Ferrell, L, Ferrell, O.C., & Fraedrich, J. (2018). Business Ethics: Ethical Decision Making and Cases (12th ed.). Cengage. ISBN: 9781337614436 (Chapter 4-5)
For this discussion please respond to BOTH of the following questions (250 word min):
Question 1:
From your readings in Chapter 6, please review the Video Case Study on Theo Chocolate Company. After your review of the video case study, please post a summary on your thoughts about the case study. Please correlate your thoughts to the readings from the chapter and one peer-reviewed article.
Please provide 1-2 examples to support your viewpoints that other learners will be able to assess and debate within our weekly discussion forum.
Question 2:
From your weekly readings, please review the Case Study on CVS: “Fired Up” about Social Responsibility. After your review of the video case study, please post a summary on your thoughts about the case study. Please correlate your thoughts to the readings from the chapter and one your personal ethics assessment results. You are encouraged to share some specific examples of your assessment results to support your opinion. However, if you would like to keep your results private, you can speak to your results in general terms.
Please provide 1-2 examples to support your viewpoints that other learners will be able to assess and debate within our weekly discussion forum.
ethicsBusiness EthicsBusiness administrationcengage
Seattle’s Theo Chocolate is more than a chocolate company—it’s a philanthropic venture. Founder Joe Whinney believes that every member of the company’s supply chain—especially cocoa farmers—should have a higher quality of life as a result of partnering with his business. Whinney pays up to three times more than the going rate to buy cacao from poor farmers in the Democratic Republic of Congo (DRC). According to Theo’s visionary leader, Americans will pay more for chocolate bars when they know that impoverished farmers benefit from the sale. The decision to work with farmers in Congo stems from Whinney’s interactions with The Eastern Congo Initiative, a community partnership founded by actor Ben Affleck to provide aid to the impoverished nation. In 2009, Affleck led a group of philanthropists to the jungles of Congo to visit the nation’s farmers and to see the cacao trees. Today, Whinney and Affleck train Congo farmers to develop their local communities while supplying Theo Chocolate with its core ingredient—hundreds of tons of delicious cacao.
Theo Chocolate Company
01:05
03:51
volume_up
closed_captiondescriptionfullscreen
Feedback
Seattle’s Theo Chocolate is more than a
chocolate company—it’s a philanthropic venture. Founder Joe Whinney
believes that every member of the company’s supply chain—especially
cocoa farmers—should have a higher quality of life as a result of
partnering with his business. Whinney pays up to three times more than
the going rate to buy cacao from poor farmers in the Democratic Republic
of Congo (DRC). According to Theo’s visionary leader, Americans will
pay more for chocolate bars when they know that impoverished farmers
benefit from the sale. The decision to work with farmers in Congo stems
from Whinney’s interactions with The Eastern Congo Initiative, a
community partnership founded by actor Ben Affleck to provide aid to the
impoverished nation. In 2009, Affleck led a group of philanthropists to
the jungles of Congo to visit the nation’s farmers and to see the cacao
trees. Today, Whinney and Affleck train Congo farmers to develop their
local communities while supplying Theo Chocolate with its core
ingredient—hundreds of tons of delicious cacao.
Answer the multiple choice questions that follow the video content.
Theo founder Joe Whinney believes that that a business should
benefit every partner throughout the organization’s entire supply chain.
This focus on the well-being of others is characteristic of all the
following except:
a.
Virtue ethics
b.
Utilitarianism
c.
Egoism
d.
Justice
Feedback
Theo Chocolate’s policy of paying impoverished cocoa farmers in Congo three times the going rate exemplifies:
a.
Hedonism
b.
Relativism
c.
Realism
d.
Distributive justice
Feedback
Theo founder Joe Whinney believes that paying
higher prices to poor farmers in Congo will help his company meet its
economic objectives. This is only possible if:
a.
The farmers grow cacao beans
b.
Theo pays lower prices to U.S. supply chain partners
c.
Consumers are willing to pay higher prices for chocolate bars
d.
None of these options
Feedback
A person that embraces the following moral
philosophy would be likely to pay more for a chocolate bar if doing so
would benefit a greater number of people:
a.
Relativism
b.
Hedonism
c.
Egoism
d.
Utilitarianism
Feedback
In this clip, actor Ben Affleck explains that
the people of Congo are suffering human rights violations. Since Affleck
is focused on human rights, his charitable actions are rooted in:
a.
Deontology
b.
Relativism
c.
Teleology
Feedback
Based on his concern for the humanitarian needs
of the people of Congo, actor Ben Affleck exhibits the following level
of cognitive moral development:
a.
Stage 1: Stage of punishment and obedience
b.
Stage 2: Stage of individual instrumental purpose and exchange
c.
Stage 3: Stage of mutual interpersonal expectations, relationships, and conformity
d.
Stage 6: Stage of universal ethical principles
Feedback
Theo Chocolate partners with cacao farms in
Congo to procure a dependable supply of cacao at a fixed price. This
business decision is based in:
a.
Egoism
b.
Economic value orientation
c.
Hedonism
d.
Virtue ethics
Feedback
Which statement from the clip indicates that Theo Chocolate’s business decisions are rooted in virtue ethics?
a.
“Congo is a place that really needs this kind of business”
b.
“We’re trying to make sure there is a connection between the farmer and the consumer”
c.
“Theo is raising money for charity with its $5 Congo bar”
d.
All of these statements are rooted in virtue ethics
Feedback
Joe Whinney’s personal moral philosophy is likely to keep him from engaging in:
a.
Global business
b.
White-collar crime
c.
Ethical decision making
Feedback
Continue
Replay
Skip
Submit Answer
Submit For Grading
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Video
Transcript:
[Music]
>> It’s rich, it’s velvety, it’s almost sinful. But creating the
perfect bar at this Seattle chocolate factory is about more than just
the ingredients on the wrapper.
