Trouble Brewing at Starbucks

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    Stockholm (NordSIP) – The world’s largest chain of coffeehouses is facing a growing shareholder rebellion over its approach to labour rights.  Starbucks, a ubiquitous presence around the world with more than 38,000 stores is also a mainstay of institutional equity portfolios.  In what may signal a new level of corporate engagement, the United States-based Strategic Organizing Center (SOC) is not only campaigning for a vote against company directors but also proposing its own selection of candidates for the Starbucks Board.

    The SOC is a coalition of labour unions, including the Service Employees International Union (SEIU) which covers 1.9 million workers in the United States and Canada.  It has direct ownership of Starbucks shares and also claims to be addressing the concerns of its members, many of whom own Starbucks shares either directly or via their pension schemes. The SOC has highlighted corporate behaviour and governance issues at Starbucks that it believes seriously jeopardise the company’s brand and are contributing to the erosion of shareholder value.

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    According to the SOC, Total Shareholder Return (TSR) has significantly underperformed versus Starbuck’s peers since 2021, when the company began resisting a growing unionisation movement.  During the same period employee numbers per store declined markedly, with what the SOC claims are negative repercussions on service quality and customer satisfaction.  In a presentation supporting the campaign for its nominees to be appointed to the Starbucks Board, the SOC cites numerous instances of the company mishandling its human capital management.  These allegations include a possibly deliberate strategy to keep a high proportion of employees’ weekly working hours below the 20-hour limit beyond which they qualify for statutory breaks and other benefits.  Starbucks is also accused of arbitrarily closing down branches that unionise, as well as finding ways to penalise or exclude employees that engage with union activities.

    Brand image under threat

    The complaint against Starbucks also questions the Board’s confrontational approach to labour relations, which may have led to more than 2,000 complaints relating to labour law violations.  The SOC believes the company brand name has been damaged by extensive negative media coverage of its union crackdown.  Moreover, the cost to Starbucks’ image has been accompanied by the financial burden of fees paid to law firms and consultants, as well as productivity losses and other related liabilities that could amount to $240 million.  The SOC believes these expenditures are futile, pointing to the share price boosts achieved by companies that took a collaborative approach to unions such as CostCo, Danone, and Unilever.  It is also concerned by the potential financial impact of losing the so-called Gen Z customer base, which has declining in the face of negative media coverage of Starbucks’ labour law transgressions.

    Unusually, the SOC has decided not only to campaign for a vote against the Starbucks Board, but to propose three candidates of its own.  SOC is particularly critical of the Compensation, Audit Committee, and Nominating/Governance Committee Chairs.  These include a former CEO of Domino’s and former COO of Nike, two companies that have also been previously criticised for their approach to workers’ rights, as well as former Lego Group Chairman Jørgen Vig Knudstorp.  The latter is accused by the SOC of failing to ensure that Starbucks’ adhere to its own human rights policies and a lack of understanding of US labour laws.

    It remains to be seen how many of Starbucks’ Nordic institutional shareholders fully support the SOC campaign and the appointment of its three proposed candidates.  The Starbucks Annual Meeting of Shareholders will take place virtually on March 13, 2024.

    Image courtesy of Engin Akyurt on Unsplash (edited)
    Richard Tyszkiewicz
    Richard Tyszkiewicz
    Richard has over 30 years’ experience in the international investment industry. He has worked closely with major Nordic investors on consultancy projects, focusing on the evaluation of external asset managers. While doing so, Richard built up a strong practical understanding of the challenges faced by institutional investors seeking to integrate ESG into their portfolios. Richard has an MA degree in Management and Spanish from St Andrews University, and sustainability qualifications from Cambridge University, PRI and the CFA Institute.
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