When is an Ethics Policy Not An Ethics Policy?

Published: September 26, 2008

By Jim Lichtman
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Drugstore giant CVS Caremark has an ethics policy that prevents gifts, travel or entertainment to executives.  The obvious purpose is to stop influence peddling.

But CVS has found away around the rule:  “The CVS Caremark Charity Classic”… a golf tournament.

The Wall Street Journal reported (Sept. 24) “Access to company decision-makers is a hallmark of the [tournament] which, this year featured golf pros Nick Faldo, Rocco Mediate and Davis Love III… (That’s CEO Tom Ryan, second from the right, talking with Greg Norman.)

“Held each year at the Rhode Island Country Club, the four-day event attracts scores of donors, many of them CVS vendors.  Companies that underwrite the event are granted time with top CVS officials, including department heads and executives who make important purchasing decisions.

“The highlight of the event’s gala dinner is an auction where this year, KKM [which sells goods to CVS] bought one of the seven vacations for golf, game fishing, riding or yachting.  Each auction lot included high-level CVS executives as guests; one promised a day of golf with the company’s CEO.

“I take advantage of this Classic, asking different manufacturers I work for if they want to participate,” said KKM’s president, John Malmborg.  “They all chip in and we work to get to a high level of participation and have access to CVS executives on an informal basis.  It really is helpful.”

I’ll bet it is.

However, there’s an additional rub.

The Journal article points out that “CVS doesn’t benefit financially from auction purchases or other vendor donations, which primarily support charities in its home state of Rhode Island.  Since its inception in 1999, the event has contributed about $10 million to Boys and Girls Clubs, the March of Dimes, the Special Olympics and others.”

So, now the question becomes, does turning it into a charitable event make whole thing ethical?

Answer:  Not if the company or individuals giving the gift still receive access and influence.

“Some CVS insiders have complained that the Charity Classic promotes a ‘pay to play’ system, according to people familiar with the company, under which the ninth-largest U.S. retailer favors donors when deciding which products to promote and how they’re displayed.”

Furthermore, “Experts in charitable giving say that a relatively small slice of the event’s overall revenue flows to charity.  For every six dollars it took in, less than one went to charity, according to the event’s 2006 federal tax filing, the latest available.  That represents a significantly smaller share than some comparable events donate.”

In a written statement, CVS said, “participation in the event each year is optional and does not affect our vendor selection process” or “influence in any way,” how merchandising decisions are made.

At the end of the day, you can put lipstick on a pig… and you know the rest of it.

Someone should explain to Mr. Ryan that an ethics policy is not an ethics policy unless it’s an ethics policy.

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