>> I feel that everybody in the whole supply chain, all the way
back to the farmers, should be better off as a result of this delicious
food that we use to share with the people we love.
>> So these are these are the beans.
>> These are the beans; this is cacao.
>> At Theo Chocolate, owner Joe Whinney pays farmers two to three
times more than the going rate to buy this cacao from the Democratic
Republic of Congo, or DRC.
>> Where does cocoa come from? It’s coming from farmers in Africa,
and in Indonesia, and in Central and South America.
>> Whinney believes that Americans will be willing to pay more for
chocolate if they know that, in turn, impoverished farmers will earn
more.
>> Of all places, why Congo?
>> Why Congo? Well, it was really Ben Affleck’s fault.
>> Yes. That Ben Affleck.
>> Like this?
>> Like — yeah. See that’s really well fermented, this isn’t.
>> Earlier this year, we joined Ben Affleck and Joe Whinney on a
trip to the DRC. Cacao can only grow within a narrow climate zone close
to the equator. In 2009, Affleck started a charity called Eastern Congo
Initiative to spur economic development in this war-torn region. Five
million people have died here due to decades of conflict.
>> As I was reading and I just sort of stumbled upon some of the
statistics, and I was struck not only by the numbers, but by the fact
that, you know, I hadn’t heard about it.
>> So Affleck decided to use his celebrity as a sort of currency
to attract investment. He led a small group of philanthropists,
protected by armed guards, through jungles where cacao trees thrived and
farmers struggled.
>> The cocoa industry here has potential if the value can be
increased.
>> For the last two years, Affleck’s Eastern Congo Initiative has
worked with Whinney and local groups to train farmers to improve the
crop. Cacao grows in these greenish-yellow pods that are cracked open to
harvest. It’s quite slimy, huh?
>> It is. But when you suck on it, it’s absolutely delicious.
>> It doesn’t taste like chocolate at all.
>> Not at all, does it.
>> It tastes like passion fruit or something.
>> Theo Chocolate has now committed to buy 340 tons of cacao from
the DRC —
>> This is really good quality.
>> — creating a dependable export market.
>> We have brought these people together. They’re selling to a
chocolate company in the United States. Those markets had been
completely closed off to them in the past. And it’s not just aid, it’s
investment.
>> We have security guards around us. There have been attacks
recently. This is a tough place to do business.
>> It is, but that’s also a place that really needs this kind of
business.
>> Business in Seattle is a little sweeter these days. Theo is
raising money for charity with its $5 Congo bar, which may make
indulging in this piece of chocolate —
>> It’s delicious, really.
>> — just a little less sinful.
>> You’ve never tasted chocolate?
>> We’re trying to make sure that there’s a connection between the
farmer and the consumer, because when they care about each other,
that’s when real change starts to happen.
>> What do you think?
>> It’s okay.
>> It’s okay? Just okay?
[ Laughter ]
Chapter 19: CVS: “Fired Up” about Social Responsibility:
19-6 Stakeholder Orientation
Book Title: Business Ethics: Ethical Decision Making and Cases
Printed By: Kennisha Holloman (kholloman@grantham.edu)
© 2019 Cengage Learning, Cengage Learning
19-6 Stakeholder Orientation
CVS’s mission to be a pharmacy innovation company is guided by five values: innovation,
collaboration, caring, integrity, and accountability. CVS uses these values to determine its
actions and decisions, which offer a glimpse into its ethical culture. The company’s goal is to
use its assets to reinvent the pharmacy experience and offer innovative solutions that help
people follow a better path toward health. This goal relays to stakeholders that the company
cares about health care. CVS’s business is committed to fostering a culture that encourages
creativity and innovation, recognizing that contributions from all members are a high priority.
This commitment highlights the value placed on collaboration with partners and
stakeholders, which also serves to hold the company accountable for its operating
activities—thus strengthening its integrity. Another important factor in its ethical culture is to
address enhanced access to care while also lowering its cost.
CEO Larry J. Merlo emphasizes the long-term perspective the company is committed to
with each decision and how it will affect each stakeholder group. He states that CVS’s
priorities remain in customer health, the sustainability of health care systems, good
stewardship, positive contributions to communities, and a meaningful workplace for
employees. Such a statement from the top leader of the company sets the tone that fosters
the ethical culture behind CVS. The company’s Code of Conduct includes ethical behavior
expectations—CVS is proud to have good relationships with employee unions who
represent approximately 6 percent of its workforce. CVS employs a chief compliance officer,
offers regular compliance education and training, provides an ethics hotline for confidential
reporting, and has developed a response and prevention guideline for addressing violations
of CVS’s policies or federal, state, or local laws. CVS’s corporate governance includes a
privacy program, information security, and a corporate framework that focuses on the
company’s values.
So far we have addressed how CVS meets the needs of its customer
stakeholders.
However, CVS tries to maintain a stakeholder orientation in which all stakeholder needs are
addressed. The following sections will describe how the company meets the needs of other
stakeholders.
Chapter 19: CVS: “Fired Up” about Social Responsibility: 19-6 Stakeholder Orientation
Book Title: Business Ethics: Ethical Decision Making and Cases
Printed By: Kennisha Holloman (kholloman@grantham.edu)
© 2019 Cengage Learning, Cengage Learning
© 2020 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means – graphic,
electronic, or mechanical, or in any other manner – without the written permission of the copyright holder.
