Starbucks Corporate Governance, Social Responsibility and Environmental Claims, Essay Example

Section A

The fact that Starbucks 2011 Global Reporting Initiative Performance Indicators showed that it had attained a B+ rating, despite having reporting deficiencies in stakeholders engagements, ratio of standard entry level wages and to local minimum wage at significant operational locations, procedures for hiring and the promotion of management from the local community, discharge issues, greenhouse gas emissions measurements, waste management cost and measurement issues, analysis of business for risk of corruption, unresolved regulatory and legal issues and product responsibility, are reasons enough to question that validity of these claims it had made on this and even earlier reports.

Superficially it could be argued that the company was given this grade by the SEC because a number of these issues that it had not supply the required information was either not applicable or the entity lacked the capacity at the time of reporting to make the submission. Additionally, when an analysis is done on Starbucks materiality matrix, which classify issues as important and very important with respect to their significance to external stakeholders and the impacts on the company, and outline of where the emphasis of the company was centered and it reflected which activities it was focusing on.

According to the Global Reporting Initiative Performance for 2011, Starbucks indicated that coffee purchasing practices, especially ensuring Fair Trade Certifications, pursuing company growth and expansion, addressing health and wellness issues, monitoring workplace practices, managing the prices paid to coffee farmers and suppliers, ensuring respect for human rights, securing the long term availability of high quality coffee and supervising coffee purchasing practices, were the areas where the company was focusing its attention (Starbucks Corporation, 2006).

GMI ESC analysis of Starbucks in 2010, indicated a high level of governance, based on the principles the company outlined, principles that differentiate clearly the roles of its Board and that of management. Within Starbucks the analysis infer, resides an open market for control as well as a solid commitment for social responsibility initiatives, but the company accounting practices in the area of lease accounting relationships with retail entities, restaurants and wireless tower industries, were found unsatisfactory and required immediate and effective remedies, based on the SEC recommendations (Starbucks Corporations, 2011).

Base on these arguments, Starbucks was given an overall C rating by the GMI, for both the local and the global market levels, with governance and environmental responsibilities indicating subcomponents achieving C and D ratings respectively, contributed to this less than satisfactory results that were obtained.

Critically however, Rick Cohen (2011) of NPQ Nonprofit Quarterly, while lauding Howard Schultz on the production of his autobiography for achieving the number one status on the New York Times best selling list, bemoaned the fact that it was disappointing that at the book signing that the Starbucks President and CEO had not made available copies of company’s tenth annual CSR report for distribution.

Most of this report Cohen asserts, focused on Starbucks’ effort to reduce its corporate and environmental footprints via LEED lighting initiatives, the purchase of renewable energy, and the reduction of water consumption rates. Further according to Cohen, the company informs that it was working on the ethical sourcing of its coffee purchases by liaising with Conservation International, to establish social and economic guidelines, facilitating financing for farmers in coffee growing communities, and to purchase 84% of the coffee berries produced under the Coffee and Farmers Equity (CAFÉ) practices (Cohen, 2011).

In terms of its Social Responsibility, Starbucks according to Cohen (2011) had built up an astonishing 191,000 hours in community volunteers’ services through Hands on Network and several other entities, while financially it had distributed $ 22.4 m consisting of $10.3 m in cash, $6.3m in kind to community building initiatives including RED community, and $5.4m in grants through its foundation.

These philanthropic acts makes Starbucks CSR model according to Cohen (2011), a worthy recipe for replication by other companies, because it represent a mix of environmental sensitivity, global development, disaster relief, employee community service, and small grants through its retail outlets. However in terms of CSR and other responsibilities, Cohen wondered if there were hidden downsides to this seemingly highly successful publicly owned global enterprise (Cohen, 2011).

It was noted that Cohen’s recognition of Starbucks CSR model had compared favorably with GMI ratings standard , in that with respect to social responsibility the company was given a high performance rating of A and B respectively nationally and globally in 2011.

On the other hand GMI and Starbucks had provided details on CSR downside issues, that perhaps may escape the consumers and stakeholders who are not observant reviewers. They both pointed out that the company was engaged in a number of lawsuits, two of which involved the US Equal Employment Opportunity Commission, for violating the Americans Disabilities Act by not accommodating to the needs of disabled workers, and a contract termination case brought by Kraft, who was seeking an injunctive relief in the US District Court in New York, to prevent Starbucks from terminating the distribution agreement until the dispute can be resolved through arbitration proceedings (Starbucks, 2011).

Starbucks in its Global Responsibility report had claimed that it hoped to achieve a number of goals by 2015, and have provided details to its stakeholders for their assessment and evaluations., and make comparisons with its own responses which fell into four performance assessment categories, namely goals on track, needs improvement, did not achieve and achieved.

