Doing the right thing first is seldom easy. CVS Caremark announced hat it would become the first national pharmacy chain to prevent selling cigarettes and 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,” based on the New York 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 the decision will 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 cigarettes and tobacco products, however, not many customers just purchase a pack of cigarettes whenever they go to the drugstore. After they are there, they probably pick up other considerations too. Maybe milk. Maybe candy. Maybe the prescriptions they need to counter the numerous 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 in 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 to the public is that it is actually a company less about selling assorted retail products and more about meeting healthcare needs that do not require visiting the doctor.
I actually have undoubtedly that, as CVS says, companies centered on protecting health have zero business in 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 people 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 your directors and managers of a publicly traded enterprise like CVS. These people have a fiduciary duty to shareholders, which duty generally takes the shape of maximizing the long-run price of the home – that is, the company – entrusted in their mind. CVS may reason that its long-run value is enhanced by standing on principle in this way. It seems like clear that the argument will, in large part, concern positioning the company to adopt a more substantial share from the healthcare dollar moving forward. The company’s leadership may also argue that sitting on principle is probably going to draw some customers for them, even as they lose others.
Maybe that logic is sound, but it is not gonna be simple 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 effect on revenue and customer traffic is way more easily quantified compared to projected and intangible benefits they presumably hope this decision can create.
In the meantime, CVS is doubling down on its position. It will not only stop selling tobacco products completely by October, but it will launch a “robust national quitting smoking program” this spring, the La Times reported.
While some 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 from the Robert Wood Johnson Foundation, said of the decision, “CVS is clearly establishing a leadership position to make the nation healthier as well as in creating 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 doing wrong by doing the right thing. Even a public firm can lead by example, and also the illustration of a company in the medical care business making its customers’ health its chief business focus is really a powerful one. Time will zrfhfn if CVS’ shareholders will reap the rewards for being patient with this particular change. In almost any case, I believe the positioning of What Time Does CVS Close – 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 ready to walk an additional block or two to show my appreciation through my purchases. The walking will likely be beneficial to me, too.