Starbucks UK's 2012 tax avoidance crisis management plan

 

Starbucks in The United Kingdom 2012

Table of Contents Introduction………………………………………………………………………..…. 3 Potential Results……………………………………………………………………… 3 Previous Crisis…………………………………………………………………………4 Acknowledgments……………………………………………………………………..5 Statement……………………………………………………………………………… 5 Purposes………………………………………………………………………………..6 Objectives………………………………………………………………………………6 Crisis Inventory & Results……………………………………………………………7 Warning Signs………………………………………………………………………….8 Spokesperson: Criteria for selecting………………………………………………………….8  Interview Tips…………………………………………………………………………………9 Trick Questions ……………………………………………………………………………...10 List of Emergency……………………………………………………………………………13 Key Messages ……………………………………………………………………………….14 Evaluation After……………………………………………………………………………...14 Methods of Communication…………………………………………………………………15 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 to 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 attributed 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.

Potential Results ? 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 those protesting, 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 the 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 significantly negative impacts on Starbucks’ UK operations because they target several branches in the UK. Protests affect business operations by creating an environment that is inhospitable for purchases and coffee consumption.  The second probable impact of these protests is they create a bad reputation that in turn impact sales and ultimately results in declining profits.  For instance, one of Starbucks’ UK customers stated that she would boycott the company’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 would likely 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 and of 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 their unethical financial arrangements that made customers 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 potentially 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 as a result of the tax avoidance controversy.  He recognized that this was an issue that had “struck a chord with the country” (McVeigh, Stewart & Bowers, 2012).  Thus, 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.

Statement Over the past three years, Starbucks has reported no profit, and paid no income tax on sales of 1.2 billion pounds in the UK. McDonalds, by comparison, had a tax bill of over 80 million pounds on 3.6 billion pounds of UK sales. Kentucky Fried Chicken, part of Yum Brands Inc., the third global restaurant or cafe chain by market capitalization, incurred taxes of 36 million pounds on 1.1 billion pounds in UK sales, according to the accounts of their UK units. Today, I am announcing changes that will result in Starbucks paying higher corporation tax in the UK – above what is currently required by law. Specifically, in 2013 and 2014 Starbucks will not claim tax deductions for royalties or payments related to our intercompany charges. In addition, we are making a commitment that we will propose to pay a significant amount of corporation tax during 2013 and 2014 regardless of whether our company is profitable during these years. We are so optimistic of these actions when taken together for a short period, will position us as a company to make a larger contribution to the customer. These decisions are the good things for us to do. We\\\'ve seen that scene from our customers. So, today, we\\\'re taking the actions needed to have greater cooperation with our customers.

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: · The creation a process to ensure that Starbucks UK effectively anticipates (planning), manages (response), and evaluates (recovery) crises. · The creation of a Crisis Management Team that will address the current and future crises. · The coordination of initiatives and responsibilities in handling the tax avoidance crisis and safeguard the company’s integrity. · The review of UK taxation laws and to ensure that Starbucks UK understands and complies with these regulations.

Crisis Inventory & Results ? Considering the recent protests regarding the lack of paid taxes in the UK, Starbucks could face any or all of the following crises: 1. A Damaged Reputation: The protests are likely to contribute to an imbalanced reputation since customers are likely to view Starbucks as an ethically and socially irresponsible company.  In essence, the protests contribute to an overall negative image of the company. 2. Declining Sales: This crisis is likely to occur because of the soiled reputation and the decision made by some customers to boycott Starbucks’ products in favor of those offered by competitors. 3. Declining Profitability: This is a possible crisis that would be brought on by the tarnished reputation and declining sales. 4. Poor Business Operations: The final crisis that results is poor business operations because of the potential overall boycott by the public and the blemished reputation in the eyes of former customers. Following an analysis of the aftermath of these protests, each of the four identified potential crises from the protests has a high probability of occurring, as shown in Figure 1 below.  The probability of occurrence has been determined using a scale of 0-9 in conjunction with analysis of the events facing the company after the protests. Figure 1: Crisis Inventory Results

