Doing the right thing first is seldom easy. CVS Caremark announced hat it would become the first national pharmacy chain to stop selling cigarettes as well as other cigarettes and 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,” based on the New York City Times.
It really is a gutsy, principled and potentially expensive move. It’s especially gutsy, and controversial, to get a publicly traded company.
The initial estimates are that the decision will definitely cost CVS Nearby 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, but not many customers just buy a pack of cigarettes when they visit the drugstore. After they exist, they probably pick up other considerations too. Maybe milk. Maybe candy. Maybe the prescriptions they should counter the many ill effects of smoking.
CVS is increasingly moving toward providing more health services at their stores. The pharmacy chain has got the second largest number of retail locations in the country, 800 which include “Minute Clinics” that provide basic look after common ailments and safety measures like flu shots. Merlo has said CVS wants to add 700 more such clinics by 2017. The clear narrative CVS hopes to convey towards the public is it is a company less about selling assorted retail products and more about meeting health care needs which do not require a visit to the doctor.
I actually have no 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 fails to inexorably poison us as tobacco does.
If CVS were a privately held company, the analysis could stop there. Private business people can do anything they want making use of their companies. They can decide to forego profit for principle.
A call like this one is tougher for your directors and managers of any publicly traded enterprise like CVS. They have a fiduciary duty to shareholders, and this duty generally takes the type of maximizing the long-run value of the house – that is, the company – entrusted for them. CVS may argue that its long-run value is enhanced by sitting on principle in this way. It seems clear that the argument will, in large part, concern positioning the company to adopt a larger share in the medical care dollar moving forward. The company’s leadership may also debate that standing on principle is probably going to draw some customers for them, even as they lose others.
Maybe that logic is sound, however it is not going to be very easy to prove. I am sure someone will file a lawsuit obliging CVS Corporate Office 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.
In the meantime, CVS is doubling down on its position. It will not only stop selling cigarettes and tobacco products completely by October, however it will launch a “robust national quitting smoking program” this spring, the L . A . Times reported.
While many shareholders may be hard to make an impression on, 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 from the decision, “CVS is clearly establishing a leadership position to make the country healthier as well as 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 is performing wrong by doing the right thing. Even a public firm can lead by example, and also the illustration of a company inside the health care business making its customers’ health its chief business focus is actually a powerful one. Time will zrfhfn if CVS’ shareholders will reap the rewards for being patient using this change. In any case, I do believe the position of CVS Sunday 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 new board to pick new managers, or they can just sell their shares.
Congratulations to CVS on obtaining the guts to travel first. This nonsmoker, at least, is prepared to walk an added block or two to show my appreciation through my purchases. The walking will likely be good for me, too.