January 17, 2024 • 24 mins
Over the past three years, Starbucks has become a notable battleground for the resurgence of the American labor union. Amid continuous pushback from management, the unions are now leveraging a new tool in the fight -- corporate governance. The Strategic Organizing Center (SOC), a coalition of labor unions, recently began its first activist campaign, seeking three seats on the Starbucks board at the annual meeting this spring. On this episode of ESG Currents, senior ESG analyst Rob Du Boff spoke with Tejal Patel, corporate governance director at SOC Investment Group, to discuss why the unions decided to go active, what it would take to win, and other issues at the intersection of Social and Governance.
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Episode Transcript
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Speaker 1 (00:08):
ESG has become established as a key business theme as
companies and investors seek to navigate the climate crisis, energy transition,
social mega trends, mounting regulatory tension, and pressure from other stakeholders.
The rapidly evolving landscape has become inundated with acronyms, buzzwords,
and lingo, and we aim to break these down with
industry experts. Welcome to ESG Currents, brought to you by
(00:31):
Bloomberg Intelligence, your guide to navigating the evolving ESG space,
one topic at a time. I'm Rob Duboff, Senior ESG
Anelist your host for today's episode. So perhaps there's no
better example of the recent resurgence of organized labor in
the US and Starbucks. The movement to unionize at Starbucks
locations only began in twenty twenty one, but today represents
(00:55):
over ninety five hundred workers at three hundred and eighty
six locations. However, the company has been pushing back on
these efforts to ensure the unions get a seat at
the bargaining table. They are now seeking three seats in
the boardroom. Last November, the Strategic Organizing Center nominated three
director candidates to the board to be voted on at
(01:15):
the annual meeting the spring. The SC is a coalition
of labor unions representing more than two point three million members,
including the Service Employees International Union. Joining us today to
discuss is Tejal Patel, Corporate Governance Director at SC Investment Group.
In her current role, she works with investor coalitions to
(01:36):
develop strategies for issuer engagement, shareholder proposals, Director Accountability and
Asset Manager Outreach.
Speaker 2 (01:43):
Thanks for joining us, Thanks Roving, nice to be here.
Speaker 1 (01:46):
So first, can you tell us what is the Strategic
Organizing Center and more specifically, what does it have to
do with Starbucks.
Speaker 2 (01:55):
Yeah, so I think you know. You gave a little
bit of an introduction. We are a coalition of unions.
It does include the Service Employees International Union. We work
on transformational campaigns to advance the interests of workers, consumers
and shareholders, and the SEC's Shareholder Advocacy ARM is the
(02:15):
SEC Investment Group. We specialize in identifying companies like Starbucks
that have exhibited irresponsible corporate behavior that, in our view,
has impacted shareholders long term investments. As an investor and
also as an ally to Starbucks employees, many of whom
are also shareholders through the company's share ownership program. We
(02:37):
believe that Starbucks board has effectively failed to oversee the
company's response to employee unionization efforts and its approach to
human capital management, and that's exposed the business to reputational
and potential financial damage over the long term. Great.
Speaker 1 (02:56):
So, before we get into the specifics of the campaign,
I just want to understand why we've seen this surgeon
unionization at Starbucks. I mean, I was under the impression
of the company has relatively employee friendly reputation versus maybe
some of the others in the restaurant industry.
Speaker 2 (03:12):
Yeah, I think that you're right. I think, for you know,
quite some time, the company had what was viewed as
sort of an enlightened approach to its employees. The issue is, though,
and Starbucks would have you think otherwise. I think the
way that the company has addressed the concerns that have
been raised by its employees has been just an extremely
(03:32):
slow process. Some of these concerns started as a result
of the pandemic. Obviously, there were health and safety issues there,
some of its wages, we've been dealing with record inflation, benefits,
staffing at stores, it's a confluence of factors. But the
efforts to unionize really began in late twenty twenty one,
and we're in twenty twenty four now and nothing has
(03:54):
really changed. Instead, what we've seen really is Starbucks's face
saying more than one hundred and thirty complaints from the
National Labor Relations Board. It's got more than eleven hundred
allegations asserting that the company has illegally repressed employees' rights.
In many cases, Starbucks has taken anti union actions, including
(04:15):
terminating union organizers, refusing to bargain in good faith, and
retaliatory store closures. And in March of twenty twenty three,
a labor judge actually concluded that Starbucks had violated labor
laws hundreds of times. They found that the company had
threatened its employees, that it had surveyed them, that it
(04:36):
had more strictly enforced certain policies in order to justify terminations. So,
if Starbucks is really interested in preserving their goodwill and
brand that you mentioned, they really need to have better
oversight of these issues, and that falls on the company's board.
Speaker 1 (04:54):
So that takes us right to the campaign. The SoC
has been fairly active in submitting serolder proposals as example.
You know, we've looked at in the past campaigns asking
companies to conduct racial equity audits and that was pretty successful.
But this is your first real proxy fight. Why did
you decide to get more active here?
Speaker 2 (05:16):
Yeah, so you know, as you said, we have previously
engaged with submitted proposals, run with hold or vote no
campaigns at over one hundred kind of big name companies
I would say, like Bank of America, Uper General, Electric Apple.
