Starbucks and Ethical Responsibility

Introduction

This paper will examine the performance of Starbucks with regard to socially responsible business principles. It will discuss three key areas of corporate ethical responsibility policies with respect to Starbucks. This paper is divided into four sections. Section two will focus on two ways Starbucks behaves in a morally responsible manner toward consumers, the environment, and their own employees. Section three will discuss the effects of these ethically conscious decisions on the firm's bottom line. Section four will review the company's policies, and list at least two areas where the firm could improve its treatment of consumers, the environment, or its employees.

Starbucks and Ethically Responsible Practices

Consumers. Starbucks is well known for its corporate social responsibility policies. This is evident by its recognition by Ethisphere as one of the world's most ethical companies ("World's most…," 2013). However, assessing the ethical treatment of its consumers is somewhat difficult to gauge from a review of the literature. Starbucks progressive policies concerning the environment and the use of fair trade coffee products, are two areas that may win the loyalty of a customer base. These customers tend to support socially responsible firms and will continue to patronize Starbucks in the belief they are supporting an ethically progressive business.

Environment. Starbucks acts in an environmentally responsible manner in a number of different ways. First, Starbucks uses the principle of sustainable development in the production of its coffee. For instance, the firm pays a fair price to coffee famers and ensures that the product has been grown in a manner that is environmentally sound (Kerin, Hartley, & Rudelius, 2011). As a second example, Starbucks has instituted energy and water conservation programs as well as waste reduction, recycling and reuse programs in all of its outlets (Kerin et al., 2011). Finally, Starbucks has made financial donations across an array of social, environmental and economic causes through its “Make Your Mark” program.

Employees. According to Business for Social Responsibility, Starbucks pays above market prices for coffee produced in Guatemala and Costa Rica. They also buy products directly from growers rather than from wholesalers so that the primary producers in the marketing chain are paid a living wage ("Marketplace," 2002). In addition, Starbucks has a huge large labor force of 95,000 part-time workers to whom it provides health insurance ("One hundred…," 2012). The firm provides domestic partner benefits for same sex couples and has a non-discrimination policy that includes sexual orientation.

Starbucks also attempts to reflect the diversity of the communities in which it serves. Its workforce is monitored on a quarterly basis to make sure recruitment diversity objectives are being met. The firm also emphasizes supplier diversity and partners with women and minority-owned businesses (Kerin et al., 2011). Starbucks became the first agribusiness to announce and pass a Code of Conduct stipulating acceptable labor conditions in Guatemalan plantations (Maitland, 2002).

In November 2001 Starbucks formed a long-standing partnership with a non-governmental organization known as Conservation International. The two organizations announced the coffee industry’s first purchasing guidelines. The guidelines were designed to comply with environmental, labor, economic and quality control standards that are verified by both Starbucks and third party social auditors. In exchange for compliance, the firm offers incentives to suppliers that meet all of its criteria (Maitland, 2002). Out of this relationship emerged a set of guidelines for the firm's coffee suppliers known as CAFÉ (Coffee and Farmer Equity). These guidelines cover product quality, financial transparency, social responsibility, and environmental leadership in coffee growing and processing. Starbucks is also collaborating with Conservation International to trace the flow of money to ensure that producers are fairly compensated and to encourage sustainable growth practices (Vogel, 2005).

Effect of Socially Responsible Business Practices on Starbucks' Bottom Line

There are decades of corporate performance studies indicating a relationship between profitability and ethical business practice. Makower (1993) reports research testing the “Wall Street belief that having a good environmental record was costly to business and lowered points and returns.” The study selected 19 top ranked firms from the Council on Economic Priorities (CEP) list ranking firms according to their record on social responsibility. These firms were compared against those of the bottom 34 firms. All firms were ranked using eight measures of economic performance. Makower (1993) reports that the top 19 firms outperformed the bottom 34 firms on all 8 measures. This suggests that a strong social performance record is not necessarily an obstacle to strong financial performance.

These results are echoed by other research. A 1997 study found that excellent employee, customer and community relations are more important than strong shareholder results for corporations that earned a place on the annual “Most Admired Companies” list published by Fortune (Waddock & Graves, 1997). In a different study, the same authors found a correlation between good environmental performance records and strong economic performance. The authors followed over 250 companies during a two-year period using independently developed environmental ratings. The authors reported that the relationship between environmental and economic performance strengthens with industry growth. This evidence seems to predict that a strong socially responsible business policy may actually help Starbucks' long-term profitability. At the very least, there is no evidence that a strong ethical record is an obstacle to corporate profitability.