Chapter 19: CVS: “Fired Up” about Social Responsibility:
19-4 Revealing CVS’s New Direction: Tobacco-Free CVS
Book Title: Business Ethics: Ethical Decision Making and Cases
Printed By: Kennisha Holloman (kholloman@grantham.edu)
© 2019 Cengage Learning, Cengage Learning
19-4 Revealing CVS’s New Direction: Tobacco-Free CVS
In order to be consistent with its transition from pharmacy to health care company, CVS has
made some landmark decisions aimed toward helping individuals lead healthier lives. In
2014 CVS announced that it would no longer sell tobacco products. The revenues
generated from selling tobacco products are about $2 billion annually, so this bold decision
sent a strong message to stakeholders regarding the values of the company. A company
that is consistent in its actions will gain a good reputation, which will attract more customers
and generate revenue. This decision also gives CVS an advantage in terms of the ACA. As
the ACA changes the health care landscape, companies are racing to get a stronghold in
the new system to be listed as a preferred pharmacy. CVS’s alignment in defining itself as a
health care provider will likely result in stronger relationships with doctors and hospitals,
creating an advantage of preference. The goal is that referrals for medication will be done
through CVS and serve to boost reputation within all CVS segments. This, in conjunction
with its status as an ACO, puts CVS in a competitive position to attract newly insured
Americans.
This decision spurred 24 state attorneys general to send letters to other pharmacy retailers,
including Walmart Stores, Inc., Walgreens Co., and Rite Aid Corp., highlighting the
contradiction of selling deadly products and health care services simultaneously. The letter
also noted that drug store sales make it easier for younger age groups to begin smoking
and more difficult for those trying to quit smoking. Walmart and Walgreens acknowledged
the letter, but made no indication that they would stop selling tobacco products. Rite Aid
responded by saying it will continue to sell both tobacco products as well as smoking
cessation services, as the practice is legal. While this letter does not seem to have much of
an influence on retailers, some speculate that it increases the pressure on the $100 billion
tobacco industry, which is already facing decreasing sales, rising taxes, and smoking bans.
For CVS, the decision affected its short-term profits and reduced each share by $0.06 to
$0.09 each. Investors did not seem worried, however, as the long-term benefits will likely
make up the difference.
Chapter 19: CVS: “Fired Up” about Social Responsibility: 19-4 Revealing CVS’s New Direction: Tobacco-Free CVS
Book Title: Business Ethics: Ethical Decision Making and Cases
Printed By: Kennisha Holloman (kholloman@grantham.edu)
© 2019 Cengage Learning, Cengage Learning
© 2020 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means – graphic,
electronic, or mechanical, or in any other manner – without the written permission of the copyright holder.
Chapter 19: CVS: “Fired Up” about Social Responsibility:
19-5 Criticism against CVS
Book Title: Business Ethics: Ethical Decision Making and Cases
Printed By: Kennisha Holloman (kholloman@grantham.edu)
© 2019 Cengage Learning, Cengage Learning
19-5 Criticism against CVS
CVS’s new programs are encroaching on the medical industry by providing services to
patients. As customers increasingly choose to visit local pharmacy clinics for aches, pains,
or common illnesses, primary physicians are feeling the losses, especially since this
sectors’ health care professionals are dwindling. Choosing a retail pharmacy clinic over a
physician’s office benefits the patient with lower costs and savings, which is a threat to
traditional doctors’ offices. Some groups are publicizing negative feedback on pharmacy
care. For instance, the American Academy of Pediatrics issued a statement warning
patients not to visit such clinics because they cannot offer the specialized care children
need. Some groups argue that programs such as CVS’s MinuteClinics do not offer the same
caliber of service and care as a doctor. However, as stated above, CVS holds itself to a very
high standard for care in trying to help patients be healthy. It continues to be accredited by
the Joint Commission.
CVS MinuteClinics do recognize their limitations, however. Their website offers information
to visitors regarding when they should and should not visit the clinics. For example, the
website recommends that patients with severe symptoms such as chest pain, shortness of
breath and difficulty breathing, poisoning, temperatures above 103 degrees Fahrenheit (for
adults) and 104 (for children), and ailments requiring controlled substances should seek
care elsewhere. MinuteClinics’s staff nurse practitioners and physician assistants generally
provide services for minor wounds, common illnesses, wellness tests, and physicals, etc.
Other information regarding insurance and pricing are also available on the website.
Chapter 19: CVS: “Fired Up” about Social Responsibility: 19-5 Criticism against CVS
Book Title: Business Ethics: Ethical Decision Making and Cases
Printed By: Kennisha Holloman (kholloman@grantham.edu)
© 2019 Cengage Learning, Cengage Learning
© 2020 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means – graphic,
electronic, or mechanical, or in any other manner – without the written permission of the copyright holder.
Chapter 19: CVS: “Fired Up” about Social Responsibility:
19-2b Deceptive Business Practices
Book Title: Business Ethics: Ethical Decision Making and Cases
Printed By: Kennisha Holloman (kholloman@grantham.edu)
© 2019 Cengage Learning, Cengage Learning
19-2b Deceptive Business Practices
In addition to privacy challenges, CVS has been accused of deceptive business practices. A
2008 civil lawsuit involving 28 states was filed against the personal benefits management
division of CVS, which acts as the prescription drug claim intermediary between employers
and employees. It also maintains relationships with drugstores and manufacturers. The
allegations of the lawsuit included urging doctors to switch patients to name brand
prescriptions under the notion that it would save them money. Furthermore, these switches
were encouraged without informing doctors of the financial burden it would impose on
patients, and employer health care plans were not informed that this activity would benefit
CVS. This could be seen as a conflict of interest at the expense of customers. Due to these
allegations, the suit called for a revision in how the division gives information to consumers.