In terms of goals that were on track for 2015, Starbucks claimed that (a) the plan to ensure 100% ethically source coffee, (b) investment in farmers and their communities by increasing loans to $20 m. (c) improving farmers access to carbon markets and helping them to generate additional income while protecting the environment, (d) building new company owned stores to achieve LEED certification, (e) development of comprehensive recycling solutions for its paper and plastic cups by 2012, (f) to reduce water consumption by 25% in company owned stores.(Starbucks 2011).

Statistically, the company provided its evidence to substantiate its accomplishment, and some of them include confirmation that it had currently achieve 84% ethically sourced coffee, invested $14.6m as loans to farmers, sold 5,000 tons of carbons credits, developed 10 new stores that were approved and audited by USGBC as pilot programs for LEED certification, tested recyclability of cups in New York and had presently achieved 21.6 % reduction in its water consumption rate (Starbucks, 2011).

However, measurement and independent confirmation, of the latter in particular were not available were not available and would prove difficult, between bearing in mind the global involvement of the company and the cost to pursue these measurement as well as the accuracy and reliability of data that would be submitted to any agency given this responsibility.

The company had also claimed that improvement was needed with respect to its drive to mobilize partners and customers to contribute 1 million hours of service, implement the front of the store recycling of company owned stores and the serving of 25% of beverage made in re-usable cups by 2015. Performance in the latter two on review, were rather poor in terms of goals set and the current status (Starbucks, 2011).

Starbucks water consumption goal was originally set for 2010 but this was not achieved, and as such the company announced a reset of this goal for 2015. However, it was able, base on it claims that a total of 53,000 young people to innovate and take actions in their communities five years ahead of schedule (Starbucks 2011).

The success rate of Starbucks as well as the number of goals that were categorized as on target and those that needed improvement may well have justified the GMI C rating given to it in for its global operations in 2011.

A close look at how Starbucks provided the information indicators for independent assessment of its Global Reporting Performance showed that the company had done excellently, when it was compared to the Global Reporting Initiatives Guidelines.

According to Global Reporting Initiative (2012) , G3 Guidelines for sustainable performance indicators to be assessed, should include provisions for economics, environmental and social components, and the latter should be subdivide to accommodate submission for labor, human, rights, society and product responsibility.

The components of Starbucks report included an organizational profile, report parameters, governance, commitment and engagement, economic performance, environmental performance indicators, as well as labor and decent work performance, human rights performance, and product responsibility performance indicators (Starbucks, 2012).

Additionally, accommodation was provided for the status of each indicator at the time of the reporting, in that Starbucks authorized personnel could inform stakeholders and management whether each criteria in question were being completely or partially reported on, not applicable, or the information was not available (Starbucks, 2012).

Starbucks replicated the Global Reporting Initiate Guideline to the point where areas of interest in the report could be accessed directly by clicking on the page number on the table of contents, and the reporting principles, as they relate to part 1 and 2, were completely congruent with the required format (Starbucks, 2012).

In an independent assurance report on Starbucks company Global Responsibility Annual Report for 2011, Moss-Adams LLP, after outlining its responsibilities in the coffee purchasing section and the farmers support section of the company activities, and on describing the methodology it had applied to authenticate the data it received, opined that all the materials used to compile this type Starbucks report were fairly presented for the period under review (Starbucks, 2011).

The evidence gathering procedure of Moss-Adam LLP seem to justify its claim, in that the process include testing the effectiveness of the internal reporting systems used to collect and compile information on the data, reviewing relevant documentation including corporate policies, management and reporting structures and performing specific procedures on samples to confirm the validity of data by visiting locations in Switzerland and Seattle in Washington (Starbucks, 2011).

In another evaluation of Starbucks that could be considered favorably, independent yet limited in scope, Governance and Accountability Institute Inc (2012), while using its online Performance Scorecard, found Starbucks claim to have achieved 84 % of its coffee ethically sourced, up from 81.9 % in 2009 to be accurate under the CAFÉ practices in 2010. The report was also confirmed by Scientific Certification Systems (Global Accountability Institute Inc, 2012).

Section B

The way stakeholders view companies’ impacts on the natural environment have to be managed through implementation of specific strategies, because such perceptions, according to Hart (1995), Russo and Fouts (1997), and Berman et al (1999), can be crucial to their performance as well as durations of life. However, according to Chatterji, Levine and Toffel (2007), many companies in recent time and with varying degree of success, have attempted to improve their environmental image by reducing the harmful effects of their actions on the environment, but it can be very difficult for stakeholders and consumers to evaluate these impacts, especially when access to the information required are severely limited.

