Posted: February 19th, 2015

Business Ethics

Business Ethics

Question: Read the case study, The Tobacco Companies and Product Safety (see below or page 304 of the textbook). What do the three viewpoints of corporate responsibility imply with respect to the ethical obligations of the tobacco companies and the extent to which they met these obligations?

Aim: Students are to demonstrate a sound understanding of the three viewpoints on corporate responsibility: the classical economic view (exemplified by Milton Friedman), the socio-economic view (the duty to prevent harm within the Kew Garden Principles) and the broad social view (the duty to contribute to society within the KGP). Students should also demonstrate knowledge of the literature on corporate responsibility (including the required readings for this topic shown in the Companion) and its application to business practice.

Case Study: On June 28, 2010, a mammoth case that had begun more than 10 years earlier finally came to a definitive end. The case, U.S. v. Philip Morris et al., pitted the U.S. Department of Justice (DOJ) against Philip Morris and eight other cigarette companies, and had the DOJ asking that the companies be forced to “disgorge” and give to the government the hundreds of billions of dollars they had earned since 1953. The DOJ argued that since 1953 the companies had conspired to deceive the public about the risks of smoking and its addictive nature, and so had operated as outlaw companies as defined by the Racketeer-Influenced and Corrupt Organizations Act (RICO) which requires convicted companies to “disgorge” the profits they had earned. In 1953, the DOJ showed, the companies met in New York and formed a group called the Tobacco Industry research Committee (TIRC) that begun a “conspiracy to deny that smoking caused disease and to maintain that whether smoking caused disease was an ‘open question’ despite having actual knowledge that smoking did cause disease.” In the 1950s, despite published research showing that smoking causes cancer, the group spent millions of dollars advertising that “there is no proof that cigarette smoking is one of the causes” of lung cancer. For example, one ad virtually shouted: “MORE DOCTORS SMOKE CAMEL THAN ANY OTHER CIGARETTE! Family physicians, surgeons, diagnosticians, nose and throat specialists, doctors in every branch of medicine . . . . a total of 113,597 doctors . . . . were asked the question: “What cigarette do you smoke?” And more of them named Camel as their smoke than any other cigarette! Three independent research groups found this to be a fact.”
From the 1960s to the 1990s, the companies spent hundreds of millions more advertising that “a cause and effect relationship between smoking and disease had not been established.” According to the DOJ’s evidence, the tobacco companies advertised that nicotine is not addictive even as they adjusted the amount of nicotine in cigarettes and “controlled the nicotine delivery of cigarettes so that they could addict new users.” The DOJ also provided evidence showing the companies “researched how to target their marketing at children and actively marketed cigarettes to children.” Finally, the DOJ claimed that the companies had a duty to test their product, to design a safe product, and to warn users of its dangers, yet the companies instead did no research and tried to suppress research on smoking risks, even as they marketed a product that killed 400,000 to 500,000 Americans a year. Until forced to do so in 1969, they did not warn smokers of the health risks and addictive nature of smoking and they targeted children who could not adequately assess the true risks of smoking.
In 2006, in a 1652-page opinion, Judge Gladys Kessler of the U.S. District Court for the District of Columbia ruled that the DOJ had fully proved its case against the tobacco companies. However, she also ruled against the DOJ’s demand that the companies should be forced to turn over all the profits they had made by conspiring to deceive and harm the public since 1953. Instead, she ruled, the companies would only be “prevented and restrained” from “committing future RICO violations.”
Almost immediately after Judge Kessler’s decision, both the DOJ and the tobacco companies appealed her decision to the U.S. Supreme Court. Four years later, on June 28, 2010, the U.S. Supreme court decided that Judge Kessler’s decision should not be overturned and so rejected the appeals, bringing the decade-long case to an end.

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