This is the first time that we've taken the step
of publicly nominating director candidates, and we're doing that because
(05:37):
we believe that Starbucks's board's current approach to unionization efforts
of its store employees likely jeopardizes its ability to fulfill
its fiduciary duties to investors and has resulted arguably in
one of the most glaring and destructive examples of human
capital mismanagement that Corporate America has ever seen, and that
(05:59):
the current board has proved to be largely inflexible. It's
been fairly reactive, i would say, rather than proactive, and
hasn't provided the oversight that's needed on the company's labor issues.
And that's why we believe that change is needed at
the board level.
Speaker 1 (06:15):
So when you're making this case as a Starbucks shareholder,
why should I vote in favor these director nominees.
Speaker 2 (06:23):
Yeah, you know, it's an excellent question. I think that
you have to look at at you know, the amount
of time that's passed. So for three years, the company's
gone to historic lengths to counter its employees' attempts to
have their voices be heard. This has not only cost
Untold millions in legal fees and other expenditures, but the
(06:45):
constant media policymaker and regulatory scrutiny have caused potentially irreversible
damage to the value of the company's previously enviable brand.
And I think you really need to look at the
company's handling of its labor issues in totality.
Speaker 1 (07:01):
Right.
Speaker 2 (07:01):
So, again, we have these NLRB complaints. There's about one
hundred and thirty of them. There's over one thousand delegations
of illegal activity. We have a shareholder derivative suit that
was filed last summer against several members of the current
board alleging that the directors breached their fiduciary duty of
loyalty to Starbucks and its stockholders. By utterly failing to
(07:24):
implement any oversight and reporting system concerning the company's labor management.
There's thirty or so adverse alj decisions that the company
is appealing. There's even a Supreme Court decision that they
have appealed now to the Supreme Court, and NLRB decision
that required Starbucks to rehire seven pro union Tennessee baristas
(07:47):
that were terminated by the company. And all of this
has exposed the company to legal and reputational risks, and
those are risks that the company's board is supposed to
be mitigating. The board's an approach to these labor issues
likely jeopardizes its ability to fulfill its fiduciary duties to
investors to oversee these issues. And that's why we think
(08:10):
that the changes needed right. Our nominees are going to
be able to bring a fresh perspective and the right
expertise to help improve oversight and safeguard the best interest
of Starbucks shareholders, customers, and employees. And if you or
any other investor in Starbucks has other questions, I would
encourage you to take a look at the contest website.
(08:30):
It's brew abetter starbucks dot com.
Speaker 1 (08:32):
Got it you know, I think back to the proxy
fight at Exon a few years ago, and you know,
from my dark past, I used to be an oil analyst.
I know the company quite well. You know, it was
a great story making sgy component to it, and I
think a lot was made at the time that you know, hey,
you know oils days are number. But I would argue
that I was it was ultimately Exon's lagging relative performance
(08:55):
that did it in capital allocation, not just low carbon solutions,
but across the company more broadly. That's really the through line.
So I think someilarly you've seen Starbucks lag peers for
a while, so I would think that part of what
you need to do would be to connect that to
human cattle issues. Is that something you guys are comfortable doing. Yeah?
Speaker 2 (09:16):
No, And I think that there's certainly evidence of that one.
Since the body of work of like human capital management
has been developed, the argument has always been the business
case right for it. So it's about being able to
attract and retain the best possible employees right in order
for the company to stay competitive. The other thing is
(09:39):
that I think it's important is Starbucks isn't a service industry, right,
and so their performance is only good going to be
as good as the people that they're able to hire,
and so we'd argue that the board's mismanagement of the
labor issues really jeopardizes the company's overall value and ability
to stay competitive in the long term.
Speaker 1 (10:01):
Yeah, I mean certainly, you know, you think their value
proposition versus maybe some others, it's it's really kind of
a welcoming environment and what do they call it? The
third place?
Speaker 2 (10:10):
And you know, yeah, that's what the motto was. I
think I'm not sure if they're still applying that.
Speaker 1 (10:16):
I mean, yeah, so I think definitely. I think you
make a great point that service is definitely a key
component of that, and obviously labor is a is a
key component of that. Now, this also didn't just come
out of the blue. This in November, there's some mandate
from Starbucks shareholders narrow majority approved a proposal regarding an
(10:37):
assessment of workers rights commitments at last year's annual meeting.
But I have to ask, is this campaign too soon
on the heels of that? And I think back to
the proxy fighter exon that was a culmination of years
of engagement with the company, and in this case, it's
been less than a year since that proposal passed. Is
the rest that maybe the company, you know, just needs
(10:57):
a bit more time or some shareholders are willing to
get to come bit more time before going this active.
Speaker 2 (11:04):
Yeah. I think the thing to remember Rob about this
is just because the report was just issued in December
doesn't mean that the lack of oversight by the board
hasn't been happening over the course of a few years.
Speaker 1 (11:16):
Right.
Speaker 2 (11:17):
In fact, it's that lack of oversight that probably resulted
in the report's findings. So we really feel as though
the board and management have been dragging their feet to
address the human capital management issues to kind of maintain
the status quo. They've been on notice for quite some time, right,
(11:38):
And during that time, it's just been like headline after
headline of Starbucks in the news for its labor issues.
