In the heyday of the Wall Street Journal when the publication was the gold standard of American journalism, the newspaper’s page one stories were a delight to read. They often began with a telling anecdote that alerted readers about the subject they were about to read, and some of the leads I still remember more than three decades later. One of my favorites involved a CEO whose name I can’t recall, so I’ll refer to him as John Doe.
This was the lead: “If John Doe’s mid-afternoon jogs are intended to relieve his business worries, it’s a wonder he ever stops running.”
The Journal’s writing these days is uninspiring, but sometimes the publication inadvertently publishes a telling anecdote that speaks volumes. In March 2022, the Journal published this article with a blaring “EXCLUSIVE” label reporting that CVS Chief Executive Karen Lynch had removed several executives following an internal investigation into how they handled sexual-harassment complaints and was overhauling how the company handled such matters. The story didn’t include a response from CVS, a tip off that a source close to Lynch likely leaked the information to the Journal, which if true was disgraceful and made me an immediate skeptic of Lynch’s leadership.
My skepticism was well placed. Lynch was ousted on Friday, just days after Fortune editor Alyson Shontell co-hosted her publication’s “Most Powerful Women 2024” summit. Fortune ranked Lynch the world’s second most powerful female executive, demoting her from the top spot she held a year ago. A featured speaker at the Fortune summit was Grammy-award winning artist Lizzo, who faces damning sexual harassment allegations from three of her dancers, so presumably the performer has killed her chances of ever working at CVS.
In a vacuum, one might instinctively applaud Lynch for her commitment to root out sexual harassment from CVS’s sprawling workforce of more than 300,000 employees. But under Lynch’s leadership, CVS stores are notoriously understaffed, and the company has faced multiple lawsuits alleging unsafe conditions. It’s quite possible that managers didn’t respond to sexual harassment complaints in a timely manner because they were struggling to mitigate the serious risks resulting from the aggressive profit and efficiency mandates of a complex healthcare company run by an accountant.
Ohio regulators, whose attorney general Dave Yost has done an impressive job holding ethically-challenged health care companies accountable, earlier this year fined CVS $1.5 million as part of a settlement of 27 cases involving various safety concerns that were uncovered during a series of inspections of 22 CVS pharmacies between 2020 and 2023. According to the statement from the State of Ohio Board of Pharmacy, the regulator found improper drug security, errors dispensing drugs, prescription delays, lack of general cleanliness, understaffing, and failure to report losses of controlled substances, among other issues.
Barron’s in February published this exclusive detailing serious safety and staffing issues at a CVS pharmacy in Virginia where a state inspector found a 37% error rate involving mistakes with potential harmful consequences, including one that sent a pharmacy customer to the hospital emergency room with an allergic reaction. While Lynch supposedly had zero tolerance for sexual harassment, Barron’s reported that CVS employees perceived she mandated zero tolerance for workers who complained or warned about dangerous understaffing conditions.
Here in L.A., workers at seven area CVS stores are on strike because of the poor working conditions they claim to endure.
I’m wary of CEOs who seek the media limelight, particularly those posing for airbrushed magazine cover photos, as too often the media’s CEO gourmet flavor of the day is tomorrow’s executive disgrace. Reading the Journal’s story about Lynch firing executives for failing to address sexual harassment claims, I was appalled at Lynch’s likely self-promotion for her handling of the alleged failings of her subordinates. I wondered why someone with any talent or proven accomplishment would want to be part of her management team.
Turns out, my skepticism was spot on. Fortune’s Shawn Tully, undeniably one of the best and most experienced business journalists in the country who notably has an MBA from the University of Chicago, reported in his analysis of Lynch’s downfall that from the spring of 2023 through this month, no fewer than seven C-suite stalwarts, all of whom she’d hired after officially taking charge in February of 2021, departed. The exodus encompassed the head of Aetna, who left after less than a year, the CFO (whose statement cited health reasons), the chiefs of HR, communications, healthcare delivery, and the retail stores. Two other longstanding CVS execs exited as well, the general counsel and chief marketing officer.
“It isn’t clear if she kept choosing the wrong people for the wrong roles, or was unable to get the talent she recruited to do their best work,” Tully said. Regardless, Tully noted it was “an alarming rate” of turnover.
