Starbucks' approach to corporate social responsibility and ethics

Starbucks

One does not generally associate capitalism and corporations with the notions of ethics, social responsibility, or global corporate citizenry. Instead, many look at the rise of corporations and other elements of big business as a source of responsibility for many public ills, like the mistreatment of workers, the destruction of the environment, and the exploitation of natural resources. Certainly, unlimited exploitation proved to be the quickest way to turn an incredible profit, but it provided corporations with a long history of problems. Unintentional damage, such as damage to the environment, proved problematic for corporate locations and their workers. Intentional damage, such as Ford's famous decision not to revise a product flaw in the Ford Pinto, which made it overly susceptible to blowing-up if it was in a certain type of collision, proved financially risky for big corporations, because juries were willing to award huge settlements to injured plaintiffs. (Leggett). In addition, the U.S. Tax Code began to give greater and greater benefits to corporations engaging in philanthropy. As a result, some corporations began engaging in more responsible practices. In recent times, this trend has exploded, because corporations have discovered something else; many consumers are willing to spend more on a product that does not have an ethical taint. Some people simply do not want to purchase a product that depends upon the exploitation of people or resources to get to the customer. Other people feel better about spending money on a premium product if they know that some portion of that product's selling cost goes to philanthropic efforts.

As a result, the modern corporate consumer can look at three different aspects to determine whether a corporation's ethical positions align with the customer's own positions: that corporation's business ethics, corporate social responsibility, and global corporate citizenry.

Background and History

Starbucks Coffee Company was originally opened in 1971 in Seattle's Pike's Place Market under the name Starbucks Coffee, Tea and Spices. It was incorporated in Olympia, Washington on November 4, 1985, and went public on June 26, 1992. As of February, 2008, Starbucks had stores in all 50 states in the United States, plus the District of Columbia. It had 7,087 company-operated stores and 4,081licensed stores in the United States. Starbucks also operated stores in 43 countries outside of the United States. These included 1,796 company operated stores and 2,792 joint-venture or licensed stores. (Starbucks, "Company Fact Sheet"). This incredible growth was the result of an idea that Howard Schultz, Starbuck's director of retail operations and marketing, had when he traveled to Italy and noticed how successful espresso bars were in Milan. In 1984, Schultz convinced the founders of Starbucks to try the coffee bar concept in downtown Seattle. (Starbucks, "Timeline").

In 1985, Schultz founded Il Giornale, a coffee bar, which acquired Starbucks' assets in 1987. (Starbucks, "Timeline"). In 1991, Starbucks built a relationship with CARE, an international relief and development organization. (Starbucks, "Timeline"). In 1997, Starbucks formed an "alliance with eight companies to enable the gift of more than 320,000 new books for children through the All Books for Children first annual book drive." (Starbucks, "Timeline"). In 1998, Starbucks formed Urban Coffee Opportunities with Earvin "Magic" Johnson's Johnson Development Corp., "to develop Starbucks Coffee locations in under-served, urban neighborhoods throughout the U.S." And began offering the line of products with proceeds to go to literacy organizations. (Starbucks, "Timeline"). In 1999, Starbucks entered into a literacy partnership with Mark McGwire, and partnered with Conservation International to promote green methods for growing coffee. (Starbucks, "Timeline"). In 2000-2001, Starbucks expanded its commitment to both green growing practices and fair trade in coffee. In 2001, Starbucks granted more than $4.2 million to literacy, schools, and community-based organizations; it also announced a partnership with Jumpstart, to pair college student tutors with Head Start Children. (Starbucks, "Timeline). In 2002, Starbucks awarded more than $5.9 million in grants to literacy, schools, and community-based organizations; organized volunteers and contributed money to the Starbucks' Make Your Mark program. (Starbucks, "Timeline"). In 2003, Starbucks awarded more than $6.5 million in grants to literacy, schools, and community-based organizations; began a three-year commitment to America SCORES; expanded their green and Fair-Trade Certified Coffees; contributed $50,000 to Earth Day Network; encouraged more than $50,000 hours of volunteer time and contributed $500,000 to nonprofit organizations in the Make Your Mark volunteer program. (Starbucks, "Timeline"). In 2004, Starbucks extended its partnership with Conservation International with $2.5 million loan fund to provide coffee farmers with affordable credit; dedicated six weeks to promote environmental awareness in its company-owned U.S. And Canadian stores; presented Jumpstart with $100,000; loaned $1 million to Calvert Community Investments to allow Calvert to support Fair Trade Certified coffee; and joined the United Nations Global Compact. (Starbucks, "Timeline").

