indicate low-tar cigarettes. BAT continues to promote and falsely market that the “low-tar” cigarettes are less harmful to smokers even though they knew there were no health benefits.

Besides, different marketing strategies were created to encourage smoking in target consumer populations. BAT promoted smoking among women through introducing superslim cigarette brand and fashion-forward cigarette pack designs to attract them. Youths are also targeted and attempt to increase smoking among this population through attractive cigarette pack designs, frequently sponsoring concert and promoting cigarettes on Facebook. BAT also promotes sales of cigarettes in low income communities by giving away free gifts and prizes and promoting through brand messaging.

BAT voluntarily support youth smoking prevention programs. However, studies show that the tobacco companies so called ‘youth smoking prevention’ programs have little proven efficacy in reducing youth smoking but instead encourage them. It is revealed that tobacco companies support these smoking prevention programs for public relation purposes rather than for reducing youth smoking. Thus they do more harm than good.

Other CSR activities supporting by BAT such as the efforts on eliminating child labour in tobacco growing and supporting farmers and their families by providing loans are also not addressing root causes of the problems. Meanwhile, BAT had earned $40 million USD from unpaid child labour and tobacco growing caused farmers to suffer from health hazards. Many farmers often end up in debt to BAT.

2.1 Theoretical Frameworks

According to Milton Friedman’s Shareholder Theory, the only responsibility of business is to generate profits for its shareholders within constraint of law. Therefore, it is government's responsibility to establish framework of law within which individuals are free to pursue their own self-interests. Hence, BAT has no responsibility towards their stakeholders and should only focus on maximising profits for shareholders. Use of misleading terms on tobacco packaging, fraudulent marketing campaigns, tobacco promotions and creation of false perceptions on cigarette smoking to increase sales volume is justified as long as the use of these marketing techniques can increase company’s profits.

On the other hand, Ed Freeman’s Stakeholder Theory argued that business has responsibilities to all of its stakeholder groups not just to its shareholders. Stakeholders are those who have a stake in or claim upon the corporation. BAT’s stakeholders are listed in above. Therefore, BAT should not focus solely on profit maximisation for shareholders. They should also consider interest of other stakeholder groups. In 2009, BAT engaged in charitable projects such as youth smoking prevention, sustainability, preserving biodiversity, disaster relief, and the elimination of child labour in tobacco farming. However, these projects were in fact causing diseases, disability and death of its customers.

Deontological theory does not consider consequences when deciding ethical status of action. It assumes ethics as rules. Therefore, an action is considered to be ethically or morally wrong if it is prohibited by the rules. In 2005, Ukraine banned the use of misleading terms on tobacco packaging. If BAT uses misleading terms such as “light” and “low-tar” on tobacco packaging to promote sales of cigarette in Ukraine, it is ethically wrong. However, if there is no such rule in Ukraine, use of such terms in marketing products are ethical.

According to Consequentialism Theory, ethics are determined by consequences. Therefore, ethical rightness or wrongness of actions is determined by the consequences of those actions. Although smoking helps to concentrate, release stress, cure boredom and increase confident, however, it also causes health problems and environmental problems. Besides, it causes harms to non-smoker and hence, smoking is a waste of money. Since the disadvantages of smoking outweighed the advantages, smoking is ethically wrong from the point of view of consequentialism.

Paternalism is interference with a person liberty of action that is justified in term of wellbeing of the person interfered with. Since smoking will cause health problems, environmental problems and harms to non-smokers, government should take actions to stop people from smoking although it is against their liberty. Government should ban cigarettes advertising totally so that youth are not misled by tobacco company’s advertisement. Besides, government should also tax heavily on cigarettes products. This will discourage people from smoking.

2.2 Alternative Solutions

To resolve ethical issues that arise from BAT, the government can consider to ban all forms of tobacco marketing, for example advertisements and promotions, especially to certain groups, such as youths and women. Government can also increase tobacco prices through raising taxes and other means; implement smoke-free policy in workplaces, public places, vehicles and homes (Owusu-Dabo, Lewis, McNeill, Gilmore & Britton, 2011); prohibit marketing techniques which deliver false messages to the consumers, such as the use of misleading terms on tobacco packaging; require health warning labels on their products; arrange TV advertisements on the consequences of smoking habits and other effects of tobacco addiction; conduct campaigns addressing smoking cessation among all smokers, including young and adult, instead of telling young people that they should not smoke because they are not adult; and use of ID cards and signage to enforce age limit for the sales of cigarettes.

2.3 Predict Outcomes

The alternatives suggested above are generally expected to be able to increase public awareness of health risks posed by smoking, result in reducing the number of people smoking and reduce public health impacts of tobacco products.

3.0 Lessons learned from Nestlé’s experience

Several lessons can be learned from Nestlé’s experience that BAT can apply when running their company. First is that company should be honest and transparent. BAT should disclose all the harmful chemicals in their products (Kearns, 2012). BAT should also discontinue the use of the misleading terms, “low tar,” “light” and “natural” in their products in the absence of there being any significant health benefits associated with them. Secondly, BAT may learn the duty to do no harm. BAT should not expand the market of their products and encourage smoking in the developing countries because the products are dangerous to others and may lead to death.

4.0 Conclusion

In conclusion, as a corporation like BAT, there is a corporate social responsibility obligation to fulfill in order to sustain in the global markets. Besides, they should consider the benefits and welfare of all societies whether in first world countries or third world countries. Specifically, BAT has to ensure that its marketing strategies are appropriate and ethical in all relevant situations. Engaging in a corporate act within the constraint of law should not be ignored.