And I think that employees and stakeholders have had enough
and shareholders are clearly becoming more concerned because the board's
failure to oversee human capital management is going to make
it really challenging, you know, as we were just talking about,
(11:59):
for Starbucks to continue to retain and attract talent and
stay competitive, which is something that they really need to
do in terms of kind of the report. What's interesting
about it is that I think that the report actually
proves that Starbucks has a long way to go to
shift policy and to deconstruct kind of this massive anti
union apparatus that remains in place and is very active today.
(12:24):
In fact, the company's own report right mentions the company's
weak governance when it came to responding to organizing efforts,
and even more importantly, their you know, assessor actually found
that the company didn't understand or give consideration to its
labor rights commitments in the context of recent organizing. You know,
(12:47):
the report says that the company's supposed to take certain
steps to address its commitments to labor rights. And we
hope that the board is sincere about wanting to strengthen
Starbucks's governance framework and reset its relationships with its employees.
And if they are, they need to have the right
directors on the board to execute that change, and the
incumbent board hasn't really demonstrated that they're able to do that.
(13:09):
I think that the company's own actions are really making
clear that, like the status quo is just not working.
Speaker 1 (13:14):
Yeah, and you talked about the company's own response, and
interesting that even just a few days ago they they
they actually added or nominated some new directors of their own.
You know, how what do you think overall of the
company's response, you know, have they been engaging with you?
Is there a chance to think get settled before the
annual meeting?
Speaker 2 (13:35):
Yeah? So, you know, they've they've had a series of
kind of labor related announcements. They that's included the formation
of a new board committee, the Environmental Partner and Community
Impact Committee. There was the public letter to Workers United
asking to re engage on negotiations, and then obviously that
that labor rights assessment we talked about, and there was
(13:56):
also a shareholder letter that accompanied that report. You know,
I think the optimistic view would be to see some
of these steps as encouraging, but the reality is that
we can only judge their significance based on what the
current board does and not what it says. I will
say that the timing of this kind of flurry of
activity is not a coincidence. I don't think. You know,
(14:19):
while we recognize that some of these announcements kind of
may have been in the works prior to the company
becoming aware of the SEC's decision to put forward directors.
We believe that this level of response in aggregate represents
a clear acknowledgment that the board's oversight of its human
capital management strategy has been severely misguided, and that even
(14:41):
Starbucks is recognizing that change is needed. With regards to
the possibility of a settlement, you know, we can't comment
on any discussions or interactions we've had in the company
with the company, excuse me, but our preference would be
to reach a constructive solution. If that's not possible, obviously,
the next step is taking the vote to shareholders to
(15:02):
elect our nominees to the board.
Speaker 1 (15:05):
How do you go about building support for this? Looking
at a shameless plug here the HDS function on my
Bloomberg terminal, you have a quarter of the voting concentrator
among just five shareholders. Do you need their support or
can you win this behind a bunch of smaller shareholders?
Speaker 2 (15:19):
Yeah, so I can't necessarily comment on discussions that we've had,
but you know, we're confident that other shareholders share a
lot of our concerns, and vote concentration is obviously something
that has to be dealt with in any type of
shareholder work. So there will be communications, you know, to
these larger investors as well as to the smaller ones
(15:39):
to explain our concerns and demonstrate that look, to the
extent that a fund or a proxy voter is concerned
about human capital management or labor rights, this is the
company that you should really be scrutinizing carefully. We hope
that our views on this issue are going to resonate
across institutional and retail investors, as this is a core
(16:01):
component of the company's strategy and a key factor right
to to share older value creation. And while we can't
predict the vote outcome, we plan to continue communicating our
perspectives with other investors so that they can make an
informed decision ahead of the meeting.
Speaker 1 (16:16):
And I'm always curious how do you select your board nominees.
Obviously you want directors that will push the company in
a more labor friendly direction, but they need to be
qualified to address some of the other strategic challenges facing
the company. You know, supply chain, some of the other
kind of geopolitical risks out there. So how do you
how do you go about finding directors and and why
(16:38):
do you think the ones you found are the most qualified?
Speaker 2 (16:44):
Yeah? So our three members late was assembled after comprehensive
due diligence that involved analyzing the board's deficiencies and identifying
the companies kind of go forward needs, if you will.
Our slate of directors. There there highly qualified their independent
candidates that possess the needed business acumen, human capital management experience,
(17:07):
labor rights experience, policy experience, as well as legal background
that the board has lacked, and we think that they
can bring a fresh perspective really to help improve oversight
and safeguard the best interests of Starbucks shareholders and their
the customers and employees.
Speaker 1 (17:27):
And just playing devil's advocate here, but is there a
risk that your board members won't fairly balance the needs
of other Starbucks shareholders relative to its employees. I mean,
it's easy to say there's benefits to better worker treatment,
but how's that balanced against the needs of investors, which
I should add, and as you mentioned, includes pension plans
(17:47):
and some of your other union members.
