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Case study review:

Managing for Stakeholders in
the tobacco Industry







Sebastian Alarma
100840534
Ethics and Cross-cultural Interaction
November 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 Freeman
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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

1
Ethical Theory and Business, Page 56-67
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interesting thing of this case is that this 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.
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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 dont) 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

2
http://quitsmoking.about.com/od/tobaccostatistics/a/SGR2004.htm
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better offer that can create value to the company and to the other agents.

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
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communities were the company had tobacco factories, the
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 dont sell tobacco to minors.

d) Space in Harmony: Also one of the issues that the company
had was that a lot of smokers didnt respect the people that
dont 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 dont 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).
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By this kind of programs or activities the organization started to change the old
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.
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Also the company had won a lot of RSE prices for this communication system
with the stakeholders,
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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

3
http://www.iii.co.uk/investment/detail?type=chart&display=chart&code=cotn%
3ABATS.L&it=le&timeframe=5y3&index=&versus=&linetype=line&Go=Plot+&ove
rlay=&overlay2=&overlay3=&overlay4=&indicator=&indicator2=&indicator3=&in
dicator4=&chartwidth=500&buylines=on&triggers=on

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http://www.comunicarseweb.com.ar/biblioteca/noticias-07/0877.html
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needs of the stake holders in more direct way.

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%.
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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 joint
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. 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


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http://www.batchile.com/group/sites/BAT_7ZHF2R.nsf/vwPagesWebLive/DO8
8LM6K?opendocument&SKN=1
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Ethical Theory and Business, Page 65
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the old way of doing things is going to work only in the short term and also did a
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.




























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6. Bibliography:


Ethical Theory and Business, Tom L. Beauchamp
www.batchile.com
http://www.iii.co.uk
http://quitsmoking.about.com
http://www.comunicarseweb.com.ar