Warning Signs ? Since each of these crises has a high probability of occurrence, Starbucks UK should look for warning signs in order to effectively respond and mitigate the potential impacts on its operations.  One of the warning signs is early closure or shut down of some of its branches due to interferences emerging from the protests.  The early closure or shut down of some of Starbucks’ branches in the UK is an indicator of difficult operational environment, which would in turn contribute to poor business operations.  The second warning sign is a marked decline in the number of customers visiting Starbucks’ coffee chains.  This is an indicator of a decision by customers to boycott the company, which in turn shows their damaged reputation and rapidly declining sales.  The final warning sign is a decline in all orders for the firm’s products, which indicates deteriorating sales and waning profitability.

Spokesperson: Criteria for Selection The next step in this crisis communication plan for Starbucks is to address the issue of the tax avoidance controversy that has threatened to disrupt their operations and profitability by identifying an appropriate spokesperson. According to Fearn-Banks (2007), a crisis management plan should incorporate a crisis communication team that is responsible for notifying the public regarding the issue at hand. The selection of a spokesperson should be carried out in a careful manner because this person will represent the organization or company to the public. For Starbucks’ case, the selection of the spokesperson should be carried out in a diligent manner, because the tax avoidance controversy has significant impacts on the overall public perception regarding the company and its operations. Even though the CEO of Starbucks has acted as the spokesperson since this controversy emerged, he may not have the technical expertise on issues relating to the crisis. In this regard, the company needs to identify a spokesperson with technical expertise of tax avoidance issues. Apart from the technical expertise, the spokesperson should also be an individual who appears rational, empathetic, and concerned. The selection of such an individual to handle crisis communication for Starbucks will be crucial towards winning back public confidence in the firm’s operations and dealing with the issue in an effective manner. In light of the circumstances surrounding Starbucks’ tax avoidance controversy and its impact on operations and profitability, the company should appoint a spokesperson from its internal workforce, particularly an individual with some position in the firm. The individual should be someone other than the company’s public relations manager since he/she may not have the technical expertise on the issues relating to the crisis. The spokesperson should be an individual who is articulate, decisive, and accessible during the entire period of the crisis. He/she should have the ability to work with the company’s legal adviser before issuing any statements to the public in response to the crisis. Interview Tips As part of crisis communication and response, the spokesperson will be called upon to conduct media interviews that seek to notify the public on steps undertaken by Starbucks to respond and address the issues presented in the crisis. The most common kinds of crisis response interviews include on-site interviews, in-studio interviews, and press or news conferences (IAFF Firefighters, n.d.). The spokesperson’s success in these interviews is determined based on his/her ability to convey messages that show the company’s commitment to public well-being. For Starbucks’ tax avoidance controversy, some of the interview tips include developing and refining key messages, consultation with the legal adviser prior to issuing any statements, negotiating the basics of the interviews, and knowing the publication program. The other tips include demonstrating concern and empathy for the public, being question-focused, avoiding answering speculations, telling the truth, and speaking clearly and directly. Also one must pay attention to one’s body language, one’s tone of voice, and one’s choice of words in the interview.

