Case study review:“Managing for Stakeholders in

the tobacco Industry”

Sebastian Alarma 100840534

Ethics and Cross-cultural InteractionNovember 10, 2010

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1. Executive Summary:

We are living in kind of world that is more integrated, dynamic and

difficult than five or ten year ago. This kind of world needs a lot of

changes in how the private companies are manage. In the past the

organizations are based in a managerial view of business, in this view all

the activities that a company does are based in the creation in value for

only the shareholders, but this way of doing things are not anymore

feasible so for that there is new view of business one that is based in

creating value no only for shareholders but also for all the stakeholders

that are also affected by the activities of the company. The analysis that

will be presented in this review is from the article “Managing for

Stakeholders” from Edward Freeman1 and how a Chilean tobacco

company has applied this way of management.

2. Introduction:

In the case that will be presented

we would be able to see how a

Chilean Tobacco Company (Chilena

Tabaco S.A) change the way of doing

business form a managerial view to

one that was based in creating value

for the different stakeholders. The

interesting thing of this case is that this

1 Ethical Theory and Business, Page 56-67

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tobacco company learned that by doing this kind of business the results

for all the stakeholders (including the for the shareholders) were better.

One of the most controversial industries in the last fifty years is the

Tobacco industry, these organizations were based all their activities in

making profits and creating value only for the shareholders without

thinking in the consumers, communities, workers or suppliers

(managerial view of business). These companies based their business in

a volume strategy; sell a lot of cigarettes, which was combined with a

strong advertising strategy that would make a lot of non-users start

smoking. The negative externalities that this kind of strategy made that a

lot of people started smoking without knowing the real consequences of

this activity like aneurysm, acute myeloid leukemia, cataract, cervical

cancer, kidney cancer, pancreatic cancer, etc.2

This kind of doing business made that this companies had a terrible

image with all the different agents. These agents started to sue the

tobacco companies for the health consequences that smoking was giving

to them. So the tobacco companies realized they had an ethical issue

(change the way of doing the business or don’t) and for solving this issue

they should make a change in there way of doing business; the

managers of the companies realized that they should start listen the

others actors of this market, especially to the costumers to give them a

better offer that can create value to the company and to the other agents.

2 http://quitsmoking.about.com/od/tobaccostatistics/a/SGR2004.htm

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In the case of the Chilean Company they started to create channels of

communications with the different stakeholders to see their needs and

opinions about the tobacco what the company should do to try to

compensate the negativities externalities that this product was doing.

3. Book review:

A business can be understood as a set of relationships among

groups which have a stake in the activities that make the business, this

was the way that Chilena Tabaco S.A started to woking after they

realized the ethical issue that they were having, for this they decided to

start listening and administrating the organization not only for the

shareholders in fact there change the hole system of business and their

strategy to start also managing for the stakeholders. In this case the

organization focused in their suppliers, government, customers and non-

users. By doing this the company started to create value to all the

stakeholders. Some practical examples of this new way of doing

business, management for stakeholders, were:

a) Sustainable Farming: This solution was made for helping

the suppliers of the raw materials (farmers) of the cigarettes,

training them to make better products an also giving them new

ways of doing theirs activities in a way that can be sustainable.

b) Bringing Opportunities: This program was created for the

communities were the company had tobacco factories, the

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company start sponsored the different schools of the town to get

more resources for new class materials and infrastructure.

c) Responsible Business: One of the main problems that this

company has is that a lot of minors smoke a lot and for that the

organization released a program that creates incentives for the

retailers to don’t sell tobacco to minors.

d) Space in Harmony: Also one of the issues that the company

had was that a lot of smokers didn’t respect the people that

don’t smoke in bars, restaurants, pubs, etc. To solve this issue

the company talk to the retailers is these kinds of business to

create a free zone of smoking area for the people that don’t like

the smell of the cigarette.

e) Marketing Strategy: The Company change the marketing

strategy and the system of the business, instead of focusing the

profits in volume of sells the organization started focusing in

creating value to the costumers that they already have by

creating new experiences and products. The change was so big

that the advertising also changed, because before was based in

searching new users for cigarettes now the focus is in showing

the new features that the new cigarettes have (i.e. flavor

tobacco).

By this kind of programs or activities the organization started to change the old

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paradigm of the separation fallacy to new one more integrated with the different

stakeholders, this new way was based in the integration thesis. With this

change the company started to be consistent with the law and ethics. In the first

case we can say that because now the Chilena Tabaco S.A. is not having more

sues for problem that smoking does to the health, in the second case the

organization is making all the efforts to make that the costumers have all the

information about the product by this the smoker can make the decision about

smoking or not.

4. Data / Analysis:

As we can figured out this new programs

and activities that the company started to

do cost a lot of money, but in the long

term that money was an investment

because the price of the share increased

a lot and continue to do it. 3

Also the company had won a lot of RSE prices for this communication system

with the stakeholders,4 in fact in survey in Chile, the tobacco company was one

of the best evaluated in the innovation of ways that they are doing to get to the

needs of the stake holders in more direct way.

3http://www.iii.co.uk/investment/detail?type=chart&display=chart&code=cotn%3ABATS.L&it=le&timeframe=5y3&index=&versus=&linetype=line&Go=Plot+&overlay=&overlay2=&overlay3=&overlay4=&indicator=&indicator2=&indicator3=&indicator4=&chartwidth=500&buylines=on&triggers=on4

http://www.comunicarseweb.com.ar/biblioteca/noticias-07/0877.html

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Also the results of the program to avoid consume that minors do of tobacco are

very encouraging in only two years the consume rate has low from a 38% to a

35%.5

As we can see the result that the company is having in the last time are very

good and this is very close with the argument of consequence that Freeman

states in his article, he said that by managing for stakeholders may actually

produce better consequences for all the stakeholders because it recognize

interest are joint6. Also the Argument of Rights is also included in the way that

the organization is making business now, because they are giving all the

information about smoking to the consumers, to make an informed decision

about smoking. The argument of Character it is also included because the

company wants to be responsible for the actions that it is taking, and for that the

organization started a lot of programs based in creating communication and

value with and for the different stakeholders.

5. Conclusions:

This view of making business is one of the most integral possibilities that the

organizations have for making value to all the groups that are involve with the

organization. In this case this tobacco company did a great work in realizing that

the old way of doing things is going to work only in the short term and also did a

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http://www.batchile.com/group/sites/BAT_7ZHF2R.nsf/vwPagesWebLive/DO88LM6K?opendocument&SKN=16 Ethical Theory and Business, Page 65

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good work in implementing the managing for stakeholders to have a possibility in

long term of the business of tobacco and give the company great result in economic

and also in the social value that they started to create. One of the most important

thing about this way of doing business is that can work in all the industry and in

the long term will be create more value for all the society and not only for the

shareholders.

6. Bibliography:

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Ethical Theory and Business, Tom L. Beauchamp

www.batchile.com

http://www.iii.co.uk

http://quitsmoking.about.com

http://www.comunicarseweb.com.ar

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