Speaker 2 (17:52):
Yeah, you know, to your point about concerns maybe that
a director wouldn't fairly balance the needs of other Starbucks stakeholders,
that's just not the case. You know, our independent director
candidates will improve oversight and safeguard the best interests of
all Starbucks stakeholders. That includes shareholders, it includes customers and
their employees, and any board member that's elected to Starbucks's board,
(18:16):
whether it's managements or ours, has a fiduciary obligation to
act in the best interest of all of Starbucks's stockholders.
If our nominees are appointed, you know they would work
constructively and effectively to help recalibrate the company's approach to labor,
but also to rehabilitate its reputation and maximize shareholder value.
(18:39):
And we really do believe that, you know, once the
company is able to resolve and address these labor issues,
they'll be better focused on enhancing shareholder value.
Speaker 1 (18:48):
I don't want to get too wonkey on this podcast,
but can we talk briefly about the universal proxy now
for our listeners. Activism historically has involved soliciting competing proxies.
Shareholders really couldn't mix and match director votes, different colors
of paper were involved. The whole process was just not efficient.
But since late twenty twenty two in the US, shareholders
(19:10):
vote just one proxy with all nominees, both management and dissident.
Does this change the dynamics at all interview.
Speaker 2 (19:17):
Yeah, well, it's fair to not want to get too
wonky about the UPC. I think, you know, I think
what the Universal Proxy Card does is it allows for choice,
and I think it's going to help our campaign because
investors can evaluate our nominees and Starbucks's nominees equally and
determine the best people to be in the boardroom. And again,
(19:38):
you know, we believe our nominees bring much needed human capital, management,
labor relations, and public policy experience to the board in
addition to you know, helping to potentially enhance conversations related
to long term strategy of the company, as the company
considers their employees as key stakeholders right in the company's success.
(19:58):
So the UPC, the Universal Proxy Card really allows investors
to select the best candidates for the boardroom without being
limited to choosing you know, the director candidates on only
one card or the other. It's that mix and match
system that you talked about, and you know, we hope
that this will further enable the best candidate to prevail.
Speaker 1 (20:18):
Great And speaking of of the rest of proxy season,
I mean, obviously this is a big campaign, but are
there some some other trends you expect to see in
this current proxy season, is SEC involved in other campaigns
out there?
Speaker 2 (20:34):
Yeah, we are, We've got you know. In addition to
us UH, several other investors have continued to file these
labor rights assessment style proposals at other companies. You know,
there's also workplace health and safety, I think, following the
heels of the dollar general vote that took place last spring,
(20:56):
and so that's that's going to continue to be a
concern at at a few companies, you know. Other than that,
there's always board accountability measures. So the more traditional kind
of ones that are known as vote knows, we're probably
going to be seeing a few of those. I can't,
unfortunately talk to you about which company is quite yet.
(21:17):
It's a little early ron but you know, happy to
keep in touch on it.
Speaker 1 (21:22):
I appreciate that, And you know, I think one other thing,
you know, I talked to some of your colleagues a
few years ago on the racial equity audits, which you
know was a really interesting trend at the time, and
you know it's I don't know funny or sad is
the right term, but you know you've seen these kind
of be yeah, turned into very similarly warded but anti
ESG proposals that that maybe use the language first the inclusion,
(21:46):
but maybe talk about underrepresentation of white males in the
workforce or you know, diversity of thoughts. I'm just curious
kind of what your thought is on, you know, basically,
you know, seeing maybe call it the other side using
some of the similar strategies you guys have employed to
uh some success.
Speaker 2 (22:07):
Yeah, you can call it weaponizing a share a shareholder
proposal if you'd like. You know, we've we've seen those
types of organizations do that kind of previously. I don't
know if you notice that. You know, in the past,
one of those organizations would file like independent chair proposals,
(22:28):
but then when you actually read the proposal, it had
nothing to do with an independent chair basically. So so
we are we are used to them doing that. I
think that in a lot of ways, when they do
something like that to the proposal, it's a hallmark of
just how much the proposal is resonating with people and
their attempts to kind of undermine that. I guess I
(22:51):
will say that, you know, we've seen those proposals get
filed and shareholders, you know, and I'm very grateful to
this have been able to recognize the difference between those
proposals and the ones that folks like us file, because
(23:12):
they're really those vote results are getting like, on average,
I think, two or three percent as opposed to the
regular and kind of normal civil rights or racial equity audits,
which I think we're in like the twenties.
Speaker 1 (23:24):
Or so, right. But I do think, you know, one
of the flip sides of that is that when you
see some of these kind of headline numbers, you know,
seeing a rise in those proposals that get two to
three percent of the vote skews kind of average headline numbers,
and you know, it does.
Speaker 2 (23:40):
Yeah, I think that Unfortunately, you know, I would love
it if folks that were covering this maybe took a
closer look at what the underlying proposals were actually asking for,
but that's hard to do.
Speaker 1 (23:55):
You know.
Speaker 2 (23:55):
The best that we can hope for is that a
lot of these you know, organizations that kind of do
the twenty twenty four season recap or whatever recap there
is that they are taking that into account and excluding
those proposals because they really are different types of proposals.
Speaker 1 (24:14):
And I will say that certainly here at Bloomberg intelligence.
