Walgreens’ Board Challenged By Shareholders Over Tobacco Sales

At this morning’s annual meeting of Walgreens stockholders, investors delivered a strong rebuke to both the board and management over the company’s continued sales of tobacco and nicotine-based products.

tobacco sales

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Investors see the glaring conflict of a healthcare company selling potentially lethal products as a serious risk – both to public health and to the company’s long-term viability – and an egragious lapse in board oversight.

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Investors Say Walgreens, A Health Care Company, Has No Business Selling Cigarettes

Impatient over repeated attempts to engage board around hypocrisy of a health company selling tobacco and nicotine-based products, investors deliver stern rebuke to board at annual meeting.

NEW YORK, NY, FRIDAY, JANUARY 25TH, 2019 – At today’s annual meeting of shareholders of Walgreen’s Boots Alliance (WBA), investors issued a strong challenge to management and the board of directors over their continued sales of tobacco products.

The investors, who are members of the Interfaith Center on Corporate Responsibility, a shareholder coalition advocating for improved corporate performance on social and environmental themes, have been engaging Walgreens’ management for several years on the many conflicts tobacco sales pose for a health care company. Beyond the glaring public health risks, investors say tobacco sales expose the company to significant legal and reputational risks with material consequences that may prove hard to recover from over the long term. At bottom, they see the failure to adequately manage these risks as a failure in governance and board competency.

In his statement to board members, Tom McCaney of the Sisters of St. Francis of Philadelphia, one of the leaders of the Walgreens engagement, highlighted the ethical and moral conflicts tobacco sales pose for the company: “The idea that our company, a retailer pharmacy chain, positions itself as a champion of community health while selling products widely known to be a leading cause of disease and death belies our stated purpose of ‘championing the health and well-being of every community in America’. It calls into question our ethics and frankly, our morality; it betrays the trust of the millions of customers who walk into our stores every day believing we are prioritizing their long-term health over the short-term gains to be had from selling cigarettes.”

Walgreens and Rite Aid, which is partially owned by Walgreens, are currently the only major retail pharmacies still selling tobacco and other nicotine-based products. As competitors like CVS remove tobacco from their shelves in order to solidify their health positionings, Walgreens refuses to give up tobacco sales.

When confronted by investors on this topic, McCaney says the company has repeatedly used arguments that strain credulity, “We have listened to the company’s tortured logic that making profits from both the disease (cigarettes) and the cure (cessation products) is in the best interest of customers and shareholders. Are they saying it’s okay to put public health at risk, because we are also selling potential remedies? This reasoning is astonishingly reckless and, frankly, offensive.”

The shareholders say they were heartened when, after the 2016 annual meeting, a couple of board members assured them that discontinuing tobacco sales was on the board’s agenda in the near future. This change never materialized and now the investors say their communications to the board go unanswered.

“As ICCR, we are productively engaging hundreds of companies annually on a range of themes impacting people and planet, but we have never come across a more egregious violation of the social contract,” said McCaney. “Walgreens must decide what it wants to be. If it wants to be a healthcare company, then it has no business selling tobacco, period.”

The investors vow to continue to hold both Walgreens management and board accountable on tobacco sales, until they are discontinued.

About the Author

Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Prior to ValueWalk, Jacob was VP of Business Development at SumZero. Prior to SumZero, Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver