Starbucks UK's response to 2012 tax avoidance protests

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Crisis Management Plan Starbucks is an American coffeehouse chain and coffee company that was founded in the early 1970s in Seattle, Washington. Since its inception the company has experienced tremendous growth and profitability to an extent that it has expanded its operations in more than 20,000 locations across the globe including the United Kingdom. Starbucks UK is one of the most profitable coffee companies in the region given its provision of high quality coffee and related products. Starbucks’ UK profitability is attributable to the firm’s commitment to the highest quality of coffee and excellent customer service. However, Starbucks UK has experienced significant challenges including the recent protests regarding taxes paid in the UK in 2012. The protests were based on the premise that the firm had been avoiding tax for more than 10 years while it continues to deny paying too little tax in the past. This is an example of a crisis that Starbucks has recently faced and requires the establishment of a crisis management plan to address it and enhance operations. What Could Happen? Starbucks faced a series of protests from tax campaigners that targeted its UK branches, which resulted in disruptions of its business operations. In their protests, tax campaigners highlighted that Starbucks made minimal contributions to the UK exchequer (McVeigh, Stewart & Bowers, 2012). According to the protesters, Starbucks had been avoiding paying taxes for over 10 years while the firm continues to deny paying minimal contributions to the UK exchequer. In essence, these tax campaigners alleged that UK’s aggressive accounting measures permitted the firm to pay approximately £8.6m in taxes since the company was launched in the region more than 10 years ago. These protests could have significant negative impacts on Starbucks’ UK operations because they target several branches in the UK. Protests affect business operations through creating a difficult environment for a company to operate it. The second probable impact of these protests is creating a bad reputation that in turn affects sales and ultimately results in declining profits. For instance, one of Starbucks’ UK customers stated that she will boycott the firm’s products and get her coffee from somewhere else because the protesters are right (Escobales & McVeigh, 2012). According to Levitt (2015), customers are already boycotting big coffee shop brands like Starbucks UK because of tax avoidance. Therefore, such measures would imply that Starbucks UK will experience a decline in sales and profitability as customers opt for its competitors products because of the protests. Third, the protests would scare shareholders and potential investors, which would in turn hurt business. Previous Crisis Starbucks UK is not alone in crises involving payment of taxes since other companies like Google and Amazon have faced similar situations/crises. Amazon and Google’s UK unit have been accused of failing to pay taxes or making minimal contributions to the UK exchequer despite making profits in the UK operations. A similar company that has faced taxation crisis like Starbucks UK is Caffè Nero, which has been criticized for making minimal tax payments in the United Kingdom (Levitt, 2015). Given the tax avoidance controversy, Caffè Nero has experienced a decline in sales and profitability because of the unethical financial arrangements that made customers to boycott the firm’s products. Acknowledgements Starbucks UK has acknowledged the tax avoidance controversy as the management issued statements that were geared towards preventing the protests and their potential negative impacts on the firm’s operations. In an interview with Sky News, Starbucks’ UK boss, Kris Engskov, acknowledged that its customers had been very vocal for approximately two months because of the tax avoidance controversy. He recognized that this was an issue that had “struck a chord with the country” (McVeigh, Stewart & Bowers, 2012). As a result, the firm’s management made a statement about its commitment to address this problem over the next two years. Through its boss, Starbucks UK management made an unprecedented promise that the company would overpay on the UK’s tax bill by £20m within the next two years. Purposes The purpose of this crisis management plan is to help Starbucks UK address the tax avoidance controversy by ensuring compliance with the relevant taxation laws in the UK. Secondly, this crisis management plan seeks to prevent and/or lessen loss and other negative impacts of the tax avoidance crisis. Third, this crisis management plan seeks to ensure business continuity, lessen financial loss, and protect the company’s integrity. Objectives The objectives of this crisis management plan for addressing the tax avoidance crisis facing Starbucks UK include: · To create a process to ensure that Starbucks UK effectively anticipates (planning), manages (response), and evaluates (recovery) crises. · To facilitate the creation of a Crisis Management Team that will address the current and future crises. · To ensure coordinated initiatives and responsibilities in handling the tax avoidance crisis and safeguard the company’s integrity. · To review UK taxation laws and to ensure that Starbucks UK understands and complies with these regulations. Crisis Inventory & Results In light of the recent protests regarding paid taxes in the UK, Starbucks could face any or all of the following crises: 1. Damaged Reputation: The protests are likely to contribute to a bad reputation since customers are likely to view Starbucks as an ethically and socially irresponsible company. In essence, the protests contribute to a negative image of the company. 2. Declining Sales: This crisis is likely to occur because of the bad reputation and decision by some customers to boycott Starbucks’ products in favor of those offered by its competitors. 3. Declining Profitability: This is a possible crisis that would be brought by the bad reputation and declining sales. 4. Poor Business Operations: The final crisis is poor business operations because of the potential boycott by the public and bad reputation among customers. Following an analysis of the aftermath of these protests, each of the four identified potential crises from the protests has high probability of occurrence as shown in Figure 1 below. The probability of occurrence has been determined using a scale of 0-9 and analysis of the events facing the company after the protests. Figure 1: Crisis Inventory Results