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Keeping Public Institutions Invested in Tobacco

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  • Nathaniel Wander
  • Ruth Malone

Abstract

Increasingly through the 1990s, tobacco control advocates questioned the practice of public institutions investing in tobacco company stocks. The questioning was framed in at least three ways. First, is it ethical to fund public expenditures with profits from a product that causes addiction and disease? Second, is it sound social policy to derive public income from a product that increases healthcare costs and reduces worker productivity? Finally, is it sound fiscal policy to invest in an historically profitable industry facing multiplying legal and regulatory challenges? While the tobacco industry preferred to restrict discussion to the fiscal question, and offered an affirmative answer, its position was weakened by depressed stock prices brought on by actions of the industry as much as by tobacco control activism. As part of a campaign to restore its credibility as an investment vehicle with public fund managers, Philip Morris (PM) commissioned a report from the influential investment managers/advisors Wilshire Associates. However, Wilshire had only recently conducted such a study for the Washington State Investment Board (WSIB), assuring the board that the value tobacco stocks added to an investment portfolio – if any – was too small to be measured. Nonetheless, within a year, Wilshire produced a report for PM which appeared to laud the investment value of tobacco and to dismiss tobacco-excluded investment alternatives. This paper examines how Wilshire produced apparently diametrically opposed reports for clients with different interests. It reveals a pattern of potential conflicts of interest among tobacco companies, financial analysis firms, investment authorities, and institutional fund managers. It demonstrates substantial violations of two generally accepted ethical principles of business consulting: veracity and transparency. Copyright Springer Science+Business Media, Inc. 2007

Suggested Citation

  • Nathaniel Wander & Ruth Malone, 2007. "Keeping Public Institutions Invested in Tobacco," Journal of Business Ethics, Springer, vol. 73(2), pages 161-176, June.
    • Handle: RePEc:kap:jbuset:v:73:y:2007:i:2:p:161-176
    DOI: 10.1007/s10551-006-9188-0
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    References listed on IDEAS

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    1. MacKenzie, Ross & Collin, Jeff & Lee, Kelley, 2003. "The Tobacco Industry Documents: An Introductory Handbook and Resource Guide for Researchers," University of California at San Francisco, Center for Tobacco Control Research and Education qt5c82b367, Center for Tobacco Control Research and Education, UC San Francisco.
    2. Bae, Jinho & Nelson, Charles R., 2007. "Earnings growth and the bull market of the 1990s: Is there a case for rational exuberance?," Journal of Macroeconomics, Elsevier, vol. 29(4), pages 690-707, December.
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    4. Bitton, A & Neuman, M D & Barnoya, J & Glantz, Stanton A. Ph.D., 2005. "The p53 tumour suppressor gene and the tobacco industry: research, debate, and conflict of interest," University of California at San Francisco, Center for Tobacco Control Research and Education qt9q13h2zh, Center for Tobacco Control Research and Education, UC San Francisco.
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    2. Darlene Himick, 2023. "When Aging and Climate Change Are Brought Together: Fossil Fuel Divestment and a Changing Dispositive of Security," Sustainability, MDPI, vol. 15(5), pages 1-15, March.

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