In the end, CVS signed a consent decree without admitting fault and paid a settlement of
$38.5 million to reimburse states for the legal costs and patients overcharged due to the
switch in prescriptions. In a similar matter, a multi-year-long FTC investigation concluded in
2009 that the company had misled consumers regarding prices on certain prescriptions in
one of its Medicare plans. The switch harmed elderly customers who were billed up to 10
times the amount they anticipated. CVS settled with the FTC for $5 million to reimburse
customers for the change in price.
Chapter 19: CVS: “Fired Up” about Social Responsibility: 19-2b Deceptive Business Practices
Book Title: Business Ethics: Ethical Decision Making and Cases
Printed By: Kennisha Holloman (kholloman@grantham.edu)
© 2019 Cengage Learning, Cengage Learning
© 2020 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means – graphic,
electronic, or mechanical, or in any other manner – without the written permission of the copyright holder.
Chapter 19: CVS: “Fired Up” about Social Responsibility:
19-2c Overdistribution of Oxycodone
Book Title: Business Ethics: Ethical Decision Making and Cases
Printed By: Kennisha Holloman (kholloman@grantham.edu)
© 2019 Cengage Learning, Cengage Learning
19-2c Overdistribution of Oxycodone
In 2012 CVS faced challenges with another federal agency—the Drug Enforcement
Administration (DEA). The DEA suspended the company’s license to sell controlled
substances at two Florida locations, only a few miles apart from one another. These
locations were found to have ordered a total of three million oxycodone tablets in 2011. The
average order for a U.S. pharmacy in the same year was 69,000 pills. Intensifying the
matter, abuse of narcotics pain medications, especially oxycodone tablets, was prevalent in
the area. In fact, some local clinics had become known as “pill mills” for their liberal
distribution of prescriptions for pain pills. This prompted the state of Florida to implement
legislation responding to and attempting to control the rampant misuse and diversion of pain
medications.
CVS responded to the DEA’s investigation by notifying some of the area doctors that it
would not fill prescriptions written for oxycodone (Schedule II narcotics). However, it also
requested a temporary restraining order against the DEA, which would disable the
temporary suspension of selling oxycodone. The DEA suspension decreased the amount of
such narcotics being distributed to the two CVS locations by 80 percent in a period of three
months, limiting their ability to make a profit. When the matter came before a federal judge,
he ruled that the company was at fault for lack of proper oversight in distributing oxycodone
and other narcotics. The ruling further implied company negligence since such a large
number of dispensed pills should have been noticed as a blatant abnormality.
Later that year, the DEA completely revoked the licenses of the two locations to sell
controlled substances—the first time this has occurred with a national retail pharmacy chain.
CVS claims that it has improved procedures regarding distribution of controlled substances;
however, the DEA’s claims explicitly assigned negligence on the part of pharmacists in light
of obvious “questionable circumstances.” These circumstances included the fact that
several customers were coming to Florida from out of state to fill prescriptions. Many lacked
insurance and paid in cash, red flags that can suggest drug abuse. This was in addition to
the heavy prescription drug abuse problem in the area that had already prompted state
legislation.
Testimonies from employees indicated company negligence as many had knowledge of the
top prescribing doctors in the area and awareness that daily oxycodone quotas were being
depleted—sometimes within 30 minutes of the pharmacy opening. Pharmacists also
indicated that they set aside pills for those patients they considered to have a real need for
them because they had strong suspicions that most of the people purchasing the pills were
abusers. They did not feel at liberty to refuse prescriptions to customers, however, because
they are not trained to diagnose illnesses. In 2013 CVS announced a review of its database
of health care providers to find abnormalities in narcotic prescriptions. It found and notified
at least 36 providers to whom it would no longer fill orders due to high prescription rates.
In 2014 another incident involving the disappearance of 37,000 pain pills in four California
stores brought the DEA and CVS together again. These stores have a history of not being
able to account for several pain prescription drugs. This incident carries up to 2,973
violations of the Federal Controlled Substances Act and could cost the company up to $29
million in penalties. In 2012 the DEA investigated missing prescription drugs in a store
wherein an employee admitted taking approximately 20,000 pills. This piqued the curiosity
of investigators, who found three retail locations that each had thousands of pills missing.
Chapter 19: CVS: “Fired Up” about Social Responsibility: 19-2c Overdistribution of Oxycodone
Book Title: Business Ethics: Ethical Decision Making and Cases
Printed By: Kennisha Holloman (kholloman@grantham.edu)
© 2019 Cengage Learning, Cengage Learning
© 2020 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means – graphic,
electronic, or mechanical, or in any other manner – without the written permission of the copyright holder.
Chapter 19: CVS: “Fired Up” about Social Responsibility:
19-2d Death of a Shoplifter
Book Title: Business Ethics: Ethical Decision Making and Cases
Printed By: Kennisha Holloman (kholloman@grantham.edu)
© 2019 Cengage Learning, Cengage Learning
19-2d Death of a Shoplifter
In 2010 a man accused of shoplifting toothpaste was chased out of a CVS store by a
manager. Video surveillance footage showed an altercation between the two. Six
bystanders came to the manager’s assistance, one of whom was seen kicking and punching
the perpetrator while the manager held him around the neck. Within seconds, the man was
heard saying he could not breathe and died shortly thereafter. Police investigated the
incident and did not file criminal charges. The medical examiner initially classified the death
as a homicide, but later it was ruled an accident. The manager claimed that the shoplifter
punched him, so he retaliated in self-defense. The victim’s mother is filing a civil lawsuit
against the manager and claiming CVS is liable for her son’s death. The tragedy cast a
shadow over CVS and how it handles shoplifters.
Chapter 19: CVS: “Fired Up” about Social Responsibility: 19-2d Death of a Shoplifter
Book Title: Business Ethics: Ethical Decision Making and Cases
Printed By: Kennisha Holloman (kholloman@grantham.edu)
© 2019 Cengage Learning, Cengage Learning
© 2020 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means – graphic,
electronic, or mechanical, or in any other manner – without the written permission of the copyright holder.