In the case of Starbucks, the validity of its claims has to be compared to that of independent experts in the CSR industry to see how well they are able to withstand the scrutiny as well as the response of customers and stakeholders.

Starbucks was given an A grade rating by GMI for being socially responsible globally, but Manning (2012), writing for the National Women Organization, has accused Starbucks along with Pizza Hut and MacDonald as among major companies in Saudi Arabia who were reportedly upholding gender apartheid in their stores.

According to Manning (2012), these companies have made a number of changes to their business practices in deference to the customs of Saudi Arabia, and these practices include maintaining segregated seating in their restaurants, having separate entrance for male and female, as well as in the case of Starbucks, a changing of its mermaid logo, which the country leaders regard as indecent.

Double standards and apartheid are certainly printed on Starbucks, according to Manning (2002). These accusations has served to challenge the company 2012 report in which it touts Social Responsibility on its website, as the philosophy of contributing positively to communities near its franchise, but has openly refuse to change its way of doing business in this Arab country. The company president for this region has also gone on record, and in violation of its social responsibility philosophy, to say that he will not interfere with the local social, cultural and political matters of Saudi Arabia (Manning, 2002). On the basis of this decision, the validity of the grade A rating given to Starbucks must be questioned from an ethical perspective.

Environmental Leader (2012) has noted in its assessment that Target, Starbucks, General Mills and Ford have all featured significantly in the rankings of the most ethical companies across 38 sectors globally by Ethisphere Magazine. This magazine has honored these companies because they have demonstrated commitment to ethical practices within their specific industry category, by translating ethical words into actions.

Starbucks was the only honoree in the Restaurant and Café category, and was chosen on the basis of how well its ethics compliance programs were aligned with best practices, case laws and the guidance set out in the Federal Sentencing Guidelines, according to Environmental leader (2012).

In addition, Ethisphere Magazine had also taken into account Starbucks’s and other awardees legal compliance and litigation track records, their reputation in the market place, governance and corporate citizenship which include environmental stewardship, supply chain management, corporate philanthropy, and concrete examples of local, national, industry or global initiatives (Environmental Leader, 2011).

Starbucks may have received Ethisphere Magazine four years in a row by engaging in practices that will ensure it will be honored, but the validity of its awards should have been questioned when it unethically challenge the Ethiopian Government for two years, as that country sought to obtain trademarks in USA and other countries for its coffee produced in Yirgacheffe, Harrar, and Sidamo, according to an independent study conducted by Depass of Duke University in 2010 (Depass, 2010)

The Ethiopian government found out it had to wait on the court’s decision on a similar application made one year earlier by Starbucks, before its case in the USA could be considered. In an effort to expedite the process the government lawyers went to Starbucks with a request that it withdraw it application, but the company refused to accommodate such a decision (Depass, 2010).

Starbucks action by applying for the trademarks to ensure its control the brands for these coffees ahead of the true owners showed that it had great business savvy and foresight on one hand, but selfishness and poor ethicality on the other hand.

Questions were asked as to how could Starbucks a, company that had dedicated itself to selling ethically produced and traded coffee, and that had built a reputation as a model company committed to the environment and well being of coffee grower among other claims, could not find itself refusing the request to drop its application for branding rights from one of the poorest country in the world (Depass, 2010).

Ethiopia had also ranked the 97^th worst country to do business in by the World Bank and 137 by Transparency International on its corruption perception index, according to Depass (2010).

Starbucks greed manifested when it was pointed out that the coffee it was selling was earning $25 per kilo above what the Ethiopian farmers were receiving for their crops, and the exclusivity of the trademark would give it an advantage over its competitors while it was shipping the product from a nation in which 80% of its population was living off less than $2 per day (Depass, 2010).

In fairness to Starbucks it had recommended to the government of Ethiopia that it would be more economically beneficial if it pursues a geographic certification marking, because that would enable the product to bear the trademark depicting the location, but not prevent Starbucks from branding rights. It went further to highlight a similar situation with Idaho potatoes, Blue Mountain and Kona coffees (Depass, 2010).

The Ethiopian Government had the support of several nongovernmental organizations that were involved in labor rights issues, but notable among this group as Oxfam who openly took on Starbucks by bringing to light the fact that coffee growers around the world were getting as high as 45 % of the retail price for their products compare to 5-15% which the Ethiopian farmers were getting (Depass, 2010).

