CVS’s Lesson: Carpe Diem

February 11, 2014 5:32 pm

By Paul A. Argenti, Professor of Corporate Communication, Tuck School of Business at Dartmouth College

CVS TobaccoWhen CVS/Caremark announced that it would forego some $2 billion in sales of tobacco and related products recently, CEO Larry J. Merlo stated that: “We came to the decision that providing health care and selling cigarettes just don’t go together in the same setting.” What he did not say, however, is how that laser-like focus on the company’s strategy also turned reputational risk into an opportunity. CVS is now one of a small group of companies that have realized that their reputation is the most valuable asset they have and that building a stronger reputation by avoiding risks to that reputation can create a significant competitive advantage. Let’s look at how these companies are protecting their reputation and brands while enhancing and realizing strategic value from them.

First, companies need to look into their business practices and ask two questions: What are we doing that we should not be doing? And, what aren’t we doing that we should be doing? A half-day session on these questions with your executive committee will usually uncover reputational risks that could easily lead to problems or even a crisis. For example, Coca-Cola uses an extraordinary amount of water to make the world’s top brand of soda with estimates ranging from four to 250 bottles of water per bottle of Coke. Before being attacked for behavior that could easily be labled unsustainable, the company teamed up with the World Wildlife Fund (WWF) a few years ago in a project to put all of the water back that they take out. In other words, they plan to become water neutral. They then told this to the world in a co-branded ad with the WWF. They didn’t say how or when, but the commitment is clear and endorsed by a reputable partner. Similarly, McDonalds got rid of smoking in its restaurants ten years before any laws changed banning this activity. How do these companies come to such conclusions?

Reprinted with permission of Harvard Business Review. For the full article, click here.