Thesis Statement

Starbucks has proven that a company can be a financial success while adhering to high standards of business ethics, corporate social responsibility, and global corporate citizenry. Starbucks has promoted efforts to treat coffee farmers ethically and to provide community development to the traditionally poor regions where coffee and tea are grown. Starbucks has also made tremendous efforts to increase urban quality-of-life in America, by promoting various community service programs, with a specific emphasis on literacy programs.

Business Ethics

Until recent times, few businesses had ethical responsibilities. In fact, the idea of the ethical business was limited to those businesses that had a fiduciary duty to their clients, like attorneys, or to those engaged in traditional helping professions, like doctors. However, the growth of the corporation introduced the concept of a fiduciary duty between stockholders and board members, in both open and closed corporations. (Stevenson, p.1144). Put succinctly, the board of directors has a duty to its shareholders to increase profits, and majority shareholders may have a duty to the corporation to vote in a way that increases profits. As a result, business ethics can actually conflict with both corporate social responsibility and global corporate responsibility; because business ethics may indicate a less ethical means of practice if it would increase profits. As a result, many corporations have included responsible practices in their corporate mandate, thereby making it clear to any and all potential stockholders that one of the goals of the company is to engage in responsible and morally ethical behavior. Starbucks appears to be one such company.

Corporate Social Responsibility

It is difficult to define the notion of corporate social responsibility because different sources seem to suggest different definitions. However, it is clear that corporate social responsibility means that corporations have to take an interest in more than profits, and must consider how their actions impact their various stakeholders including: customers, employees, shareholders, and suppliers. In addition, corporate social responsibility involves an awareness of a company's impact on the environment. Corporate social responsibility is never discussed in the context of what a corporation has to do- those discussions involve regulation- but about the steps that a corporation takes to go beyond its minimum ethical requirements. Furthermore, corporate social responsibility is about more than a company's philanthropic efforts. According to Harvard University's Corporate Social Responsibility Initiative, corporate social responsibility "encompasses not only what companies do with their profits, but also how they make them. It goes beyond philanthropy and compliance and addresses how companies manage their economic, social, and environmental impacts, as well as their relationships in all key spheres of influence: the workplace, the marketplace, the supply chain, the community, and the public policy realm."

Global Corporate Responsibility

Like corporate social responsibility, there is no single definition of global corporate responsibility, perhaps because corporations face different global dilemmas, based on the type of business involved and many other factors. However, global corporate responsibility has several key elements. As identified by the Ethics & Policy Integration Centre (EPIC), global corporate responsibility needs to look at the following factors: compliance, workplace, marketplace, human rights, environment, public sector, community relations, management systems standards, corporate governance, and reporting standards. (EPIC). Compliance refers to the corporation's compliance with government standards, industry standards, and stakeholder expectations. Workplace refers to how the corporation treats its workers and includes issues ranging from salary to employee safety. Marketplace refers to how the corporation interacts in the market, including how it treats its customers, but also how it treats its competitors. Human rights refer to how a corporation handles human rights issues with regard to its various stakeholders. The environment deals with how a corporation handles the environment. The public sector refers to how a corporation interacts with governments, and whether it deals with them in an honest and ethical manner. Community relations refer to how a corporation interacts with community, and includes cultural sensitivity, social interactions, and civilization. Corporate governance refers to the relationships between company management, the board, the shareholders, and other stakeholders. Reporting refers to any reports that a corporation may file outside of its mandatory financial reports.

Management systems standards refer to how the corporation's internal structure is set up to ensure its compliance with other areas of global corporate responsibility. (EPIC).

