Removing all tobacco products from its 7,600 drug stores and pharmacies may cost CVS Caremark $1.5 billion in annual revenue, but the decision produced at least one profitable side effect: earned media.
Yesterday’s announcement garnered more than 1,700 headlines for America’s second largest retail pharmacy in just 24 hours and elicited responses from health experts, business leaders, political pundits, civil liberties advocates, and even the President of the United States. But that wasn’t why they did it.
In a conference call with reporters, CVS Caremark’s chief medical officer, Dr. Troyen Brennan, alluded to the hypocrisy inherent in a pharmacy profiting from a product responsible for one in five deaths in the U.S. each year. “The question we get from health care providers is, ‘How serious are you about health?’,” Brennan said, “This decision indicates exactly how serious we are.” The company’s CEO, Larry Merlo, framed it in unambiguously ethical terms: “This is the right thing to do.”
CVS isn’t the only company getting attention right now for taking a principled stand. Apparel retailer American Eagle earned its own headlines when it said it would stop retouching models in ads for its lingerie brand Aerie. Announcing the change on Good Morning America last month , brand representative Jenny Altman put a distinctly ethical spin on it. “We hope by embracing this that real girls everywhere will start to embrace their own beauty,” she said. Dana Seguin, Aerie’s senior director of marketing, told Fast Company that this is more than just a marketing strategy for them; rather, it reflects a new corporate identity. “This is now our brand,” she said, “This is who we are now.”
Values-based business decisions, those motivated or justified primarily by a set of enduring ethical principals, make the news because they are so rare. We’re much more accustomed to seeing the profit motive calling the shots — companies choosing courses of action that maximize profits for themselves or their shareholders. Why do apparel manufactures run ads with airbrushed models? Because they sell more clothes. When asked to justify tobacco sales at Walmart in 2008, former CEO Lee Scott was brazen: “We’ve got a market to serve, and second we’ve got shareholders to think about.”
Millennials, their market power already at $1.3 trillion annually and still on the rise, are changing the equation. Surveys of 18- to 34-years-olds today show they engage with brands in a deeper, more personal way than their parents or grandparents, and they expect their values to be shared and reflected by those brands. Wooing millennial consumers, and earning millennial dollars, increasingly means showing them that you hold the same set of beliefs about the world and how it should work that they do. They’re not interested in the business case for values; they want to know the values case for your business.
This doesn’t mean investors need to brace themselves for a future of soft returns. CVS, for example, plans to make up the $1.5 billion annual loss by marketing smoking cessation products and services to employers and insurers, and the company’s stock price barely moved on the day of the announcement. CVS’s shareholders clearly didn’t see the new strategy as risky, and it isn’t. The real risk of making a business decision on the basis of ethical values doesn’t derive from the immediate cost of doing so. The real risk to profits comes down the road, as consumers hold companies to the standard of previous values-based decisions — and call them to account when they fail to live up to it.
Understanding why requires us to think about what it means for an organization to hold values — and it’s more than just a “Mission, Vision, and Values” statement hung on the break room wall or a code of conduct printed in the annual report. Those are more accurately described as espoused values, according to researchers Humphrey Bourne and Mark Jenkins. Writing in the journal Organization Studies, they highlight three other forms organizational values take. Shared values are those held in common by the members of an organization. Aspirational values are those the members believe should characterize the organization in the future. Attributed values are those that the members experience it as holding today. And all four are at work in every decision, every action, and every interaction an organization undertakes.
The challenge companies face in today’s marketplace, then, is one of consistency. It’s not enough to say the right things or even to aspire to the right things. Attributed values and espoused values must match up with one another. When they don’t, millennial consumers quickly begin to question an organization’s entire value system, because values that are not consistently held aren’t really values at all.
Choosing a principled path establishes a new identity for a company in the eyes of consumers — as Aerie’s Seguin said, “This is who we are now.” If successive decisions aren’t consistent with that identity — if they fail to meet or exceed the ethical standard set by the first — companies lose more than a few cents off their earnings per share. They lose credibility, and with millennials, being able to make a credible claim to a system of values is one of the most important assets a company can have.
Succeeding in this environment means understanding that every business decision is a values-based decision — that is, every decision shows precisely what your true organizational values are. This has always been the case, of course. The difference today is that more people are paying attention, and the stakes have never been higher.
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