Starbucks's Corporate Social Responsibility Journey Starting with a single store in Seattle in 1971, Starbucks grew...

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Starbucks's Corporate Social Responsibility Journey Starting with a single store in Seattle in 1971, Starbucks grew to 30,000 stores worldwide with revenues of $25 billion in 2019. Since its 1987 pur- chase by Howard Schultz, Starbucks has positioned itself as a company that, in the words of Schultz, "puts people first and profits last." In the 1990s, it created a corporate social responsibility (CSR) department and named a senior vice president for CSR. Since 2001, Starbucks-in addition to its tra- ditional Annual Report to Shareholders-has been publishing a Global Corporate Social Responsibility Annual Report, whose title changed to Global Social Impact Report in 2017. Running hundreds of pages, the Global Social Impact Report is available in nine languages. Yet, for a company so serious about CSR, it has become a perpetual target for CSR activists. Episode 1: Fair Trade In 2000, Global Exchange, a nongovernmental organization (NGO) promoting the idea of "Fair Trade," launched a campaign against Starbucks. The Fair Trade movement advocated a minimum "fair" price of $1.26 per pound to ensure a "living wage" for coffee producers-regardless of the highly volatile market price, which was only 64 cents per pound at that time. Global Exchange activists demonstrated in front of a San Francisco Starbucks store after a local TV station aired a clip on child labor on Guatemalan coffee farms. A few days later, during Starbucks's shareholders meeting, Global Exchange activists took the microphone and demanded that Starbucks offer Fair Trade coffee. Things got heated and the activists were physically removed from the meeting. After rounds of protests and negotiations, Starbucks eventually agreed to sell Fair Trade coffee in its domestic stores. Soon it became the largest US purchaser of Fair Trade coffee, purchasing 20 million pounds (6% of its coffee purchases). In addition, Starbucks launched Coffee and Farmer Equity (CAFE) guidelines, with inspectors, to "ensure the sustainable supply of high quality coffee, achieve economic accountability, pro- mote social responsibility within the coffee supply chain, and protect the environment." By 2009, Star- bucks had purchased 77% of its coffee from CAFE suppliers. However, Global Exchange continued to be unhappy, demanding that Starbucks serve Fair Trade coffee once a week instead of once a month (the current practice). Although Global Exchange acknowledged CAFE to be a "launching point for improvements," it "in no way reduces our initial and still unmet demands." Episode 2: UK Tax In 2012, news broke out that since entering the United Kingdom in 1998, Starbucks, despite its thriving business, had paid only 0.3% of its sales of 3 billion ($4 billion) for UK corporation tax between 1998 and 2011 for a total of 8.6 million payment. The tax rate should be 24%. Starbucks Coffee Company (UK) Ltd. claimed to be losing money. However, the parent company informed investors that the subsidiary was profitable. Such news triggered a media storm, store pickets, and consumer boycotts. Starbucks executives were yanked before the UK Parliament to explain such behavior. It turned out that such tax-avoidance behavior was legal. The parent company set up a European headquarters in the Netherlands, where it needed to pay a combined Dutch and US tax rate of 16%-as opposed to the 24% in the UK. After paying a 6% royalty of its sales to the European headquar- ters, the UK subsidiary hardly made any money and thus was hardly taxable. "We're not accusing you [Starbucks] of being illegal," thundered a member of Parliament in the public hearing, "we're accusing you of being immoral." Quite a devastating attack on a company that was serious about CSR. Overall, Starbucks was accused of using artificial corporate structures to shift profits and tax burdens from the UK to lower-tax jurisdictions. Facing relentless pressure, Starbucks agreed to voluntarily pay 20 million in additional UK corporation tax. Episode 3: Philadelphia Bathroom Incident In April 2018, two African American college students in a Philadelphia Starbucks store who did not buy any- thing and were waiting for someone else asked to use the bathroom. Instead, the store manager called the police, claiming the two men were trespassing, leading to their arrest. This incident sparked a me- dia firestorm and triggered protests outside Star- bucks stores. CEO Kevin Johnson apologized, and 315 founder and chairman Schultz said in an interview that he was "ashamed" by the incident. Starbucks reached an undisclosed settlement with the two men. In May 2018, it closed all 8,000 US stores for an entire afternoon to provide racial bias training for all employees at a cost of $16.7 million in lost sales. The company clarified that "any person who enters our spaces, including patios, cafes, and restrooms, regardless of whether they make a purchase, is considered a customer." While such an "open bathroom" policy calmed CSR activists down, it came with a heavy cost-not only in terms of extra cleaning cost, but also in terms of lost customers and reduced in-store time for (the paying) customers who do show up. This effect is espe cially large among Starbucks locations close to homeless shelters. Given the large homeless population in many cities, can the "open bathroom" policy be sustainable? Sources (1) BBC, 2012, Starbucks, Google and Amazon grilled over tax avoidance, November 12: www.bbc.com; (2) Business Week, 2007, Saving Starbucks' soul, April 9: 56-61; (3) Forbes, 2019, Starbucks' open bathroom policy comes with heavy cost, November 12: www.forbes.com; (4) PR Week, 2018, Timeline of a crisis, July 6: www.prweek.com; (5) Reuters, 2012, Star- bucks's European tax bill disappears down $100 million hole, November 1: uk.reuters.com; (6) Starbucks, 2018, Global Social Impact Report, www.starbucks.com; (7) Vox, 2018, Starbucks