Doing the right thing first is seldom easy. CVS Caremark announced hat it would become the first national pharmacy chain to stop selling cigarettes along with 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 in the same setting,” based on the New York City Times.
This is a gutsy, principled and potentially expensive move. It’s especially gutsy, and controversial, for any publicly traded company.
The first estimates are that this decision will definitely cost CVS Near Me Now 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 purchase a pack of cigarettes when they visit the drugstore. When they exist, they probably pick up other things too. Maybe milk. Maybe candy. Maybe the prescriptions they need to counter the many 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 country, 800 of which include “Minute Clinics” which provide basic take care of 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 much more about meeting health care needs that do not require a visit to the doctor.
We have undoubtedly that, as CVS says, companies dedicated to protecting health do not have business inside 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 does not inexorably poison us as tobacco does.
If CVS were a privately held company, the analysis could stop there. Private company owners can do anything they want using their companies. They can decide to forego profit for principle.
A telephone call like that one is tougher for the directors and managers of the publicly traded enterprise like CVS. They have a fiduciary duty to shareholders, which duty generally takes the type of maximizing the long-run value of the house – that is, the company – entrusted to them. CVS may argue that its long-run value is enhanced by sitting on principle this way. It seems like clear that the argument will, in large part, concern positioning the company to take a larger share of the medical care dollar moving forward. The company’s leadership may also reason that sitting on principle is probably going to draw some customers to them, even since they lose others.
Maybe that logic is sound, but it is not going to be simple to prove. I am certain 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 much more easily quantified compared to the projected and intangible benefits they presumably hope this decision can provide.
In the meantime, CVS is doubling down on its position. It will not only stop selling tobacco products completely by October, nevertheless it will launch a “robust national quitting smoking program” this spring, the Los Angeles 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 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 of the Robert Wood Johnson Foundation, said from the decision, “CVS is clearly establishing a leadership position in making the country healthier and then in constructing 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 performing wrong by doing the right thing. Even a public firm can lead by example, and also the demonstration of a company within 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 of being patient with this particular change. In almost any case, I do believe the position of Is CVS Open Today – besides being ethically strong – has sufficient business justification that courts should refrain from second-guessing it. If shareholders are unhappy, they can elect a brand new board to pick new managers, or they can just sell their shares.
Congratulations to CVS on having the guts to go first. This nonsmoker, at the very least, is ready to walk an added block or two to show my appreciation through my purchases. The walking will be beneficial to me, too.