We do take the data driven and nuanced approach, and
on that note, thank you for your time you can
You can find more information on topics like shareholder activism
on the Bloomberg terminal by going to biactgo, or about
proxy season in general on bi proxy Go. If you
have an ESG quandary or burning questions you would like
(24:36):
to ask bi's expert analysts, send us an email at
ESG currents at Bloomberg dot net. Thank you again so
much for your time
ESG has become established as a key business theme as
companies and investors seek to navigate the climate crisis, energy transition,
social mega trends, mounting regulatory tension, and pressure from other stakeholders.
The rapidly evolving landscape has become inundated with acronyms, buzzwords,
and lingo, and we aim to break these down with
industry experts. Welcome to ESG Currents, brought to you by
(00:31):
Bloomberg Intelligence, your guide to navigating the evolving ESG space,
one topic at a time. I'm Rob Duboff, Senior ESG
Anelist your host for today's episode. So perhaps there's no
better example of the recent resurgence of organized labor in
the US and Starbucks. The movement to unionize at Starbucks
locations only began in twenty twenty one, but today represents
(00:55):
over ninety five hundred workers at three hundred and eighty
six locations. However, the company has been pushing back on
these efforts to ensure the unions get a seat at
the bargaining table. They are now seeking three seats in
the boardroom. Last November, the Strategic Organizing Center nominated three
director candidates to the board to be voted on at
(01:15):
the annual meeting the spring. The SC is a coalition
of labor unions representing more than two point three million members,
including the Service Employees International Union. Joining us today to
discuss is Tejal Patel, Corporate Governance Director at SC Investment Group.
In her current role, she works with investor coalitions to
(01:36):
develop strategies for issuer engagement, shareholder proposals, Director Accountability and
Asset Manager Outreach.
Speaker 2 (01:43):
Thanks for joining us, Thanks Roving, nice to be here.
Speaker 1 (01:46):
So first, can you tell us what is the Strategic
Organizing Center and more specifically, what does it have to
do with Starbucks.
Speaker 2 (01:55):
Yeah, so I think you know. You gave a little
bit of an introduction. We are a coalition of unions.
It does include the Service Employees International Union. We work
on transformational campaigns to advance the interests of workers, consumers
and shareholders, and the SEC's Shareholder Advocacy ARM is the
(02:15):
SEC Investment Group. We specialize in identifying companies like Starbucks
that have exhibited irresponsible corporate behavior that, in our view,
has impacted shareholders long term investments. As an investor and
also as an ally to Starbucks employees, many of whom
are also shareholders through the company's share ownership program. We
(02:37):
believe that Starbucks board has effectively failed to oversee the
company's response to employee unionization efforts and its approach to
human capital management, and that's exposed the business to reputational
and potential financial damage over the long term. Great.
Speaker 1 (02:56):
So, before we get into the specifics of the campaign,
I just want to understand why we've seen this surgeon
unionization at Starbucks. I mean, I was under the impression
of the company has relatively employee friendly reputation versus maybe
some of the others in the restaurant industry.
Speaker 2 (03:12):
Yeah, I think that you're right. I think, for you know,
quite some time, the company had what was viewed as
sort of an enlightened approach to its employees. The issue is, though,
and Starbucks would have you think otherwise. I think the
way that the company has addressed the concerns that have
been raised by its employees has been just an extremely
(03:32):
slow process. Some of these concerns started as a result
of the pandemic. Obviously, there were health and safety issues there,
some of its wages, we've been dealing with record inflation, benefits,
staffing at stores, it's a confluence of factors. But the
efforts to unionize really began in late twenty twenty one,
and we're in twenty twenty four now and nothing has
(03:54):
really changed. Instead, what we've seen really is Starbucks's face
saying more than one hundred and thirty complaints from the
National Labor Relations Board. It's got more than eleven hundred
allegations asserting that the company has illegally repressed employees' rights.
In many cases, Starbucks has taken anti union actions, including
(04:15):
terminating union organizers, refusing to bargain in good faith, and
retaliatory store closures. And in March of twenty twenty three,
a labor judge actually concluded that Starbucks had violated labor
laws hundreds of times. They found that the company had
threatened its employees, that it had surveyed them, that it
(04:36):
had more strictly enforced certain policies in order to justify terminations. So,
if Starbucks is really interested in preserving their goodwill and
brand that you mentioned, they really need to have better
oversight of these issues, and that falls on the company's board.
Speaker 1 (04:54):
So that takes us right to the campaign. The SoC
has been fairly active in submitting serolder proposals as example.
You know, we've looked at in the past campaigns asking
companies to conduct racial equity audits and that was pretty successful.
But this is your first real proxy fight. Why did
you decide to get more active here?
Speaker 2 (05:16):
Yeah, so you know, as you said, we have previously
engaged with submitted proposals, run with hold or vote no
campaigns at over one hundred kind of big name companies
I would say, like Bank of America, Uper General, Electric Apple.
This is the first time that we've taken the step
of publicly nominating director candidates, and we're doing that because
(05:37):
we believe that Starbucks's board's current approach to unionization efforts
of its store employees likely jeopardizes its ability to fulfill
its fiduciary duties to investors and has resulted arguably in
one of the most glaring and destructive examples of human
capital mismanagement that Corporate America has ever seen, and that
(05:59):
the current board has proved to be largely inflexible. It's
been fairly reactive, i would say, rather than proactive, and
hasn't provided the oversight that's needed on the company's labor issues.
