In her recent book, Wrestling with Starbucks: Conscience, Capital, Cappuccino, Kim Fellner compares Starbucks to Bill Clinton. She likes the good things they do, but doesn’t know whether they can be trusted to do the right thing when times get tough, suggesting that, "When Starbucks’ ship encounters a really bad sea, someone may be tossed overboard, and it’s not likely to be the shareholders."
The Seattle Times July 31 headline news on Starbucks made it clear that the bad sea has arrived. The company that introduced America to the culture of lattes, lounge chairs, and laptops saw its first quarterly loss since 1992, closing 616 stores nationwide.
While investors will be closely monitoring the stock price, there is another story here. In spite of its past squabbles with Oxfam and WTO activists, relative to most publicly held large corporations, Starbucks has been one of the good guys when it comes to social responsibility. CEO Howard Schultz maintains that social value is as important as profit to their mission, and their record on employee benefits, responsible trade relations, and the environment indicate that this is more than just talk.
In this respect, the company is a case study of capitalism that seeks a balance between shareholder profit and public responsibility. There is evidence that Americans have become more aware of the environmental costs of irresponsible consumption as well as the effects that their choices have upon suppliers and labor. We are beginning to hold corporations more accountable for their impact on the public good. In its November 2007 report, BBMG, a branding and marketing agency, reported that, "socially relevant attributes" such as energy efficiency and health benefits are now edging out convenience as a quality that determines which products people will buy. Moreover, 87% of consumers say that they are more likely to buy from a company that supports fair labor and trade practices, and the same proportion are more likely to buy from a company that is committed to environmentally-friendly practices—but, this last statement is only true when consumers consider the products to be of equal value and price, which continue to be the most important factors in determining what consumers choose.
Therein lies the rub. If consumers continue to prefer low prices over responsible practice, what is a business to do? Corporate commitment to the public good is not free and will necessarily be reflected in the costs of goods and services. In its 2007 corporate social responsibility report, Starbucks committed to reducing its energy use by 25% by 2010. It pledged to extend fair labor practices in East Africa and improve training and monitoring procedures where needed. There are plans to work with the U.S. Green Building Council to develop LEED (Leadership in Energy and Environmental Design) standards for the retail sector. But these and other commitments are all dependent on the bottom line. Publicly held companies are bound by law to make maximum shareholder return their first priority.
A company that pledges to be a leader in social responsibility is held to a higher standard. Should Starbucks decide to cut costs by foregoing plans in Africa to improve compliance with labor standards, and as a result, plantations are discovered that pay below minimum wage, the company will become a target of criticism in activist circles. Businesses that claim to do good things and then don’t are lighting rods. But consumers tend not to notice when companies that never claimed to be good go about their business as usual, selling a cheaper cup of coffee through perennial low wages. We continue to place first priority on price, particularly during an economic downturn. I doubt that our present decline will be the ruin of Starbucks. But if the downturn seriously affects the company's commitment to the public good, Starbucks may be the canary in the mine of a kinder, gentler form of capitalism.