Oxfam information showed while Starbucks was getting worldwide acclaim for its performance as a highly socially responsible corporate citizen, it was in fact exploiting the labor of the Ethiopian coffee farmers, and clearly violating its goal of ethically sourcing 100% of the coffee it purchases by 2015. Additionally it showed the ratings that were being showered on this company were also questionable, as they were based on information Starbucks supplied rather than on form independent sources.

In the final analysis Ethiopia and Starbucks brokered an agreement in 2007, whereby the company agreed to promote the country’s coffee in its stores, develop agronomic center across the country to help farmers improve their profitability, in exchange for ownership of the brand and not paying royalties to the Ethiopian government (Depass, 2010)

However it was questionable whether Starbucks would have arrived at this agreement without the exposure given to its poor ethics by the Ethiopian Government and nongovernmental agencies like Oxfam, which was also able to send 70,000 faxed letters of complaints to Starbucks executive in the African region (Depass, 2010).

Conclusion

The ratings given by international organizations may not be a true reflection of the actual practices of companies that operate globally as well as nationally, as has been evidence by the case with Starbucks. This company had achieve rating as high as A for being socially responsible, yet in the Ethiopia, Saudi Arabia and with lawsuits in the US , there were questions regarding its motives and the adequacy of performance.

Starbucks was even conducting questionable lease accounting practice with entities like other restaurants, retail outlets and wireless tower industries.

In order for the true positions of these companies to be brought to light, more access to information must be given to consumers and other vital stakeholders, whose importance in shaping their profitability and lifespan has been alluded to by Chatterji et al (2007), and will be vital going forward.

This role of information dissemination and the independent analysis of companies that may be engaged in green lighting activities, whereby environmental claims are made to ensure consumers embrace the right perceptions, but in reality, like in the case of Starbucks in Saudi Arabia, companies may be supporting policies that are in violation of their ethical principles, should be done by media houses, nonprofit organizations and other independent analysts, that are above industrial bribery and are committed to promoting the truth for the benefit if the public.

Companies then like Ethisphere, would have second thoughts in the awards it make annually, as more balance would be available in terms of companies true positions on cooperate governance, and environmental and social responsibility, and the grading awarded in the long term would become more reflective of what is prevalent in the operating environments even as far as Ethiopia and Saudi Arabia.

Work cited

Cohen, R. (2011). “Corporate Social Responsibility and Starbucks” NPQ Nonprofit Quarterly www.nonprofitquarterly.org/component/content/article.html?id=114166

Manning, Nicole. (2002). “US Companies Support Gender Segregation in Saudi Arabia” National Organization for Women www.now.org/nnt/summer-2002/gender.html

Starbucks Corporation (2011) “Starbucks Global Responsibility Report Goals and Progress 2010” www.starbucks.com/static/pd/goals_progress-scorecasrd.2011.pdf

Starbucks Corporation (2012) “Starbucks Global Responsibility Report Goals and Progress 2011” www.starbucks.com/static/pd/goals_progress-scorecasrd.2011.pdf

Governance and Accountability Institute Inc (2012). “Trend watching: Company Sustainability Scorecards from Brand Marketer with High Public Profile-McDonalds and Starbucks” Issue 6 Article 3 www.ga.institute.com/ga-institute-update-newsletter-internal/article/ga-update-16a3012012trendewatching-company-sustainability

Global Reporting Initiative (2012).” G3 Guidelines Overview” www.globalreporting.org/reporting/latest-guidelines/g3-guidelines/pages/default.aspx

Russo. M.V. & Fouts, P.A. (1997). “A Resource –Based Perspective on Corporate Environmental Performance and Profitability” Academy of Management Journal Vol.40 Issue 3 pp.534-559

Hart, S. (1995). “A Natural Resource-Base View of the Firm” Academy of Management Review Vol.20 pp.986-1014

Chatterji, A.K., Levine, D.I., Toffel, M.W., (2008). “: How well do Social Rating actually Measure Corporate Social Responsibility” Working Paper series University of California, Berkley CA www.escholarship.org/uc/item/66w2n385#page-2

Berman, S.L., Wicks, A.C., Kotha, As., Jones, T.M. (1990). “Does Stakeholders Orientation Matters? The Relationship between Stakeholders Models and Firm Financial Performance” Academy of Management Journal Vol.42 pp.488-506

Environmental Leader (2011). “Ford Starbucks among Most Ethical Companies” www.environmentalleader.com/2011/03/17/ford-starbucks-aqmong-most-ethical-companies/

Depass, Donald. (2010). “Starbucks vs. Ethiopia: Corporate Strategies and Ethical Sourcing in the Coffee Industry” The Keenan Institute for Ethics, Duke University www.duke.edu/web/keenan/casestudies/starbucks.pdf