says everyone's a customer after Philadelphia bias incident, May 19: www.vox.com. Starbucks's Corporate Social Responsibility Journey Starting with a single store in Seattle in 1971, Starbucks grew to 30,000 stores worldwide with revenues of $25 billion in 2019. Since its 1987 pur- chase by Howard Schultz, Starbucks has positioned itself as a company that, in the words of Schultz, "puts people first and profits last." In the 1990s, it created a corporate social responsibility (CSR) department and named a senior vice president for CSR. Since 2001, Starbucks-in addition to its tra- ditional Annual Report to Shareholders-has been publishing a Global Corporate Social Responsibility Annual Report, whose title changed to Global Social Impact Report in 2017. Running hundreds of pages, the Global Social Impact Report is available in nine languages. Yet, for a company so serious about CSR, it has become a perpetual target for CSR activists. Episode 1: Fair Trade In 2000, Global Exchange, a nongovernmental organization (NGO) promoting the idea of "Fair Trade," launched a campaign against Starbucks. The Fair Trade movement advocated a minimum "fair" price of $1.26 per pound to ensure a "living wage" for coffee producers-regardless of the highly volatile market price, which was only 64 cents per pound at that time. Global Exchange activists demonstrated in front of a San Francisco Starbucks store after a local TV station aired a clip on child labor on Guatemalan coffee farms. A few days later, during Starbucks's shareholders meeting, Global Exchange activists took the microphone and demanded that Starbucks offer Fair Trade coffee. Things got heated and the activists were physically removed from the meeting. After rounds of protests and negotiations, Starbucks eventually agreed to sell Fair Trade coffee in its domestic stores. Soon it became the largest US purchaser of Fair Trade coffee, purchasing 20 million pounds (6% of its coffee purchases). In addition, Starbucks launched Coffee and Farmer Equity (CAFE) guidelines, with inspectors, to "ensure the sustainable supply of high quality coffee, achieve economic accountability, pro- mote social responsibility within the coffee supply chain, and protect the environment." By 2009, Star- bucks had purchased 77% of its coffee from CAFE suppliers. However, Global Exchange continued to be unhappy, demanding that Starbucks serve Fair Trade coffee once a week instead of once a month (the current practice). Although Global Exchange acknowledged CAFE to be a "launching point for improvements," it "in no way reduces our initial and still unmet demands." Episode 2: UK Tax In 2012, news broke out that since entering the United Kingdom in 1998, Starbucks, despite its thriving business, had paid only 0.3% of its sales of 3 billion ($4 billion) for UK corporation tax between 1998 and 2011 for a total of 8.6 million payment. The tax rate should be 24%. Starbucks Coffee Company (UK) Ltd. claimed to be losing money. However, the parent company informed investors that the subsidiary was profitable. Such news triggered a media storm, store pickets, and consumer boycotts. Starbucks executives were yanked before the UK Parliament to explain such behavior. It turned out that such tax-avoidance behavior was legal. The parent company set up a European headquarters in the Netherlands, where it needed to pay a combined Dutch and US tax rate of 16%-as opposed to the 24% in the UK. After paying a 6% royalty of its sales to the European headquar- ters, the UK subsidiary hardly made any money and thus was hardly taxable. "We're not accusing you [Starbucks] of being illegal," thundered a member of Parliament in the public hearing, "we're accusing you of being immoral." Quite a devastating attack on a company that was serious about CSR. Overall, Starbucks was accused of using artificial corporate structures to shift profits and tax burdens from the UK to lower-tax jurisdictions. Facing relentless pressure, Starbucks agreed to voluntarily pay 20 million in additional UK corporation tax. Episode 3: Philadelphia Bathroom Incident In April 2018, two African American college students in a Philadelphia Starbucks store who did not buy any- thing and were waiting for someone else asked to use the bathroom. Instead, the store manager called the police, claiming the two men were trespassing, leading to their arrest. This incident sparked a me- dia firestorm and triggered protests outside Star- bucks stores. CEO Kevin Johnson apologized, and 315 founder and chairman Schultz said in an interview that he was "ashamed" by the incident. Starbucks reached an undisclosed settlement with the two men. In May 2018, it closed all 8,000 US stores for an entire afternoon to provide racial bias training for all employees at a cost of $16.7 million in lost sales. The company clarified that "any person who enters our spaces, including patios, cafes, and restrooms, regardless of whether they make a purchase, is considered a customer." While such an "open bathroom" policy calmed CSR activists down, it came with a heavy cost-not only in terms of extra cleaning cost, but also in terms of lost customers and reduced in-store time for (the paying) customers who do show up. This effect is espe cially large among Starbucks locations close to homeless shelters. Given the large homeless population in many cities, can the "open bathroom" policy be sustainable? Sources (1) BBC, 2012, Starbucks, Google and Amazon grilled over tax avoidance, November 12: www.bbc.com; (2) Business Week, 2007, Saving Starbucks' soul, April 9: 56-61; (3) Forbes, 2019, Starbucks' open bathroom policy comes with heavy cost, November 12: www.forbes.com; (4) PR Week, 2018, Timeline of a crisis, July 6: www.prweek.com; (5) Reuters, 2012, Star- bucks's European tax bill disappears down $100 million hole, November 1: uk.reuters.com; (6) Starbucks, 2018, Global Social Impact Report, www.starbucks.com; (7) Vox, 2018, Starbucks says everyone's a customer after Philadelphia bias incident, May 19: www.vox.com.