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 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 in the same setting,” in accordance with the New York Times.
It really is a gutsy, principled and potentially expensive move. It’s especially gutsy, and controversial, to get a publicly traded company.
The first 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 cigarettes and tobacco products, although not many customers just buy a pack of cigarettes whenever they proceed to the drugstore. When they are there, they probably pick up other things too. Maybe milk. Maybe candy. Maybe the prescriptions they have to counter the various ill effects of smoking.
CVS is increasingly moving toward providing more health services at their stores. The pharmacy chain provides the second largest variety of retail locations in the nation, 800 of which include “Minute Clinics” that 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 that it is a company less about selling assorted retail products and more about meeting medical care needs which do not require visiting the doctor.
We have no doubt that, as CVS says, companies focused on protecting health do not have business in 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 will not inexorably poison us as tobacco does.
If CVS were a privately owned company, the analysis could stop there. Private business owners can do anything they want with their companies. They can decide to forego profit for principle.
A phone call like that one is tougher for that directors and managers of the publicly traded enterprise like CVS. These people have a fiduciary duty to shareholders, and that duty generally takes the type of maximizing the long-run price of the house – which is, the company – entrusted to them. CVS may reason that its long-run value is enhanced by sitting on principle by doing this. It seems like clear that the argument will, in large part, concern positioning the company to take a more substantial share from the healthcare dollar moving forward. The company’s leadership may also reason that sitting on principle is likely to draw some customers to them, even as they lose others.
Maybe that logic is sound, but it is not going to be easy to prove. I am sure someone will file a lawsuit obliging CVS Warehouse to prove it, too. Unfortunately for CVS’ directors and management team, the likely influence on revenue and customer traffic is much more easily quantified than the projected and intangible benefits they presumably hope this decision can provide.
For the time being, 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 La Times reported.
While some shareholders may be hard to conquer, CVS’ decision is drawing praise from health care 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 nearer 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 country healthier and in building a culture of health.” (2) Such public endorsements are likely to help CVS justify its choice, though they may not be 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 the example of a company in 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 of being patient with this particular change. In almost any case, I do believe the positioning of CVS Pharmacy 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 additional block or two to show my appreciation through my purchases. The walking will be beneficial to me, too.