What also contributed to Lynch’s downfall was that she apparently isn’t very good with numbers, which is surprising given that Lynch has an accounting degree from Boston College and previously worked in the Boston office of Ernst & Young.
From Tully’s analysis:
CVS paid a gigantic $68 billion, or a 73% premium for Aetna. The day of the announcement, the two companies boasted a combined market cap of $128 billion. Proof that CVS hasn’t come close to generating the extra profits needed to cover that Brobdingnagian price: Its valuation now stands at just $76 billion, only slightly higher than what it paid for Aetna.
The Aetna lesson didn’t deter Lynch and the board. In 2023, CVS made another hugely expensive deal, purchasing Oak Street Health, owner of over 200 centers in 25 states providing care for the elderly, this time laying out $10.5 billion, 30% or $2 billion more than the target’s cap prior to clinching the purchase. CVS made still another big bet by acquiring Signify, a health care analytics provider, for $8 billion. The Oak Street and Signify buys signaled that CVS was making desperate moves, adding big pieces to bolster the complex construct that Lynch conceived, but that wasn’t performing.
One area where Lynch put customers at risk was selling CVS-branded over-the-counter drugs. Bloomberg reported in June that CVS’s store branded medications have been recalled about two times more than those from Walgreens and three times more than those from Walmart. According to Bloomberg, CVS hired at least 15 manufacturers that were cited for manufacturing problems, more than twice as many as its largest rival, Walgreens. This led to 133 recalls of CVS store-brand drugs — an average of more than one a month — in that time frame for both pediatric and adult medications.
The FDA last fall banned CVS-branded burn cream manufactured in China from being exported to the U.S. because of risk of microbiological contamination. CVS-branded nasal sprays intended for infants were recalled after the machines used to produce them were also used to make pesticides.
Wall Street was suckered by Lynch’s grandiose vision to create a one-stop healthcare juggernaut, where consumers could buy tampons and tadalafil, see a nurse practitioner, get some mental health counseling, diabetic retinopathy, and cholesterol screening. Tully said CVS envisioned storing tons of data on the patients’ conditions at its Aetna insurance subsidiary, which would benefit from lower costs resulting from seniors getting preventive care that curbed heart disease and other chronic conditions responsible for the bulk of U.S. health care spending.
The vision on paper made great sense to an accountant, but one must wonder if Lynch ever visited any of her stores. As I noted in a previous blog, visiting my local CVS is a depressing experience, one that rivals a visit to the pathetic Starbucks located in the same strip mall.
The person responsible for CVS’s displays I’d guess flunked out of merchandising school. Perhaps it’s different in other parts of the country where there are serious consequences for shoplifting, but at my local CVS, located on the corner of Sepulveda and National, pretty much everything is under lock and key, including my brand of toothpaste. If I want it, I must push a button and wait till someone teaching customers how to use the checkout kiosks has a moment to stroll over and unlock the cabinet.
CVS wants to get rid of cashiers, and there have been times when I’ve visited the store and none were working. The few employees working in the store are visibly miserable, including the pharmacists and techs who no doubt are stressed listening to incessant intercom messages informing them of mounting customer calls on hold. Angry customers waiting in line no doubt adds to their tensions. Admittedly, working conditions aren’t much better than Walgreens, which explains why pharmacy professionals rank No. 1 for burnout.
Lynch’s one-stop healthcare vision defied common sense, as CVS does a poor job managing the retail component of its business, let alone adding layers of health care staff. Outside of pharmacists who have little choice but to work at either CVS or Walgreens, I wouldn’t trust the medical advice of any health care professional who chose to practice at these stores, particularly if they wrote me a prescription, an inherent conflict of interest that shouldn’t even be legal.
Don’t shed any tears for Lynch. In 2023 alone, she pocketed $22 million, a CEO worker-to-pay ratio of 392:1. The median compensation of CVS employees is $55,237. No doubt Lynch will receive millions more in compensation as a reward for her failures and putting legions of CVS customers at risk.
Lynch should be permanently banned from the health care industry, but I suspect we haven’t heard the last of the accountant. Given that former Boeing CEO and accountant Dave Calhoun played a major role in the destruction of that company, perhaps it’s time to consider banning accountants from assuming leadership roles at businesses where focusing exclusively on profits and financial legerdemain can have deadly consequences.