What Makes a Leader?

Some thoughts on the CVS decision
By Bill Hatton
CR Roundup

Each fall at our annual COMMIT!Forum, Corporate Responsibility Magazine recognizes CEOs who have put themselves at personal and professional risk (Please see CEOs of the Year, P. 10).

All took risky decisions: Stuart Thorn of Southwire started a high school for at-risk students. Rakesh Sachdev of Sigma-Aldrich invested heavily in local STEM education. J.P. Bilbrey of Hershey created a new product overseas to save starving children. And Douglas Baker of Ecolab made a risky acquisition.

But perhaps most famously was the case of Larry Merlo of CVS Healthcare, who won a 2014 CEO of the Year award largely for his choice to eliminate tobacco sales. That decision meant losing between one and two percent of total sales—but it made sense within the logic of CVS’ business strategy of creating a company based on improving others’ health. It was a big business risk, fraught with potential pitfalls.

Here’s what the CEO did: Merlo started by selling the board on the idea, and then the management team. Then they went to the associates – the ground-level employees who are the face of CVS to customers. The associates were taken care of as far as how losing those sales would impact compensation. At each internal level there was a risk, and CVS addressed it and got the buy-in it needed so that it would be united in taking this idea to the public.
Turning outside Next, they announced the idea. The explanation to the public amounted to, “This is our business strategy.” The company was able to explain use the publicity to explain some of its minute clinics and other healthcare services others may not have known about. That was great, and of course many non-smokers and anti-smokers applauded the decision.

But there remained the issue of their smoking customers. While smoking and smokers have become increasingly stigmatized, eighteen percent of the population still smokes (down from more than half 50 years ago), and even more are sympathetic to smokers. They represent a sizable group of people.

CVS took steps to minimize the vexing of smokers: It gave several months’ notice, not just to clear out its own supply chain, but to give smokers time to make alternate arrangements to pick up their favorite brand elsewhere. CVS stressed that this was a business strategy, based on the need to reinforce their role as a healthcare provider. Most smokers can understand that.

And CVS was honest enough to say, yes, we’re not eliminating all unhealthy products, but we are eliminating this one. There was no need to be perfectly consistent (an impossibility, anyway). And some smokers no doubt used this as an opportunity to quit. It could have been an overbearing program, but it didn’t come across that way.

As with the decisions with other CEOs of the Year, the tobacco decision proved to be a case study in how to roll out a tough choice. The key was they looked for all the possible ways their decision could alienate people, and did their best to address each one – and recognized that they weren’t going to be able to make everyone happy.

Posted March 9, 2015 in 25115