And that's why we believe that change is needed at
the board level.
Speaker 1 (06:15):
So when you're making this case as a Starbucks shareholder,
why should I vote in favor these director nominees.
Speaker 2 (06:23):
Yeah, you know, it's an excellent question. I think that
you have to look at at you know, the amount
of time that's passed. So for three years, the company's
gone to historic lengths to counter its employees' attempts to
have their voices be heard. This has not only cost
Untold millions in legal fees and other expenditures, but the
(06:45):
constant media policymaker and regulatory scrutiny have caused potentially irreversible
damage to the value of the company's previously enviable brand.
And I think you really need to look at the
company's handling of its labor issues in totality.
Speaker 1 (07:01):
Right.
Speaker 2 (07:01):
So, again, we have these NLRB complaints. There's about one
hundred and thirty of them. There's over one thousand delegations
of illegal activity. We have a shareholder derivative suit that
was filed last summer against several members of the current
board alleging that the directors breached their fiduciary duty of
loyalty to Starbucks and its stockholders. By utterly failing to
(07:24):
implement any oversight and reporting system concerning the company's labor management.
There's thirty or so adverse alj decisions that the company
is appealing. There's even a Supreme Court decision that they
have appealed now to the Supreme Court, and NLRB decision
that required Starbucks to rehire seven pro union Tennessee baristas
(07:47):
that were terminated by the company. And all of this
has exposed the company to legal and reputational risks, and
those are risks that the company's board is supposed to
be mitigating. The board's an approach to these labor issues
likely jeopardizes its ability to fulfill its fiduciary duties to
investors to oversee these issues. And that's why we think
(08:10):
that the changes needed right. Our nominees are going to
be able to bring a fresh perspective and the right
expertise to help improve oversight and safeguard the best interest
of Starbucks shareholders, customers, and employees. And if you or
any other investor in Starbucks has other questions, I would
encourage you to take a look at the contest website.
(08:30):
It's brew abetter starbucks dot com.
Speaker 1 (08:32):
Got it you know, I think back to the proxy
fight at Exon a few years ago, and you know,
from my dark past, I used to be an oil analyst.
I know the company quite well. You know, it was
a great story making sgy component to it, and I
think a lot was made at the time that you know, hey,
you know oils days are number. But I would argue
that I was it was ultimately Exon's lagging relative performance
(08:55):
that did it in capital allocation, not just low carbon solutions,
but across the company more broadly. That's really the through line.
So I think someilarly you've seen Starbucks lag peers for
a while, so I would think that part of what
you need to do would be to connect that to
human cattle issues. Is that something you guys are comfortable doing. Yeah?
Speaker 2 (09:16):
No, And I think that there's certainly evidence of that one.
Since the body of work of like human capital management
has been developed, the argument has always been the business
case right for it. So it's about being able to
attract and retain the best possible employees right in order
for the company to stay competitive. The other thing is
(09:39):
that I think it's important is Starbucks isn't a service industry, right,
and so their performance is only good going to be
as good as the people that they're able to hire,
and so we'd argue that the board's mismanagement of the
labor issues really jeopardizes the company's overall value and ability
to stay competitive in the long term.
Speaker 1 (10:01):
Yeah, I mean certainly, you know, you think their value
proposition versus maybe some others, it's it's really kind of
a welcoming environment and what do they call it? The
third place?
Speaker 2 (10:10):
And you know, yeah, that's what the motto was. I
think I'm not sure if they're still applying that.
Speaker 1 (10:16):
I mean, yeah, so I think definitely. I think you
make a great point that service is definitely a key
component of that, and obviously labor is a is a
key component of that. Now, this also didn't just come
out of the blue. This in November, there's some mandate
from Starbucks shareholders narrow majority approved a proposal regarding an
(10:37):
assessment of workers rights commitments at last year's annual meeting.
But I have to ask, is this campaign too soon
on the heels of that? And I think back to
the proxy fighter exon that was a culmination of years
of engagement with the company, and in this case, it's
been less than a year since that proposal passed. Is
the rest that maybe the company, you know, just needs
(10:57):
a bit more time or some shareholders are willing to
get to come bit more time before going this active.
Speaker 2 (11:04):
Yeah. I think the thing to remember Rob about this
is just because the report was just issued in December
doesn't mean that the lack of oversight by the board
hasn't been happening over the course of a few years.
Speaker 1 (11:16):
Right.
Speaker 2 (11:17):
In fact, it's that lack of oversight that probably resulted
in the report's findings. So we really feel as though
the board and management have been dragging their feet to
address the human capital management issues to kind of maintain
the status quo. They've been on notice for quite some time, right,
(11:38):
And during that time, it's just been like headline after
headline of Starbucks in the news for its labor issues.
