Doing the right thing first is seldom easy. CVS Caremark announced hat it would become the first national pharmacy chain to stop selling cigarettes and other tobacco products altogether. The company’s chief executive, Larry J. Merlo, said “We came to the decision that cigarettes and providing medical care just don’t go together within the same setting,” according to The New York City Times.
It really is a gutsy, principled and potentially expensive move. It’s especially gutsy, and controversial, for any publicly traded company.
The first estimates are that the decision will surely cost CVS Locations about $2 billion in sales, or about 17 cents per share of stock, annually. I suspect these estimates are most likely low. CVS may only sell $2 billion in cigarettes and tobacco products, but not many customers just get a pack of cigarettes whenever they proceed to the drugstore. After they exist, they probably pick up other things 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 has the second largest number of retail locations in the nation, 800 of which include “Minute Clinics” which provide basic care for common ailments and preventive measures like flu shots. Merlo has said CVS desires to add 700 more such clinics by 2017. The clear narrative CVS hopes to convey towards the public is it is actually a company less about selling assorted retail products and a lot more about meeting medical care needs that do not require visiting the doctor.
We have without doubt that, as CVS says, companies focused on protecting health have zero business within the tobacco business. Many will probably argue that they have no business in, say, the candy business either. I don’t buy that logic, though. Candy will not inexorably poison us as tobacco does.
If CVS were a privately held company, the analysis could stop there. Private business owners can do whatever they want making use of their companies. They can elect to forego profit for principle.
A phone call like that one is tougher for that directors and managers of any publicly traded enterprise like CVS. These people have a fiduciary duty to shareholders, and that duty generally takes the form of maximizing the long-run price of the home – that is, the company – entrusted for them. CVS may argue that its long-run value is enhanced by sitting on principle this way. It seems like clear this argument will, in large part, concern positioning the company to consider a more substantial share in the healthcare dollar moving forward. The company’s leadership may also reason that sitting on principle will probably draw some customers to them, even because they lose others.
Maybe that logic is sound, yet it is not going to be simple to prove. I am certain someone will file a lawsuit obliging CVS Hq to prove it, too. Unfortunately for CVS’ directors and management team, the likely influence on revenue and customer traffic is way more easily quantified compared to the projected and intangible benefits they presumably hope this decision can provide.
Meanwhile, CVS is doubling down on its position. It will not only stop selling tobacco products completely by October, however it will launch a “robust national smoking cessation program” this spring, the L . A . 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 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 from the Robert Wood Johnson Foundation, said in the decision, “CVS is clearly establishing a leadership position to make the nation healthier and then in building a culture of health.” (2) Such public endorsements are likely to help CVS justify its choice, though they may not really enough alone to appease shareholders right away.
I don’t think CVS is doing wrong by doing the right thing. Even a public firm can lead by example, and also the demonstration of a company within the healthcare business making its customers’ health its chief business focus is a powerful one. Time will zrfhfn if CVS’ shareholders will reap the rewards of being patient with this change. In any case, I do believe the job of CVS Hours – 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 go first. This nonsmoker, at the very least, is willing to walk an additional block or two to show my appreciation through my purchases. The walking is going to be beneficial to me, too.