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Courage in business counts: How CVS turned a tobacco ban into a financial win

Hanging in the lobby of CVS’s corporate headquarters was a huge sign that stated their Just Cause: Helping people on their path to better health. And the company’s executives believed it. They saw their company as having a purpose beyond just making money; they wanted to use their company to advance something bigger. They regularly had meetings with health-care companies, hospitals and physicians on how they could better work together for patients. However, near the end of many of these meetings someone would point to the elephant in the room: “But don’t you sell cigarettes in your stores?”

In February 2014, CVS Caremark announced that it would stop selling any tobacco-related products in all of their over 2,800 stores. It was a decision that would cost the company $2 billion per year in lost revenue. It was a decision they chose to make even though there was no competitive pressure to do so. There was no loud public demand that they make the decision. There was no scandal. There was no online campaign to force them to make the decision.

The news was met with overwhelming support from the general public. But Wall Street and its pundits were none too pleased. “It might make money in Oz,” said Jim Cramer, one of CNBC’s financial commentators, “but Wall Street is not Oz. [Wall Street isn’t] saying. ‘You know what? I am going to buy CVS because they are good citizens.’” Cramer went on, “I’m . . . trying to figure out the earnings per share. And the earnings per share for CVS just got worse.”

Other outside commentators agreed and saw the decision as a boost for CVS’s competitors. One Illinois-based sales and marketing consultant pointed out that the decision translated into seven hundred packs of cigarettes a week per store that would now be sold by some other retailer, adding that “retailers know that winning the adult tobacco consumer generates incremental sales from ancillary purchases during the same visit.” Looking through the lens of finite and infinite games, I can’t help but see these responses to CVS’s decision as exquisitely finite minded. If the game of business was a finite game and the future was easy to predict, the pundits would have been 100 percent correct. As it turns out, however, the game is infinite and the future is quite unpredictable.

In reality, that seven hundred packs of cigarettes per week per store didn’t just go somewhere else. They went nowhere. The total sale of cigarettes actually decreased. An independent study commissioned by CVS to see the impact of their decision showed that overall cigarette sales dropped by 1 percent across all retailers in the states where CVS had a 15 percent market share or greater. In those states, the average smoker bought five fewer packs of cigarettes, which totaled 95 million fewer packs sold over an eight-month period. On the other hand, the number of nicotine patches sold increased by 4 percent in the period immediately after CVS stopped selling cigarettes, indicating that CVS’s decision actually encouraged smokers to quit. As for the lost revenue, other purpose-driven companies who previously refused to do business with CVS also took notice. Companies like Irwin Naturals and New Chapter vitamins and supplements, whose products are available at Whole Foods and other specialty health stores, finally agreed to allow CVS to carry their products too. A move that allowed CVS to offer a greater selection of high-quality brands to their customers and open new sources of income. When a company with the stated Cause of helping people live healthier lives made a courageous decision to deliver on that purpose, not only did it help make Americans a little healthier, but it also had a positive impact on overall sales at their pharmacies.

Of course, there are many other factors that have contributed to CVS’s (which soon after the decision changed their name to CVS Health) stock performance. But financial health in the Infinite Game is again, like exercise, impossible to measure in daily steps. It is a steady buildup that, in time, yields dramatic results. Jim Cramer adroitly pointed out that Wall Street isn’t going to buy a company because they are good citizens. But customers and employees do. And more loyal customers and more loyal employees tend to translate into more success for the company. And the more successful a company, the more shareholders tend to benefit. Or am I missing something?

Indeed, as Cramer and other analysts predicted, CVS’s stock price did fall 1 percent the day after the announcement, from $66.11 to $65.44 per share. Only to recover the very next day. A year and a half after the announcement and eight months after the plan was implemented, the stock hit $113.65 per share, double what it had been before the announcement— and a record high for the company. And what of that “gold standard” of public company financial metrics that Jim Cramer was so worried about—the earnings per share? Prior to the announcement in December 2013, CVS had an EPS of $1.04. After the announcement it dropped to $0.95. By the next quarter it was back up to $1.06 and then rose by 70 percent to average $1.77 over the course of the next three years.

Adopting an infinite mindset in a world consumed by the finite can absolutely cost a leader their job. The pressure we all face today to maintain a finite mindset is overwhelming. For most of us, almost any kind of career opportunities we have are almost all tied to how well we perform in the finite game. Add the steady drumbeat of the analyst community, pressure from private equity or venture capital firms, the tying of executive pay packages to stock performance rather than company performance (which amazingly don’t always align), our egos and the pressure many of us put on ourselves because we falsely tie our own value or self-worth to how we perform in the finite game, and any hopes we may have to do anything other than play with a finite mindset seem completely dashed. Bowing to the pressure of the finite players around us is the easy and expedient choice. This is why it takes courage to adopt an infinite mindset.

The Courage to Lead is a willingness to take risks for the good of an unknown future. And the risks are real. For it is much easier to tinker with the month, the quarter or the year, but to make decisions with an eye to the distant future is much more difficult. Such decisions may indeed cost us in the short term. It may cost us money or our jobs. It takes the Courage to Lead to operate to a standard that is higher than the law—to a standard of ethics. And when we are pressured to do things that violate that ethical code, it takes the Courage to Lead to speak up, to make those who would pressure us to do otherwise aware of the situation they are creating. And it takes courage to offer our help so they may fix it. It takes the Courage to Lead to make decisions counter to the current standards of business and it takes the Courage to Lead to ignore the pressure of outside parties who are not invested in or believers in our Just Cause.

Courage, in the Infinite Game, is not solely about the actions we take. Even leaders who operate with a finite mindset can take risks. Courage, as it relates to leading with an infinite mindset, is the willingness to completely change our perception of how the world works. It is the courage to reject Milton Friedman’s stated purpose of business and embrace an alternative definition. When we have the courage to change our mindset from a finite view to a more infinite view, many of the decisions we make, like CVS’s choice to stop selling cigarettes, seem bold to those with a more traditional view of the world. To those who now see the world through an infinite lens, however, such a decision is, dare I say it, obvious.

So how are we to find the courage to change our mindset?

1. We can wait for a life-altering experience that shakes us to our core and challenges the way we see the world.

2. Or we can find a Just Cause that inspires us; surround ourselves with others with whom we share common cause, people we trust and who trust us; identify a Rival worthy of comparison that will push us to constantly improve; and remind ourselves that we are more committed to the Cause than to any particular path or strategy we happen to be following right now.

The first method is completely legitimate and indeed is the way so many of our great leaders came to be infinite minded. Be it tragedy, opportunity or divine intervention—something pushed them, sometimes quite suddenly, to see the world in an entirely new way. This method is, however, a bit of a gamble. . . . I would not recommend that we simply go about our days waiting for this to happen.

The second method offers us a little more control. All that is required is a little faith, a little discipline and the willingness to practice. For many, that conversion can feel pro- found. Beyond how it feels, however, such a mind shift does indeed affect the decisions and actions we take. To those who still see the world through a finite lens, our actions may seem idealistic, naïve or stupid. To those who believe what we believe, our actions will seem courageous. To the infinite-minded players out there, those courageous choices become the only options available.


Excerpted from The Infinite Game by Simon Sinek.