And I think that employees and stakeholders have had enough
and shareholders are clearly becoming more concerned because the board's
failure to oversee human capital management is going to make
it really challenging, you know, as we were just talking about,
(11:59):
for Starbucks to continue to retain and attract talent and
stay competitive, which is something that they really need to
do in terms of kind of the report. What's interesting
about it is that I think that the report actually
proves that Starbucks has a long way to go to
shift policy and to deconstruct kind of this massive anti
union apparatus that remains in place and is very active today.
(12:24):
In fact, the company's own report right mentions the company's
weak governance when it came to responding to organizing efforts,
and even more importantly, their you know, assessor actually found
that the company didn't understand or give consideration to its
labor rights commitments in the context of recent organizing. You know,
(12:47):
the report says that the company's supposed to take certain
steps to address its commitments to labor rights. And we
hope that the board is sincere about wanting to strengthen
Starbucks's governance framework and reset its relationships with its employees.
And if they are, they need to have the right
directors on the board to execute that change, and the
incumbent board hasn't really demonstrated that they're able to do that.
(13:09):
I think that the company's own actions are really making
clear that, like the status quo is just not working.
Speaker 1 (13:14):
Yeah, and you talked about the company's own response, and
interesting that even just a few days ago they they
they actually added or nominated some new directors of their own.
You know, how what do you think overall of the
company's response, you know, have they been engaging with you?
Is there a chance to think get settled before the
annual meeting?
Speaker 2 (13:35):
Yeah? So, you know, they've they've had a series of
kind of labor related announcements. They that's included the formation
of a new board committee, the Environmental Partner and Community
Impact Committee. There was the public letter to Workers United
asking to re engage on negotiations, and then obviously that
that labor rights assessment we talked about, and there was
(13:56):
also a shareholder letter that accompanied that report. You know,
I think the optimistic view would be to see some
of these steps as encouraging, but the reality is that
we can only judge their significance based on what the
current board does and not what it says. I will
say that the timing of this kind of flurry of
activity is not a coincidence. I don't think. You know,
(14:19):
while we recognize that some of these announcements kind of
may have been in the works prior to the company
becoming aware of the SEC's decision to put forward directors.
We believe that this level of response in aggregate represents
a clear acknowledgment that the board's oversight of its human
capital management strategy has been severely misguided, and that even
(14:41):
Starbucks is recognizing that change is needed. With regards to
the possibility of a settlement, you know, we can't comment
on any discussions or interactions we've had in the company
with the company, excuse me, but our preference would be
to reach a constructive solution. If that's not possible, obviously,
the next step is taking the vote to shareholders to
(15:02):
elect our nominees to the board.
Speaker 1 (15:05):
How do you go about building support for this? Looking
at a shameless plug here the HDS function on my
Bloomberg terminal, you have a quarter of the voting concentrator
among just five shareholders. Do you need their support or
can you win this behind a bunch of smaller shareholders?
Speaker 2 (15:19):
Yeah, so I can't necessarily comment on discussions that we've had,
but you know, we're confident that other shareholders share a
lot of our concerns, and vote concentration is obviously something
that has to be dealt with in any type of
shareholder work. So there will be communications, you know, to
these larger investors as well as to the smaller ones
(15:39):
to explain our concerns and demonstrate that look, to the
extent that a fund or a proxy voter is concerned
about human capital management or labor rights, this is the
company that you should really be scrutinizing carefully. We hope
that our views on this issue are going to resonate
across institutional and retail investors, as this is a core
(16:01):
component of the company's strategy and a key factor right
to to share older value creation. And while we can't
predict the vote outcome, we plan to continue communicating our
perspectives with other investors so that they can make an
informed decision ahead of the meeting.
Speaker 1 (16:16):
And I'm always curious how do you select your board nominees.
Obviously you want directors that will push the company in
a more labor friendly direction, but they need to be
qualified to address some of the other strategic challenges facing
the company. You know, supply chain, some of the other
kind of geopolitical risks out there. So how do you
how do you go about finding directors and and why
(16:38):
do you think the ones you found are the most qualified?
Speaker 2 (16:44):
Yeah? So our three members late was assembled after comprehensive
due diligence that involved analyzing the board's deficiencies and identifying
the companies kind of go forward needs, if you will.
Our slate of directors. There there highly qualified their independent
candidates that possess the needed business acumen, human capital management experience,
(17:07):
labor rights experience, policy experience, as well as legal background
that the board has lacked, and we think that they
can bring a fresh perspective really to help improve oversight
and safeguard the best interests of Starbucks shareholders and their
the customers and employees.
Speaker 1 (17:27):
And just playing devil's advocate here, but is there a
risk that your board members won't fairly balance the needs
of other Starbucks shareholders relative to its employees. I mean,
it's easy to say there's benefits to better worker treatment,
but how's that balanced against the needs of investors, which
I should add, and as you mentioned, includes pension plans
(17:47):
and some of your other union members.
Speaker 2 (17:52):
Yeah, you know, to your point about concerns maybe that
a director wouldn't fairly balance the needs of other Starbucks stakeholders,
that's just not the case. You know, our independent director
candidates will improve oversight and safeguard the best interests of
all Starbucks stakeholders. That includes shareholders, it includes customers and
their employees, and any board member that's elected to Starbucks's board,
(18:16):
whether it's managements or ours, has a fiduciary obligation to
act in the best interest of all of Starbucks's stockholders.