Chapter 19: CVS: “Fired Up” about Social Responsibility:
19-1 Introduction
Book Title: Business Ethics: Ethical Decision Making and Cases
Printed By: Kennisha Holloman (kholloman@grantham.edu)
© 2019 Cengage Learning, Cengage Learning
19-1 Introduction
In 1963 brothers Stanley and Sidney Goldstein founded the first Consumer Value Store
(CVS) with partner Ralph Hoagland in Lowell, Massachusetts. The store originally sold
health and beauty supplies. It was widely successful and grew to include 17 stores in one
year. By 1967 CVS began offering in-store pharmacy departments, and in less than a
decade it was acquired by the retail holding corporation Melville Corporation. This marked
the beginning of CVS’s expansion across the East Coast through new store openings or
mergers and acquisitions. It soon reached the milestone of exceeding $100 million in sales
in 1974.
As the company grew, it faced intense competition, which it responded to through a
differentiation strategy. CVS focused on its core offerings of health and beauty products,
placing stores in shopping malls to generate more foot traffic. This strategy worked well for
the company, allowing it to hit $1 billion in sales by 1985. The company celebrated its 25th
year in 1988 with 750 stores and $1.6 billion in sales. The acquisition of Peoples Drug
stores enabled CVS to establish its presence more widely along the coast and spurred the
launch of PharmaCare, a pharmacy benefit management (PBM) company providing
services to employers and insurers. PBM aids employers in managing health care benefit
plans and processes prescriptions. Because they are so big, PBMs also have strong
negotiating power with drug companies. In 1996 the Melville Corporation restructured, and
CVS became independent as a publicly traded company on the New York Stock Exchange.
This new surge of investment allowed the company to expand widely across the nation into
the Midwest and Southeast. CVS’s acquisition of 2,500 Revco stores became the largest
acquisition in U.S. retail pharmacy history. With the rise of the Internet, CVS seized upon the
opportunity to launch CVS.com in 1999 (and Caremark.com after the 2007 acquisition). This
became the first fully integrated online pharmacy in the United States. In another first for the
U.S. pharmacy retail industry, the company introduced the ExtraCare Card loyalty program
in 2001. The company’s 40th anniversary in 2003 was marked with increasing westward
expansion, 44 million loyalty card holders, and more than 4,000 stores in approximately 30
states. In the following five years, the company’s acquisitions allowed CVS to gain
leadership in key markets, begin a mail order business, and open its 7,000th retail location.
The company would later be rebranded as CVS Health.
The two most important acquisitions in the history of CVS include MinuteClinic walk-in
health clinics (in 2005) and Caremark Rx, Inc. (in 2007), a pharmacy benefits management
company. To date, MinuteClinic has facilitated over 34 million patient visits in more than
1,100 clinics across 33 states. CVS became the largest pharmacy in the United States
(although it vies with Walgreens to maintain this title) and began introducing new services
such as online prescription refills. The company makes more than $153 billion in revenue
and has over 9,700 pharmacies, 1,100 MinuteClinics, 68,000 retail network pharmacies, 35
specialty retail pharmacies, and a pharmacy benefit management business. It estimates that
it serves five million customers daily.
CVS sells products that meet the highest quality standards as well as its own line of
products whose specifications and performance are annually tested and reviewed to ensure
compliance with applicable consumer safety laws. In addition, the company has instituted a
Cosmetic Safety Policy that applies to all of the cosmetic products it sells. CVS employs
250,000 people in over 9,700 locations across 49 states, the District of Columbia, Puerto
Rico, Brazil, and Northern Ireland. Corporate headquarters are located in Woonsocket,
Rhode Island. In one year CVS fills and manages 1.9 billion prescriptions, provides services
to 90 million PBM members, and earns $40 billion in specialty drug revenue. The company
is proud to note its seventh spot on the Fortune 500 list. Today, CVS is the largest pharmacy
health care provider and pharmacy in the United States and is composed of four business
functions: CVS Pharmacy, CVS Caremark, CVS MinuteClinic, and CVS Specialty.
The following case will explain some of the legal and ethical challenges CVS has
encountered, including a settlement with the Federal Trade Commission (FTC) and U.S.
Department of Health & Human Services (HHS) regarding violations of the Health Insurance
Portability and Accountability Act (HIPAA) Privacy Rule, deceptive business practices, and
unseemly conduct by a manager resulting in a death. Our examination will also include how
CVS responded to such allegations and how it has worked to redefine the company as a
health care provider. We will analyze the company’s ethical structure, including its decision
to stop selling cigarettes, as well as provide an overview of some criticisms the company
has received during its transition. The conclusion offers some insights into the future
challenges CVS will likely experience.
Chapter 19: CVS: “Fired Up” about Social Responsibility: 19-1 Introduction
Book Title: Business Ethics: Ethical Decision Making and Cases
Printed By: Kennisha Holloman (kholloman@grantham.edu)
© 2019 Cengage Learning, Cengage Learning
© 2020 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means – graphic,
electronic, or mechanical, or in any other manner – without the written permission of the copyright holder.
Chapter 19: CVS: “Fired Up” about Social Responsibility:
19-3 Moving Toward a Health Care Company
Book Title: Business Ethics: Ethical Decision Making and Cases
Printed By: Kennisha Holloman (kholloman@grantham.edu)
© 2019 Cengage Learning, Cengage Learning
19-3 Moving Toward a Health Care Company
Despite the ethical challenges CVS has experienced, it is trying to reposition itself as a
socially responsible organization that places priority on consumer health. Being a quality
health care company not only offers reputational benefits but financial advantages as well.
