The newly published proxy statement for CVS Corp., to be voted upon by shareholders at the May 11, 2006 annual meeting, includes a proposal that asks the company to take a series of steps to improve the safety of cosmetics sold at CVS stores. The proponents of the shareholder resolution "Boston Common Asset Management and Citizens Funds" are concerned that a range of ingredients present in cosmetics products commonly sold at CVS and most other cosmetics retailers can pose an array of health hazards to consumers.

Vesela Veleva, a Social Research Analyst at Citizens Advisers and a new mother herself, takes the risks of these chemicals seriously. Ms. Veleva, who holds a doctorate degree in pollution prevention, says "There is good reason, as shareholders as well as consumers, to be concerned about toxic chemicals in cosmetics. Under the current voluntary controls, many dangerous chemicals have been found to make their way into cosmetics and personal care products˜from nail polish, to makeup, to shampoo. The threats to health may include cancer, and harm to developing fetuses and infants exposed to the chemicals through baby products or their mother‚s cosmetics use. Most consumers are not aware the FDA does not require testing of cosmetic ingredients before a product goes to market. We believe companies like CVS need to be more proactive to ensure the products they are selling to the general public are safe," says Dr. Veleva.

Lauren Compere, Director of Shareholder Advocacy at Boston Common Asset Management, the primary filer of the resolution, also takes a strong shareholder position against these chemicals in cosmetics, saying, "Several years ago, CVS showed leadership in the area of human health and exposure to toxic chemicals by taking off the shelf all thermometers that contained mercury after scientific research linked even small exposure to mercury with extreme human health consequences. We, as shareholders are asking CVS to take this leadership role further by committing to remove other materials from products sold in its stores. We believe promoting safer cosmetics can be a good business move for CVS."

The shareholder resolution asks CVS to report to shareholders on the feasibility of establishing a policy to:

a) reformulate all CVS brand cosmetics products to be free of chemicals linked to cancer, mutations or birth defects;

b) inventory product ingredients for suspected carcinogens, mutagens, and reproductive toxins, and for chemicals that affect the endocrine system, accumulate in the body or persist in the environment;

c) proactively seek safe alternatives for these chemicals;

d) publicly report on their progress; and

e) encourage manufacturers or distributors of cosmetics products sold in CVS to do the same.

"We filed the resolution in the hope of a dialogue with CVS management on these issues" says Compere. "We were dismayed to find the management resistant to engaging in these discussions. Our efforts for dialogue were met by aggressive legal maneuvers by the company to keep the issue off the proxy. Now that we have prevailed, we hope the management will finally begin to discuss what it can do to address these concerns."

CVS asked the Securities and Exchange Commission to allow them to exclude this shareholder"proposal from CVS's annual proxy statement, arguing that CVS does not sell any "private-label" cosmetics but rather only "cosmetics accessories" such as nail polish remover. The shareholders responded by noting that those CVS branded products actually appear on a CVS web page labeled "Cosmetics" and that they are cosmetics within both the common understanding and the FDA understanding of the term.

CVS also attempted to argue that the report requested would involve too much detail for a shareholder request, which would render the resolution excludible. They even took the unusual step of sending a second letter to the SEC after the shareholders responded to CVS's letter. The SEC rejected all of CVS‚s arguments, and informed CVS that they would in fact be required to submit the shareholder resolution for a vote.

The proxy statement also includes a company statement in opposition to the resolution written by CVS management. While CVS argues that it is already doing enough of what the resolution requests, the proponents of the shareholder resolution pressured CVS to change its draft opposition statement. Under threat of a complaint to the SEC, CVS ultimately agreed to withdraw its assertion that CVS "is committed to carrying products that do not contain ingredients linked to the health effects" specified in the proposal.

"We believe that CVS publishing that assertion would have been misleading to investors, as we have not seen sufficient evidence of CVS's commitment to rid products of these ingredients," said Sanford Lewis, attorney for the shareholders. "If CVS management were really committed to eliminating these toxics, they'd be taking the steps outlined in the resolution. They don't seem to be doing so yet."

Boston Common Asset Management

Boston Common Asset Management

Boston Common Asset Management is an employee-owned investment firm dedicated to the pursuit of financial return and social change. We offer social investors an unrivaled range of customized social investment products. These include U.S. core- or value-oriented equity and balanced accounts, as well as international and small cap options. Our efforts on the social dimension include thorough independent research, tenacious shareholder advocacy, and community development investing.

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