Voting on Labor Probe and Succession Planning at Starbucks

On Thursday, Starbucks investors will participate in a crucial vote to determine whether the renowned coffee giant is upholding the rights of its workers and if its board is adequately prepared for executive succession. This significant shareholder meeting marks the first under the leadership of newly appointed CEO Laxman Narasimhan, who assumed the position earlier than anticipated, succeeding Howard Schultz.

Starbucks currently finds itself under intense scrutiny from various angles. In the coming week, Senator Bernie Sanders is set to question Schultz before a U.S. Senate panel regarding allegations of union suppression within the company. Adding to the mounting pressure, baristas from over 100 cafes went on strike and staged pickets outside Starbucks’ headquarters in Seattle on Wednesday. Furthermore, animal rights organization PETA has announced its intention to strongly criticize the company during Thursday’s meeting for its premium pricing of milk substitutes.

FILE PHOTO: A Starbucks logo is pictured on the door of the Green Apron Delivery Service at the Empire State Building in the Manhattan borough of New York, U.S. June 1, 2016. REUTERS/Carlo Allegri/File Photo

It’s important to note that shareholder votes are not legally binding, which means the board retains the authority to reject proposals even if a majority of investors vote in favor. In a rare instance last year, shareholders expressed their discontent with Starbucks’ executive compensation plan, signaling a noteworthy admonition of an S&P 500 company. Nevertheless, public support for proposals can exert significant pressure on both the board and the company as a whole.

One of the prominent proposals on shareholders’ ballots is the eighth proposal, which urges Starbucks to commit to an independent evaluation of its dedication to workers’ rights, including the freedom to engage in collective bargaining. As of the latest data from the National Labor Relations Board, more than 290 company-owned Starbucks locations have voted to unionize under the banner of Starbucks Workers United. The union has lodged over 500 complaints of unfair labor practices against the company, alleging union suppression, retaliatory dismissals, and store closures. In response, Starbucks has filed over 100 complaints of its own against the union.

Starbucks management has advised its investors to vote against the proposal; however, the company has promised to conduct an independent investigation. Jonas Kron, the chief advocacy officer of Trillium Asset Management, which spearheaded the proposal, expressed concern about the company’s vague stance and lack of clarity regarding its commitment. Trillium has also presented the same proposal to Apple, a company that has witnessed some of its retail stores seek unionization. In contrast to Starbucks, Apple agreed to conduct the assessment without waiting for a shareholder vote.

Trillium boasts over two decades of experience presenting shareholder proposals to Starbucks’ board. Notable past successes include urging the company to disclose its workforce’s racial and gender data, which received only 34% of votes but prompted Starbucks to start releasing some of that information.

Kron believes that once a shareholder proposal surpasses the 30% threshold, it has effectively achieved a victory, emphasizing that management cannot disregard the concerns of a third of its investors. Proxy advisory firms Institutional Shareholder Services and Glass Lewis, both wielding significant influence over shareholders’ voting decisions, have recommended voting in favor of the workers’ rights proposal.

According to FactSet, Schultz owns 1.89% of Starbucks’ shares.

Another proposal on the investors’ ballots, Proposal 6, was formulated by SOC Investment Group, representing pension funds sponsored by unions. This proposal urges Starbucks’ board to enhance its succession planning by mandating a three-year plan for expected leadership transitions.

Emma Bayes, the director of ESG engagement at SOC Investment, emphasized that the board should not continually rely on Schultz to assume leadership responsibilities. The proposal is a response to the rocky succession process last year when former CEO Kevin Johnson surprised investors with his departure. Johnson had informed the board about his retirement plans a year in advance but left the company before a long-term successor was chosen. Consequently, Schultz returned for a third interim CEO stint.

Bayes asserted that the importance of robust succession planning becomes evident during tumultuous transitions, highlighting the need for boards to prioritize and invest substantial time in this aspect.

While Starbucks’ board has adopted several recommendations from SOC Investment, it has advised shareholders to vote against Proposal 6 due to the perceived constraints imposed by the three-year timeline. However, Glass Lewis has recommended voting in favor of the proposal, and several shareholders, including Neuberger Berman, Calvert Investments, and CalSTRS, have already cast their votes in support of it, according to Bayes.

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