Doing the right thing first is seldom easy. CVS Caremark announced hat it would become the first national pharmacy chain to avoid selling cigarettes along with other cigarettes and tobacco products altogether. The company’s chief executive, Larry J. Merlo, said “We came to the decision that cigarettes and providing healthcare just don’t go together within the same setting,” according to The New York City Times.
This is a gutsy, principled and potentially expensive move. It’s especially gutsy, and controversial, for any publicly traded company.
The initial estimates are that this decision will definitely cost CVS Hour about $2 billion in sales, or about 17 cents per share of stock, annually. I suspect these estimates are probably low. CVS may only sell $2 billion in tobacco products, although not many customers just get a pack of cigarettes when they visit the drugstore. When they are available, they probably pick up other items too. Maybe milk. Maybe candy. Maybe the prescriptions they need to counter the many ill effects of smoking.
CVS is increasingly moving toward providing more health services at their stores. The pharmacy chain provides the second largest number of retail locations in the nation, 800 of which include “Minute Clinics” that provide basic look after common ailments and safety measures like flu shots. Merlo has said CVS desires to add 700 more such clinics by 2017. The clear narrative CVS hopes to convey for the public is it is really a company less about selling assorted retail products and a lot more about meeting health care needs that do not require a visit to the doctor.
I actually have undoubtedly that, as CVS says, companies focused on protecting health do not have business inside the tobacco business. Some will probably argue they have no business in, say, the candy business either. I don’t buy that logic, though. Candy fails to inexorably poison us as tobacco does.
If CVS were a privately held company, the analysis could stop there. Private company owners can do whatever they want with their companies. They can choose to forego profit for principle.
A call like this one is tougher for your directors and managers of a publicly traded enterprise like CVS. There is a fiduciary duty to shareholders, and that duty generally takes the form of maximizing the long-run price of the house – that is, the company – entrusted in their mind. CVS may debate that its long-run value is enhanced by standing on principle this way. It seems clear that this argument will, in large part, concern positioning the company to consider a bigger share in the health care dollar moving forward. The company’s leadership may also argue that standing on principle is probably going to draw some customers for them, even since they lose others.
Maybe that logic is sound, but it is not likely to be easy to prove. I am sure someone will file a lawsuit obliging CVS Headquarters Phone Number to prove it, too. Unfortunately for CVS’ directors and management team, the likely impact on revenue and customer traffic is far more easily quantified compared to the projected and intangible benefits they presumably hope this decision will create.
Meanwhile, CVS is doubling down on its position. Not only will it stop selling tobacco products completely by October, however it will launch a “robust national smoking cessation program” this spring, the Los Angeles Times reported.
While many shareholders may be hard to conquer, CVS’ decision is drawing praise from medical professionals and antismoking groups. Kathleen Sebelius, secretary of Health insurance and Human Services, said in a statement, “Today’s CVS/Caremark announcement helps bring our country closer to achieving a tobacco-free generation.” Dr. Risa Lavizzo-Mourey, president and chief executive officer in the Robert Wood Johnson Foundation, said in the decision, “CVS is clearly establishing a leadership position for making the nation healthier and then in constructing a culture of health.” (2) Such public endorsements will likely help CVS justify its choice, though they may not really enough alone to appease shareholders right away.
I don’t think CVS does wrong by doing the right thing. Even a public firm can lead by example, and also the illustration of a company inside the medical care business making its customers’ health its chief business focus is a powerful one. Time will zrfhfn if CVS’ shareholders will reap the rewards to be patient with this change. In every case, I think the positioning of CVS Hours Today – besides being ethically strong – has sufficient business justification that courts should refrain from second-guessing it. If shareholders are unhappy, they can elect a whole new board to pick new managers, or they can just sell their shares.
Congratulations to CVS on getting the guts to travel first. This nonsmoker, at least, is willing to walk an added block or two to show my appreciation through my purchases. The walking will be beneficial to me, too.