Changes in both the economic and health care landscape are creating new opportunities for
CVS to provide different programs and redefine itself. Trends including the declining number
of primary care physicians, the 16 million baby boomers who are becoming eligible for
Medicare benefits, and the more than 30 million newly insured Americans under the
Affordable Care Act (ACA) offer CVS an attractive market in which to expand. For example,
CVS has refocused its efforts on supplying the growing need for chronic disease
management that consumes costly resources when patients do not adhere to physician
recommended medications and monitoring methods to maintain health. PBM services are
being successfully implemented, including mail order, specialty pharmacy, plan design and
administration, formulary management, discounted drug purchase arrangements, and
disease management services.
Innovative programs such as Pharmacy Advisor and Maintenance Choice, developed in
collaboration with researchers from Harvard University and Brigham and Women’s Hospital,
help patients stay on their medications. Research shows that regular interaction between
patient and pharmacist increases the likelihood that patients will adhere to their medication
regimen. Many patients who take regular prescriptions often think that they are well enough
to cease taking their medication. However, when the symptoms of their ailments reappear,
the costs are great, both financially and medically. CVS’s programs allow the company to
inform patients about the benefits and risks of these effects through education and
awareness. The entire industry also benefits from this knowledge by preventing more costly
medical procedures due to medication non-adherence, which occurs when patients skip or
incorrectly take their dosage requirements. This is estimated to cost between $5 and $10 for
every $1 spent on adherence programs. These services are key components of CVS’s
competitive advantage, allowing it to provide the best possible patient care. It was also
proactive in preparing patients for Health Care Reform. For instance, CVS partnered with
the Centers for Medicare and Medicaid Services to raise awareness about new services
available to Medicare patients under the ACA.
To help people keep up with these and other changes in health care, CVS has established
its presence on social media and mobile devices. The company introduced a mobile
application allowing customers to conveniently refill prescriptions, while its Facebook and
Twitter pages provide helpful health tips. Customers benefit from using CVS’s digital tools
through increased savings and easier access to many of CVS’s services. For instance,
CVS’s iPad application allows individuals to have a 3D digital pharmacy experience
reminiscent of shopping in-store. Customers that are unable to physically visit the store, or
prefer the convenience of shopping from home, are able to partake in the CVS experience
through the company’s technology. With over 10 million registered users, many are saving
money and time filling and refilling prescriptions as well as having instant access to
essential drug information.
MinuteClinics are one of the major contributors to CVS’s rebranding efforts. These clinics
are the first in health care retail history to be accredited by the Joint Commission, the
national evaluation and certifying agency for health care organizations and programs in the
United States. This accreditation signifies the clinics’ commitment to and execution in
providing safe, quality health care that meets nationally set standards. In addition to health
care services, MinuteClinics provide smoking cessation and weight loss programs that
contribute positively to people’s health. These clinics are also the first retail clinic provider to
launch a partnership with the National Patient Safety Foundation for its health literacy
program to help improve patient education and community health.
Under the ACA, health care organizations are eligible to become members of the
Accountable Care Organizations (ACO) program. This program ensures that members are
accountable in providing quality health care to the sick as well as meeting certain standards
to provide health-conscious programs such as those related to smoking cessation and
weight loss. Accountability is measured by positive outcomes, resulting in cost savings,
which in turn is divided up among members to continue these effective programs and
services. There are at least 123 ACOs in the United States, and 480 ACOs have been
established as Medicare providers since the ACA went into effect—covering over 9 million
beneficiaries.
In 2015 CVS announced that it was purchasing Target’s 1,672 in-store pharmacies for $1.9
billion. These pharmacies were branded as CVS/pharmacy and remained located in Target
stores. About 80 Target clinics will be rebranded as MinuteClinics. This will increase CVS’s
reach significantly, particularly in areas like the Northwest where it does not have a strong
presence. Another benefit is that it will increase convenience for consumers who use CVS
for their prescriptions as they can now choose from a CVS drugstore or a CVS/pharmacy
within a Target location. Target pharmacies have generally received higher customer
satisfaction ratings compared to CVS. If CVS can tap into the same practices that Target
pharmacies have used to keep their customers satisfied, CVS could use what it learns to
adopt a more customer-centric culture that would provide it with an advantage over rivals
Walgreens and Rite Aid.
Despite CVS’s strides in becoming a health care company, competition from Walgreens has
been gaining. In 2017 Walgreens obtained an advantage in prescription management
contracts after the Tricare plan from the Department of Defense signed a deal with
Walgreens. This deal did not include CVS pharmacies. Walgreens Boots Alliance also made
a deal with PBM Prime Therapeutics to launch a specialty pharmacy and mail services
company called AllianceRx Walgreens Prime, further increasing the competitive threat to
CVS. However, CEO Larry Merlo claims that CVS is about to embark upon new drug
management programs. Combined with the acquisition of Target’s pharmacies, Merlo
believes CVS will gain an advantage over Walgreens and become more attractive to
patients and pharmacies. Insurers like Aetna and Anthem have also announced intentions
to partner with PBMs and pharmacies. Unlike CVS Walgreens is not itself a PBM, although
it is in talks to acquire competitor Rite Aid and Rite Aid’s PBM EnvisionRx. The competition
is likely to increase going forward as both firms try to gain the upper hand in this lucrative
industry.
Chapter 19: CVS: “Fired Up” about Social Responsibility: 19-3 Moving Toward a Health Care Company
Book Title: Business Ethics: Ethical Decision Making and Cases
Printed By: Kennisha Holloman (kholloman@grantham.edu)
© 2019 Cengage Learning, Cengage Learning
© 2020 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means – graphic,
electronic, or mechanical, or in any other manner – without the written permission of the copyright holder.