Starbucks' Ethical Policies in Critical Perspective

Consumers. It's similarly difficult to assess issues of improvement in the firm's policy towards its customers. Starbucks is a customer service oriented firm and as such the closest area of consumer criticism would concern the prices of its products. However, this may be the price to be paid for its efforts on social responsibility. Nevertheless, Starbucks' high coffee prices may prohibit consumers with weaker purchasing power from patronizing the business.

Environment. As noted above, several years ago, Starbucks passed a code of conduct for its suppliers. It then formed a partnership with Conservation International to provide third-party audits. However, the firm still has to be concerned about full implementation of ethically responsible policies. The fact is, many firms have issued codes of conduct to broadcast that they are supportive of corporate social responsibility policies. But there is some evidence that, in many instances, this is all a firm does. Issuing a code of conduct actually costs little to the firm and it can be used to bolster its reputation as a socially responsible business without taking any other action. It is helpful to remember these codes of conduct are voluntary (“Codes of…,” n.d.). Second, social auditing has been shown to have problems as well. Managers where sites are to be audited have been known to have advance notice of an audit so that any violations can removed from the potential view of auditors. These social audits are typically performed by third-party non-governmental organizations (NGOs). These NGOs obtain much of their funding from the firms they audit (Roberts & Bernstein, 2000; Kernaghan, 2001). This creates a conflict of interest. This conflict could be mitigated with stronger governmental oversight. This oversight could become an added layer of regulation that functions in addition to the use of private third-party auditors. This added layer of oversight would also provide another layer of compliance verification. Starbucks' suppliers, workers and customers could benefit from such governmental oversight and verification. This is especially true since government has the power to levy penalties that private auditors do not.

Employees. Starbucks appears to be sending out mixed signals about its progressive employee policies. The fact remains that Starbucks workers are entirely non-unionized and receive non-union pay scales. An organization dedicated to improving the pay of the firm's baristas notes that, US Starbucks workers can earn as little as $7 or $8 per hour ("Why Are…," n.d.). This actually contradicts the firm's self-representation as a champion of employee welfare. As noted above, Starbucks workers are almost entirely part-time workers and the number of hours per week does not follow a set schedule. That is to say, scheduled hours can vary unpredictably from as little as ten per week to as much as 35 ("Why Are…," n.d.).

The second area in which Starbucks can show improvement is in the provision of health care to its workers. This is an issue that was noted above. However, an employee organization seeking to unionize Starbucks workers notes that, a lower percentage of the firm's workers are insured than at Wal-Mart ("Why Are…," n.d.). The numbers for each firm are 42 percent insured for Starbucks and 47 percent for Wal-Mart. Both firms are reportedly below the retail industry average.

Employees who seek health insurance are faced with two obstacles. First, in order to qualify an employee must complete 240 hours per quarter. However, this is difficult to achieve for most employees. In addition, the health insurance plan requires high premiums, co-pays, and deductibles. With most workers being paid so low, most staff members wouldn't afford the required premiums anyway. While this issue is likely in-flux due to health care reform, these are issues the firm has failed to address for years.

References

Codes of conduct. (n.d). Itcilo.org. Retrieved from http://actrav.itcilo.org/actrav-english/telearn/global/ilo/code/main.htm.

Kerin, R., Hartley, S., & Rudelius, W. (2011). Marketing: The core (4th ed.). New York, NY: McGraw-Hill Irwin.

Kernaghan, C. (2001). Toys of misery: A report on toys made in China. NLC Net. Retrieved from http://www.nlcnet.org/campaigns/china/chinatoys01.pdf> .

Maitland, A. (2002, Mar. 11). Coffee: Bitter taste of success. Financial Times.

Makower, J. (1993). E Factor. New York, NY: Random House-Times Books.

Marketplace White Paper. (2002). Bsr.org. Retrieved from http:// www. bsr.org/BSRResources/WhitePaperDetail.cfm?DocumentID=269>.

One hundred best companies to work for. (2012). Cnn.com. Retrieved from http://money.cnn.com/magazines/fortune/best-companies/2012/snapshots/73.html.

Roberts, D., & Bernstein, A. (2000). Inside a Chinese sweatshop: A life of fines and beating. Business Week, Oct. 2.

Vogel, David. (2005). Market for virtue: The potential and limits of corporate social responsibility. Washington, D.C.: Brookings Institution Press.

Waddock, S. & Graves, S. (1997). Finding the link between stakeholder relations and quality of management. The Journal of Investing, 6(4), 20-24. DOI: 10.3905/joi.1997.408435.

Why are Starbucks workers joining a union? (n.d.). Starbucksunion.org. Retrieved from http://www.starbucksunion.org/about-starbucks-union/why-are-starbucks-workers-joining-union.

World's most ethical companies - honorees. (2013). Ethisphere.com. Retrieved from http://ethisphere.com/worlds-most-ethical/wme-honorees/.