If our nominees are appointed, you know they would work
constructively and effectively to help recalibrate the company's approach to labor,
but also to rehabilitate its reputation and maximize shareholder value.
(18:39):
And we really do believe that, you know, once the
company is able to resolve and address these labor issues,
they'll be better focused on enhancing shareholder value.
Speaker 1 (18:48):
I don't want to get too wonkey on this podcast,
but can we talk briefly about the universal proxy now
for our listeners. Activism historically has involved soliciting competing proxies.
Shareholders really couldn't mix and match director votes, different colors
of paper were involved. The whole process was just not efficient.
But since late twenty twenty two in the US, shareholders
(19:10):
vote just one proxy with all nominees, both management and dissident.
Does this change the dynamics at all interview.
Speaker 2 (19:17):
Yeah, well, it's fair to not want to get too
wonky about the UPC. I think, you know, I think
what the Universal Proxy Card does is it allows for choice,
and I think it's going to help our campaign because
investors can evaluate our nominees and Starbucks's nominees equally and
determine the best people to be in the boardroom. And again,
(19:38):
you know, we believe our nominees bring much needed human capital, management,
labor relations, and public policy experience to the board in
addition to you know, helping to potentially enhance conversations related
to long term strategy of the company, as the company
considers their employees as key stakeholders right in the company's success.
(19:58):
So the UPC, the Universal Proxy Card really allows investors
to select the best candidates for the boardroom without being
limited to choosing you know, the director candidates on only
one card or the other. It's that mix and match
system that you talked about, and you know, we hope
that this will further enable the best candidate to prevail.
Speaker 1 (20:18):
Great And speaking of of the rest of proxy season,
I mean, obviously this is a big campaign, but are
there some some other trends you expect to see in
this current proxy season, is SEC involved in other campaigns
out there?
Speaker 2 (20:34):
Yeah, we are, We've got you know. In addition to
us UH, several other investors have continued to file these
labor rights assessment style proposals at other companies. You know,
there's also workplace health and safety, I think, following the
heels of the dollar general vote that took place last spring,
(20:56):
and so that's that's going to continue to be a
concern at at a few companies, you know. Other than that,
there's always board accountability measures. So the more traditional kind
of ones that are known as vote knows, we're probably
going to be seeing a few of those. I can't,
unfortunately talk to you about which company is quite yet.
(21:17):
It's a little early ron but you know, happy to
keep in touch on it.
Speaker 1 (21:22):
I appreciate that, And you know, I think one other thing,
you know, I talked to some of your colleagues a
few years ago on the racial equity audits, which you
know was a really interesting trend at the time, and
you know it's I don't know funny or sad is
the right term, but you know you've seen these kind
of be yeah, turned into very similarly warded but anti
ESG proposals that that maybe use the language first the inclusion,
(21:46):
but maybe talk about underrepresentation of white males in the
workforce or you know, diversity of thoughts. I'm just curious
kind of what your thought is on, you know, basically,
you know, seeing maybe call it the other side using
some of the similar strategies you guys have employed to
uh some success.
Speaker 2 (22:07):
Yeah, you can call it weaponizing a share a shareholder
proposal if you'd like. You know, we've we've seen those
types of organizations do that kind of previously. I don't
know if you notice that. You know, in the past,
one of those organizations would file like independent chair proposals,
(22:28):
but then when you actually read the proposal, it had
nothing to do with an independent chair basically. So so
we are we are used to them doing that. I
think that in a lot of ways, when they do
something like that to the proposal, it's a hallmark of
just how much the proposal is resonating with people and
their attempts to kind of undermine that. I guess I
(22:51):
will say that, you know, we've seen those proposals get
filed and shareholders, you know, and I'm very grateful to
this have been able to recognize the difference between those
proposals and the ones that folks like us file, because
(23:12):
they're really those vote results are getting like, on average,
I think, two or three percent as opposed to the
regular and kind of normal civil rights or racial equity audits,
which I think we're in like the twenties.
Speaker 1 (23:24):
Or so, right. But I do think, you know, one
of the flip sides of that is that when you
see some of these kind of headline numbers, you know,
seeing a rise in those proposals that get two to
three percent of the vote skews kind of average headline numbers,
and you know, it does.
Speaker 2 (23:40):
Yeah, I think that Unfortunately, you know, I would love
it if folks that were covering this maybe took a
closer look at what the underlying proposals were actually asking for,
but that's hard to do.
Speaker 1 (23:55):
You know.
Speaker 2 (23:55):
The best that we can hope for is that a
lot of these you know, organizations that kind of do
the twenty twenty four season recap or whatever recap there
is that they are taking that into account and excluding
those proposals because they really are different types of proposals.
Speaker 1 (24:14):
And I will say that certainly here at Bloomberg intelligence.
We do take the data driven and nuanced approach, and
on that note, thank you for your time you can
You can find more information on topics like shareholder activism
on the Bloomberg terminal by going to biactgo, or about
proxy season in general on bi proxy Go. If you
have an ESG quandary or burning questions you would like
(24:36):
to ask bi's expert analysts, send us an email at
ESG currents at Bloomberg dot net. Thank you again so
much for your time
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