Doing the right thing first is seldom easy. CVS Caremark announced hat it would become the first national pharmacy chain to prevent 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 health care just don’t go together within the same setting,” according to The New York Times.
It 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 surely cost CVS Pharmacy Near Me 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 get a pack of cigarettes when they visit the drugstore. After they are available, they probably pick up other considerations too. Maybe milk. Maybe candy. Maybe the prescriptions they need to counter the numerous harmful effects of smoking.
CVS is increasingly moving toward providing more health services at their stores. The pharmacy chain has got the second largest quantity of retail locations in the nation, 800 of which include “Minute Clinics” which provide basic take care of common ailments and preventive measures like flu shots. Merlo has said CVS would like 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 medical 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 do not have business within the tobacco business. Many will probably argue they may 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 with their companies. They can choose 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. There is a fiduciary duty to shareholders, which duty generally takes the form of maximizing the long-run value of the property – that is, the company – entrusted for them. CVS may argue 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 take a larger share in the health care dollar moving forward. The company’s leadership may also debate that sitting on principle is probably going to draw some customers to them, even as 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 Contact to prove it, too. Unfortunately for CVS’ directors and management team, the likely impact on revenue and customer traffic is way more easily quantified than the projected and intangible benefits they presumably hope this decision can create.
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 quitting smoking program” this spring, the L . A . Times reported.
While many shareholders may be hard to win over, 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 in making the land healthier and then in creating a culture of health.” (2) Such public endorsements will probably help CVS justify its choice, though they may not be 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, as well as the example of a company within the healthcare business making its customers’ health its chief business focus is really a powerful one. Time will zrfhfn if CVS’ shareholders will reap the rewards to be patient with this change. In any case, I believe the position 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 having the guts to travel first. This nonsmoker, at the very least, is prepared to walk an additional block or two to show my appreciation through my purchases. The walking is going to be good for me, too.