(1)
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Chapter 19: CVS: “Fired Up” about Social Responsibility:
19-2a HIPAA Privacy Case of 2009
Book Title: Business Ethics: Ethical Decision Making and Cases
Printed By: Kennisha Holloman (kholloman@grantham.edu)
© 2019 Cengage Learning, Cengage Learning
19-2a HIPAA Privacy Case of 2009
As a company grows and achieves widespread influence, it also inherits a responsibility to
act ethically and within the law. In 2009 CVS was accused of improperly disposing of
patients’ health information. It was alleged that company employees threw prescription
bottle labels and old prescriptions into the trash without destroying sensitive patient
information, making it possible for the information to fall into public hands. This is a violation
of the HIPAA Privacy Rule, which requires companies operating in the health industry to
properly safeguard the information of their patients. The allegations initiated investigations
by the Office of Civil Rights and the FTC, marking the first such collaborative investigation
into a company’s practices. These investigations revealed other issues as well, including a
failure of company policies and procedures to completely address the safe handling of
sensitive patient information, lack of proper employee training on disposal of sensitive
information, and negligence in establishing repercussions for violations of proper disposal
methods. This was in spite of the fact that CVS materials reassure clients that their privacy
is a top priority for the pharmacy. This claim, in addition to the investigative findings,
prompted the FTC to allege that CVS was making deceptive claims and had unfair security
practices, both of which are violations of the FTC Act.
CVS settled the case with the U.S. Department of HHS, which oversees the enforcement of
the HIPAA Privacy Rule, for $2.25 million regarding improper disposal of patients’ health
information. The settlement also mandated that the company implement a Corrective Action
Plan with the following seven guidelines:
revise and distribute policies regarding disposal of protected health information;
discipline employees who violate them;
train its workforce on new requirements;
conduct internal monitoring;
involve a qualified, independent third party to assess company compliance with
requirements and submit reports to HHS;
establish internal reporting procedures requiring employees to report all
violations of these new privacy policies; and
submit compliance reports to HHS for three years.
The company also settled with the FTC by signing a consent order, requiring the company
to develop a comprehensive program that would ensure the security and confidentiality of
information collected from customers. In so doing, the company agreed to a biennial audit
from an independent third party. This audit is meant to ensure that CVS’s program meets
the FTC’s standards for its security program. CVS is forbidden by law from misrepresenting
its security practices.
Chapter 19: CVS: “Fired Up” about Social Responsibility: 19-2a HIPAA Privacy Case of 2009
Book Title: Business Ethics: Ethical Decision Making and Cases
Printed By: Kennisha Holloman (kholloman@grantham.edu)
© 2019 Cengage Learning, Cengage Learning
© 2020 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means – graphic,
electronic, or mechanical, or in any other manner – without the written permission of the copyright holder.
Chapter 19: CVS: “Fired Up” about Social Responsibility:
19-6a Employees
Book Title: Business Ethics: Ethical Decision Making and Cases
Printed By: Kennisha Holloman (kholloman@grantham.edu)
© 2019 Cengage Learning, Cengage Learning
19-6a Employees
CVS implemented the Values in Action program for employees, giving them a chance to
recognize colleagues through online reward systems. Peers can nominate each other
across the company for leadership traits and other commendable accomplishments. Each
nomination grants points, which can be redeemed for merchandise, travel, and more.
Programs like these let employees know they are valued and empower them in their
commitment to CVS. The Values in Action Breakthrough Awards is an annual company-
wide broadcast that honors specific individuals exemplifying the company’s values in
innovation, collaboration, caring, integrity, and accountability.
CVS focuses strongly on compliance and integrity training for employees. The compliance
and integrity training for employees is led by a compliance officer. Regular compliance
education and training programs, a confidential 24/7 ethics hotline, and an efficient audit,
response, and prevention process are components that make this program comprehensive.
The company also supports the development of employees through professional
development training sessions. The purpose of such training is not only to keep employees
current on new technologies and processes but also to help them advance in their careers
within the company.
Chapter 19: CVS: “Fired Up” about Social Responsibility: 19-6a Employees
Book Title: Business Ethics: Ethical Decision Making and Cases
Printed By: Kennisha Holloman (kholloman@grantham.edu)
© 2019 Cengage Learning, Cengage Learning
© 2020 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means – graphic,
electronic, or mechanical, or in any other manner – without the written permission of the copyright holder.
Chapter 19: CVS: “Fired Up” about Social Responsibility:
19-7 Conclusion
Book Title: Business Ethics: Ethical Decision Making and Cases
Printed By: Kennisha Holloman (kholloman@grantham.edu)
© 2019 Cengage Learning, Cengage Learning
19-7 Conclusion
CVS is implementing strategies and allocating resources in the hope of achieving an ethical
culture that benefits all stakeholder groups. This helps CVS to maximize ethical decision
making and remain sustainable for years to come. It seems the company has learned from
previous ethical lapses by being aware of addiction problems within its communities. In
2014 CVS voluntarily opted to stop selling some cold medications in West Virginia and
surrounding areas as more methamphetamine labs and corresponding stimulant abuse
became more prominent throughout the state. The company’s impact on the environment is
one of the next big challenges it will have to overcome. As the largest pharmacy in the
United States, CVS has a long way to go to reduce its overall footprint. However, the
company is on the right track, having set goals and implementing action steps to achieve
these goals. With the mission of helping people live healthier lives and innovating the
pharmacy industry, CVS has a great responsibility in developing a business model allowing
the company to remain competitive while acting ethically at the same time.
Chapter 19: CVS: “Fired Up” about Social Responsibility: 19-7 Conclusion
Book Title: Business Ethics: Ethical Decision Making and Cases
Printed By: Kennisha Holloman (kholloman@grantham.edu)
© 2019 Cengage Learning, Cengage Learning
© 2020 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means – graphic,
electronic, or mechanical, or in any other manner – without the written permission of the copyright holder.