Impact on the Stakeholders

Starbucks has several stakeholders to consider when determining the ethics of its business decisions. Those stakeholders include, but are not limited to: customers, suppliers, employees, shareholders, neighbors, and citizens. One need only look at the journey involved in a single cup of coffee to understand the truly global nature of Starbucks' coffee. The coffee begins as beans picked in an area, probably in South America. The people picking those beans could be akin to modern-day slaves or they could be independent Free Trade farmers. The land where the coffee is grown could be land that has destroyed the local environment, or the coffee could be shade grown, which preserves as much of the local environment as possible. The coffee is then shipped to the roasting plants, which involves interactions with more supplier-employees and the method of shipment helps determine the environmental impact of that coffee cup. Once at the roasting facility, how the employees at the facility are treated is essential, as is how the company deals with waste, the consumption of energy, and other environmental factors, such as noise production. From there, the beans go to the local Starbucks. There the company must deal not only with how it treats its employees and customers, but also how the Starbucks location is impacting the neighborhood. Overseeing this coffee cup's journey is a board of directors that has to make profit for the company's shareholders. This example merely provides a broad overview of the journey of each cup of coffee, but it demonstrates that there are literally thousands, if not millions, of people impacted by the sale of each cup of coffee. For some people, like the customers, this impact may be fairly negligible, while the ethical impact can be tremendous on coffee growers. When one factors in the idea that Starbucks engages in global philanthropy with its profits, it is not an exaggeration to suggest that any person in the world is a potential stakeholder, albeit a small stakeholder, in the sale of each cup of coffee from Starbucks.

Caveats

Not everyone views Starbucks as an ethical company. On the contrary, some have taken a very cynical view of even some of Starbucks' most highly lauded actions. For example, unlike most of its competitors, Starbucks provides health insurance benefits to part-time employees. However, Doug Nielson does not believe that Starbucks does so out of a sense of responsibility for its customers, but because the cost of training and recruitment was so high that Starbucks needed to have a turnover rate that was lower than the industry average. Although health insurance benefits cost Starbucks money, the cost of health benefits was half the cost of additional training and recruitment. (Nielson). In addition, "The health insurance policy had the additional benefit of allowing Starbucks to recruit a more educated class of barista. Without the largely minority and immigrant employees of, say, a McDonalds, Shultz was able to maintain the upscale white middle class ambiance he preferred for his gourmet coffee stores." (Nielson).

In addition, for a company that touts its corporate responsibility, Starbucks did some things to suggest that it was not as concerned about employee welfare as one might imagine. For example, it stridently resisted unionization efforts by its employees. Their resistance took the form of an anti-union campaign, the suspension or firing of union sympathizers, and surveillance cameras watching the employees. In fact, though Seattle had traditionally been a union town, "Schultz managed to get his coffee bars decertified within 4 months of taking over, but it took another 5 years to de-unionize the roasting and warehouse facilities." (Nielson). This seems like a position that is incompatible with a company that touts its own corporate ethics. In addition, Starbucks has settled lawsuits against it touting its

Furthermore, though Starbucks markets itself as an eco-friendly company that engages in ethical coffee trading, the reality may be more complex. The coffee trade is notoriously unethical, and Starbucks has responded to those concerns by marketing some types of coffee as responsibly grown and ethically traded. However, its critics suggest that Starbucks has not gone far enough. On the contrary, they site Starbucks' poor treatment of Ethiopian farmers and reluctance to permit outside monitoring as evidence that the company could be doing more to ensure that the coffee it uses complies with fair trade standards. (Hughes).

Conclusion

Of course Starbucks is not a perfectly ethical corporation. With such a huge number of stakeholders, it may be impossible to treat them all in an ethical manner. Moreover, large corporations are prone to oversight issues, which can make it difficult for them to detect and remedy ethical problems. However, the fact that Starbucks is not perfectly ethical does not make it an unethical company. On the contrary, Starbucks has consistently worked to treat all of its stakeholders in a fair and ethical manner, even when doing so has compromised potential profits. In doing so, Starbucks has proven that a company can be a financial success while adhering to high standards of business ethics, corporate social responsibility, and global corporate citizenry.