Union Coalition Challenges Starbucks: Board Overhaul Amid Employee Organizing

A coalition of unions is presenting its argument against Starbucks in anticipation of a proxy battle scheduled for its annual meeting in March. The coalition asserts that the coffee giant has adopted a flawed human capital management strategy in response to an ongoing union movement.

According to the Strategic Organizing Center (SOC), the situation has exposed the company to reputational risks, resulting in diminished shareholder returns and alienated customers.

These assertions are based on polling conducted for a shareholder presentation. The coalition aims to replace three current Starbucks board members with its nominees and intends to submit the investor presentation to the U.S. Securities and Exchange Commission.

“The Board’s anti-union strategy has led to one of the most glaring and damaging examples of human capital mismanagement in modern U.S. history,” reads the proxy presentation.

“Starbucks’ aggressive response to unionization has not only failed to resolve the Company’s dispute with employees but has exacerbated the problem.”

In response, Starbucks stated that its board comprises top-tier business leaders with relevant qualifications and expertise essential for driving current operations and future success.

The company emphasized its ongoing commitment to investing in its employees, citing significant allocations of profits toward wage increases, training, and new equipment in the past fiscal year.

Since the end of 2021, baristas at nearly 400 Starbucks-owned cafes have voted in favor of organizing, following the successful unionization of the first location in Buffalo.

Despite a footprint of approximately 16,000 cafes, including both owned and licensed locations, the company has faced escalating tensions amid the union battle, prompting the return of Howard Schultz as CEO. Schultz relinquished the role last year to Laxman Narasimhan.

Although Starbucks expressed its intention to resume contract talks in January, an agreement has yet to be reached. Baristas have staged notable strikes, including during Pride weekend in June and Red Cup Day in the fall.

SOC pushes for board overhaul
SOC pushes for board overhaul, citing mismanagement, substantial costs, and customer aversion amid unionization efforts. 

The SOC, in its proxy presentation titled “Brew a Better Starbucks,” contends that the company’s response to the unionization campaign has incurred substantial costs, amounting to nearly a quarter of a billion dollars according to its estimates, and has “detrimentally affected the brand’s value.”

A Nielsen poll commissioned by the SOC found that two-thirds of respondents who had visited Starbucks in the past 30 days would be less inclined to do so if the company was found to violate federal labor laws, surpassing the percentage of respondents who cited price increases as a deterrent.

The SOC alleges that the company’s board has endorsed an unnecessarily confrontational approach toward the union, citing 128 complaints covering 430 unfair labor practice charges issued by NLRB regional offices against Starbucks Corporation and Siren Retail Corporation following an investigation.

The coalition, which includes the Service Employees International Union (SEIU), parent of Starbucks Workers United, as well as the Communications Workers of America and United Farm Workers of America, asserts its representation of over 2.3 million workers.

Despite holding a relatively small ownership stake, its affiliated unions possess substantial investments in pension plans, including significant holdings in Starbucks shares.

The SOC contends that since the initiation of unionization efforts and the launch of its campaign in November, Starbucks stock has declined by 6% compared to median gains of 10.6% for its peer cohort, which includes Chipotle, Darden Restaurants, McDonald’s, Restaurant Brands International, and Yum Brands.

This contrasts with the 5.2% gains of the S&P 500 Restaurants benchmark during the same period.

Starbucks, however, maintains that it has confronted various external challenges aside from labor organizing during the cited period, including macroeconomic effects and the pace of recovery in China. The company asserts its consistent operating performance amidst volatile markets.

The coalition has nominated three director candidates for Starbucks’ board, citing their expertise in working successfully with unions and experience in labor law. These candidates are Maria Echaveste, Joshua Gotbaum, and Wilma Liebman.

In contrast, Starbucks recently added three new directors: Daniel Servitje, Neal Mohan, and Mike Sievert. The company emphasized the diverse talents and experiences brought by its board members, including those added in the past year.

SOC pushes for board overhaul
SOC pushes for board overhaul, citing mismanagement, substantial costs, and customer aversion amid unionization efforts. 

The SOC contends that the new additions lack labor-related regulatory experience, targeting specific current Starbucks board members: Ritch Allison, Andy Campion, and Jørgen Vig Knudstorp.

Starbucks filed its proxy presentation, asserting that all current board members possess labor experience and criticizing the SOC’s nominees for lacking the breadth of knowledge required to oversee the company’s global and consumer-facing business.

The company highlights its creation of $92 billion in market value over the past two decades and its leadership in comparable store sales growth, unit growth, revenue growth, and earnings per share growth over the past year.

Regarding stock returns, Starbucks asserts its outperformance relative to its peer group by 5 percentage points over the past three years. Since announcing its reinvention in May 2022, the company has reported a 32% increase in stock value, surpassing both its peer group and the S&P.

Starbucks emphasizes its ongoing investments to enhance the overall partner and store experience, citing a commitment to reaching ratified contracts for each represented store in 2024. The company plans to unlock $3 billion in efficiencies to fund reinvestments in its workers.

On the matter of unionization, Narasimhan reiterated Starbucks’ commitment to a direct relationship with its partners, affirming a constructive approach to resolving disputes with unions.

Sajda Parveen
Sajda Parveen
Sajda Praveen is a market expert. She has over 6 years of experience in the field and she shares her expertise with readers. You can reach out to her at [email protected]
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