Trick Questions During the media interviews, the spokesperson should expect some trick or tough questions relating to the tax avoidance crisis. He/she should be prepared for and ready to answer these tough/trick questions in a clear, direct, and concise manner while conveying messages that demonstrate Starbucks’ commitment to address the issue and prevent its re-occurrence. When handling the trick questions such as those relating to Starbucks’ tax policies, the spokesperson should avoid using technical jargon, avoid answering speculations, provide necessary clarifications and corrections, and remain calm, focused, and cordial. The spokesperson should know that there is nothing wrong with saying “I don’t know” if he/she has no answers to a particular question or they are not within his/her area of expertise. Some of the trick questions the spokesperson is likely to face during media interviews include… 1. Did Starbucks pay minimal contributions to the UK exchequer over the last decade? Starbucks is committed towards meeting all its legal obligations, especially with regards to taxation, which differs depending on the country of operation. Since the firm’s entry into the United Kingdom in 1998, it has made sales worth over £3 billion. Over the last 14 years, the company has paid £8.6m in UK taxes as it complies with the law (McVeigh, Stewart & Bowers, 2014). In this regard, Starbucks UK has not paid minimal contributions to the UK exchequer, but acted as a responsible corporation through completely complying with the law. As the protests continue, the public needs to understand that Starbucks obeyed the United Kingdom’s corporation tax policies. We have also demonstrated our responsibility through a commitment to overpay on the group’s UK tax bill by £20m within the next two years. This is an indicator of our transparency and commitment in addressing the issues brought on via the tax avoidance controversy. 1. Did the firm engage in unethical business practices to avoid paying taxes? Starbucks is a socially responsible company that recognizes and understands the legal, social, and ethical responsibilities it owes to the communities it serves. Throughout its operations across the globe, the company fulfills its obligations and complies with relevant regulations for its operations. Over the last 14 years of the firm’s operations in the United Kingdom, Starbucks has always complied with corporation tax policies. Therefore, the company has not engaged in any unethical business practices in an attempt to meet its corporate taxation obligations. I want the public to understand that the current controversy is not because of the firm’s entanglement in any unethical practices that would contribute to tax avoidance. Actually, the current impasse is more on the existing corporate tax policies rather than any illegal/unethical practices by Starbucks, since the UK government is under mounting pressure to reform international tax policies (Goodley, Bowers & Rogers, 2012). 1. How long has Starbucks’ UK engaged in tax avoidance? Starbucks has not engaged in any tax avoidance throughout its operations in the United Kingdom. The company has complied with the relevant laws and met all its corporate tax obligations by making contributions to the UK exchequer. 1. Is Starbucks’ commitment to overpay its taxes within the next two years an indirect admission of its tax avoidance practices in the past decade? Our commitment to overpay taxes within the next two years is not an indirect admission of the firm’s tax avoidance practices in the past decade, but a demonstration that we are a responsible company. This move is geared towards demonstrating Starbucks’ belief in fulfilling its legal obligations and commitment to transparent business practices. We have made this decision to help restore public confidence that the company is indeed responsible and capable of fulfilling its taxation obligations. This decision should not be viewed as an attempt by the company to indirectly admit tax avoidance practices since we have not engaged in such practices over the last 14 years of our operations in the United Kingdom. It’s a commitment to demonstrate that we are ready and willing to pay even more corporate taxes as we increase our profitability in the future.

List of Emergency Personnel Since the nature of the Starbucks tax avoidance controversy relates to public perceptions regarding their tax payments, a list of emergency personnel should be drafted to help in the crisis communication and response initiatives. The list will include officials from the accounting department, public relations department, the legal department, and management. These individuals will form the backbone of the crisis communication team since the issue falls within their area of expertise and work. The individuals will work in collaboration with the spokesperson and the firm’s top management to develop suitable measures for addressing and resolving the crisis. Officials from each of these departments in Starbucks working environment should include their leaders because of their key roles in the firm’s operations. Email Please use the links on this page to email a specific department. https://customerservice.starbucks.co.uk/ Mail Starbucks Coffee Company Building 4 Chiswick Park 566 Chiswick High Road London W45YE Phone · Heads Office Chiswick Park - Building 5: Starbucks Coffee Company +1 020-8834 -5050 · Blackburn - Beehive Business Pk DT: Starbucks Coffee Company +1 646-952-8399 Key Messages As previously indicated, one of the key factors towards the success of this crisis communication plan in resolving Starbucks’ tax avoidance controversy is conveying key messages that would help restore public confidence on the firm’s operations. The identification of key messages to convey to the public helps in avoiding miscommunication and ensuring that the public is well notified of the firm’s crisis response initiatives (Fearn-Banks, 2007). The spokesperson will work with the crisis communication team to prepare the key messages to be presented to the public. Some of the key messages in Starbucks’ tax avoidance controversy include details on appropriates taxes it paid to the UK exchequer, reasons for the payment of the taxes, the company’s policy on compliance with taxation, and current measures in addressing the problem. The other key messages include information regarding the firm’s plan to overpay on the UK’s tax bill by £20m within the next two years.