The American Medical Association, elevating its anti-smoking drive to a new level, called Tuesday for all investors to sell their shares in 13 tobacco companies and 1,474 mutual funds that hold tobacco securities.
The step was the most sweeping call yet by a major public health organization for divestiture of tobacco stocks. It follows the AMA’s own divestiture of tobacco holdings in 1986 and a rising tide of investment restrictions and outright divestitures of tobacco-company securities by large public pension funds and other institutional investors.
The divestiture campaign is starting to resemble the one waged in the 1970s and 1980s against companies associated with South Africa. That campaign is given considerable credit for pressuring the Pretoria regime to end apartheid and move toward representative government.
The Washington-based Tobacco Institute, the industry’s lobbying arm, said it would have no comment on the AMA’s call for divestiture.
But the AMA’s move is certain to add to the burgeoning woes of the $45 billion tobacco industry, including potentially costly lawsuits, smoking bans in public places, public attacks on the marketing of cigarettes to minors and young adults, and the specter of federal regulation of nicotine as a drug.
“All people interested in the health and welfare of our children should review their investments and divest of tobacco,” said Dr. Randolph Smoak Jr., the AMA’s secretary-treasurer, at a news briefing announcing the call. Persons who own mutual fund shares, he said, “should inform their fund managers that tobacco stocks should be sold.”
Smoak said the AMA plans to update annually its list of mutual funds that invest in tobacco securities. In addition, the association has written to all 7,000 mutual funds traded in the United States asking them to join a “coalition of tobacco-free investments” by pledging not to invest in tobacco in the future, he said.
In the AMA’s view, tobacco is “a ruinous and enslaving product that has brought misery, disease, anguish and death,” Smoak said.
“When tobacco is no longer profitable, when children no longer are exposed or succumb to cartoon tobacco enticements and when this country’s investors refuse to take dividends from an industry whose product causes suffering and addiction, then these American companies will join the realm of responsible corporate citizens,” he said.
For all that, the call met with considerable skepticism among professional investors - including portfolio managers of large mutual funds with tobacco holdings.
Some of the 13 stocks cited by the AMA, including those of Philip Morris, RJR Nabisco Holdings, American Brands and Sara Lee, are among the most widely held securities in America. Of the 10 largest equity mutual funds, for instance, six have had a major tobacco stock - generally Philip Morris - among its top five holdings at some point in the last year.
Many professional investors argue that their responsibility to clients requires that they shun all but economic judgments about companies in which they may invest. Tobacco stocks are legal investments, they note, and the products that the companies manufacture are still legal.
“I’m not convinced that making social, moral and political judgments should have any bearing on someone’s spectrum of investment, unless they’re going to have a financial impact reflected in the stock price,” said Arthur Cecil, tobacco analyst and portfolio consultant to two large mutual funds at Baltimore-based T. Rowe Price. Both funds are large holders of Philip Morris.
Still, other experts argue that the tobacco industry’s social, ethical, and political liabilities may justify viewing its stocks and bonds as higher-risk and thus less suitable investments than they have been in the past.
The AMA’s position may be a milestone in converting divestiture from “an ethical question to an economic question,” said Douglas Cogan, deputy director of the social issues service at the Washington-based Investor Responsibility Research Center, which helped identify the 13 stocks and 1,474 mutual funds cited by the AMA.
The AMA’s call for divestiture covered the following 13 publicly traded companies making and distributing tobacco products:
Philip Morris Cos. Inc, RJR Nabisco Holdings Corp., Brooke Group Ltd., American Brands, Culbro Corp., DiMon Inc., Loews Corp., Mafco Consolidated Group Inc., Sara Lee Corp., Schweitzer-Maudit Intl., Standard Commercial Corp., UST Inc. and Universal Corp.