Chapter 19: CVS: “Fired Up” about Social Responsibility:
19-6e Environmental Impact
Book Title: Business Ethics: Ethical Decision Making and Cases
Printed By: Kennisha Holloman (kholloman@grantham.edu)
© 2019 Cengage Learning, Cengage Learning
19-6e Environmental Impact
Environmental impact is also important to CVS. The company records its progress on this
front in its annual Corporate Social Responsibility (CSR) Report. For instance, it has
reduced its carbon intensity by 23 percent based on a baseline set in 2010. CVS opened its
first Leadership in Energy and Environmental Design (LEED) Platinum store, which will
serve as a test site to determine the most effective and relevant environmental innovations
for the company’s environmental operations goals. This information will be used to set best
practices before constructing other stores.
CVS expanded its Energy Management System (EMS), which is designed to ISO
(International Organization for Standardization) specifications. This digital system tracks and
manages energy use, so that each store can be continually monitored and adjusted
according to each location’s needs. It is also in the process of upgrading lighting in the
stores by including more energy-efficient bulbs. Increasing water use was identified as a
significant inefficiency, and CVS has responded by eliminating irrigation at retail locations
and opting for less water-intensive landscapes. Finally, CVS offers customers ways to
recycle and properly dispose of expired, unused, or unwanted medications, which benefit
both human and environmental well-being.
Chapter 19: CVS: “Fired Up” about Social Responsibility: 19-6e Environmental Impact
Book Title: Business Ethics: Ethical Decision Making and Cases
Printed By: Kennisha Holloman (kholloman@grantham.edu)
© 2019 Cengage Learning, Cengage Learning
© 2020 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means – graphic,
electronic, or mechanical, or in any other manner – without the written permission of the copyright holder.
Chapter 19: CVS: “Fired Up” about Social Responsibility:
19-6d Suppliers
Book Title: Business Ethics: Ethical Decision Making and Cases
Printed By: Kennisha Holloman (kholloman@grantham.edu)
© 2019 Cengage Learning, Cengage Learning
19-6d Suppliers
CVS has developed a commitment called Prescription for a Better World, which
encompasses its Code of Conduct, Supplier Ethics Policy, Supplier Diversity, and Supplier
Audit Program to promote integrity, accountability, and diversity. These programs work to
ensure that human rights are respected throughout the entire supply chain. In developing
these policies, CVS used principles initiated by the International Labor Organization and the
United Nations’ Universal Declaration of Human Rights. The human rights framework
guides all suppliers of CVS to avoid unethical and illegal practices such as child labor,
human trafficking, discrimination, and dangerous workplace conditions.
The Supplier Audit Program is a risk-based assessment conducted by multiple third parties
to evaluate workplace conditions, including labor, wages and hours, health and safety,
management system and environment, as well as operational, financial, and legal risks, to
assure that employees’ rights are not being violated. This program was fully expanded to
factories in countries considered to be at high risk for such violations, and it is in the process
of implementing full social audits for subcontractors in these areas. In addition, CVS works
with globally recognized organizations including Worldwide Responsible Accredited
Production (WRAP) and Social Accountability International (SAI) to ensure its
measurements are relevant and effective. Finally, partnerships with Intertek’s CSV program
maintains the company’s certification status with the U.S. Customs-Trade Partnership
against Terrorism (C-TPAT) program to ensure the quality of products made in countries
such as China.
Chapter 19: CVS: “Fired Up” about Social Responsibility: 19-6d Suppliers
Book Title: Business Ethics: Ethical Decision Making and Cases
Printed By: Kennisha Holloman (kholloman@grantham.edu)
© 2019 Cengage Learning, Cengage Learning
© 2020 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means – graphic,
electronic, or mechanical, or in any other manner – without the written permission of the copyright holder.
Chapter 19: CVS: “Fired Up” about Social Responsibility:
19-6c Communities
Book Title: Business Ethics: Ethical Decision Making and Cases
Printed By: Kennisha Holloman (kholloman@grantham.edu)
© 2019 Cengage Learning, Cengage Learning
19-6c Communities
CVS has grown its ethical culture to include not only the company’s functions but also the
communities around it. Community engagement and philanthropic endeavors, for example,
are long-standing commitments CVS has devoted time and resources toward developing.
Community partnerships have supported veteran hiring, scholarships to future pharmacists,
and engaged high school, college, and post-graduate students’ interest in science,
technology, engineering, and math (STEM) careers. CVS believes that by helping to further
advancements in providing the best health outcomes, it is investing in its current and future
workforce.
CVS donates millions of dollars to various organizations and builds strategic partnerships
with them to create an awareness of healthy behaviors and educate the community on ways
to become insured under the ACA. For instance, CVS has embarked upon a 5-year, $50
million initiative to fight against tobacco use. The company also offers free health
screenings and flu shots for the uninsured, prescription discount card programs, and other
community programs to supply individuals with the medications they need to maintain
health. The discount card program saves customers over 70 percent on medications,
resulting in millions of dollars in savings every year. Volunteerism is also supported by CVS,
as employees are encouraged to form groups and obtain sponsorship from the company to
address needs within the community. The amount of time that CVS employees volunteer for
their communities is valued at $1.3 million.
Chapter 19: CVS: “Fired Up” about Social Responsibility: 19-6c Communities
Book Title: Business Ethics: Ethical Decision Making and Cases
Printed By: Kennisha Holloman (kholloman@grantham.edu)
© 2019 Cengage Learning, Cengage Learning
© 2020 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means – graphic,
electronic, or mechanical, or in any other manner – without the written permission of the copyright holder.