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Philip Morris International’s Statement of Purpose Moves a Step Closer to Action & Sets Example for Others

By Sarah Bostwick Stromoski, Senior Manager, CEO Engagement, CEO Investor Forum

The Business Roundtable’s Statement on the Purpose of a Corporation in August 2019 elicited many “nice start, what’s next?” reactions. In their article, “3 Ways to Put Your Corporate Purpose into Action,” Professor Bob Eccles and his co-authors recommended companies publish their corporate purpose in a formal Statement of Purpose signed by the board of directors in an integrated report. Recently, Philip Morris International (PMI) became the second firm – and the first incorporated in the US – to do so after Swedish private equity firm EQT (see p. 111 of its Annual Report 2019). Released in June 2020, PMI’s Integrated Report 2019 “Progress Toward a World Without Cigarettes” described the Statement of Purpose on p. 8 as:

“…a declaration, issued by a company’s board of directors, that clearly articulates the company’s purpose and how to harmonize commercial success with social accountability and responsibility. It specifies within that purpose those stakeholders most critical to long-term value creation and sustainability.”

The Statement of Purpose originally appeared addressed to shareholders in PMI’s 2020 Proxy Statement, released in March 2020. The groundwork for the Statement of Purpose was laid in the 2017 Proxy Statement announcing for the first time the company’s smoke-free vision.

Whatever your views of the cigarette business, this second-ever Statement of Purpose holds instructive clues for the benefit of other companies who wish to publish their own:

  • The letter effectively describes PMI’s vision, direction, and strategy
    • Insight into what is coming: “The Company is essentially disrupting its traditional business from the inside out and is leading the industry in this unprecedented transformation.” 
    • In one paragraph PMI summarizes the mega-indicators that provide a snapshot of its progress to date: “While cigarette sales today remain the largest part of PMI’s business in most countries, this is changing rapidly. In 2019, the Company’s smoke-free products were already commercialized in 52 markets and represented 18.7 percent of PMI’s global revenue, 71 percent of its commercial expense and 98 percent of its R&D expenditure. As of December 31, 2019, of the approximately 150M people who regularly use the Company’s products, approximately 14M already use IQOS, of whom approximately 9.7M have stopped smoking and switched to this product.”
  • Home runs
    • It is signed by all directors, which removes doubts as to accountability.
    • It is rare for a company to explain how it ties executive compensation to achieving the company’s purpose the way PMI does.
    • Explanation of management and board roles and how they work together. We’d welcome more on this in the next letter.
    • Direct, plain language toward shareholders comes across as straight talk. It challenges their investment philosophies constructively and provokes thought. PMI invites them to rise to the occasion by inviting “suggestions, pressure and support from engagement with both current and potential investors.”
    • Exquisite paragraphs on regulators and public health community that balance pushing and pulling, acknowledging and challenging. We look forward to next year’s commentary, as relationships with these groups could change every year.
  • What we’d like to see in the next edition
    • In paragraphs on employees and suppliers, PMI mentions can’t-miss topics such as career development for employability, talent attraction/retention, diversity/equity/inclusion, equal salary for equal work, and ethical treatment. In the next edition, how can PMI adequately acknowledge the can’t-miss topics with depth such that it doesn’t sound like boilerplate, and make them unmistakably PMI’s?

We encourage the boards of more large companies to issue Statements of Purpose and to use the first two as signposts along the way. Doing so serves as a natural extension for those who signed the Business Roundtable’s Statement on the Purpose of a Corporation one year ago, particularly in light of new and mounting expectations of companies brought about by our health and racism crises We look forward to reading them.