Journal of Business Ethics

, Volume 73, Issue 2, pp 161–176 | Cite as

Keeping Public Institutions Invested in Tobacco

  • Nathaniel Wander
  • Ruth E. Malone


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.


divestment ethics consulting public health policy public investments tobacco industry documents 



Philip Morris


Washington State Investment Board


Master Settlement Agreement


attorneys general


Legacy Tobacco Documents Library


socially responsible investment/investing


California Public Employees’ Retirement System


Council Of Institutional Investors


New York City Employees’ Retirement System


Investor Responsibility Research Center


Investor Relations and Financial Communications


American Medical Association


World Health Organization


University of California


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This work was funded by the California Tobacco- Related Disease Research Program (11RT-0139) and the National Cancer Institute (CA095989).

The authors wish to thank the tobacco control researchers at the University of California, San Francisco, who commented on earlier drafts, and especially Ben Alamar for sharing his expertise in economics and finance.


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Copyright information

© Springer Science+Business Media, Inc. 2006

Authors and Affiliations

  1. 1.Social & Behavioral SciencesUniversity of California, San FranciscoSan FranciscoU.S.A.

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