(Bloomberg) — New York City’s powerful pension system and other Starbucks Corp. investors are calling on the coffee chain’s board to acknowledge “failures in corporate governance.”
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In December, Starbucks released a third-party audit — which a group of shareholders had requested against the company’s recommendation — that urged the chain to bolster guidance on how it disciplines workers and measures compliance with collective-bargaining rights. However, it found no evidence of an “antiunion playbook” that laid out how to thwart employees’ right to unionize.
The investors who pushed for the audit found it wanting, according to a report they plan to issue Friday. A group including the New York City Retirement Systems and Trillium Asset Management said the assessor didn’t appropriately get worker input and that the Starbucks board has failed to acknowledge “clear failures in corporate governance, executive management and risk management.”
“The abridged report does not absolve Starbucks of wrongdoing — in fact, it raises significant questions of conduct and accountability,” the group said.
Starbucks challenged the investors’ review of the audit in a statement Friday, arguing the assertions are incorrect.
“We have always pursued ambitious goals and programs, and reported on our progress and opportunities with intention, transparency and accountability,” a spokesperson said in an email.
Starbucks’ report provides no evidence that the assessor spoke to workers interested in a joining a union, according to the investors’ review. It’s also unclear whether staffers were aware that they could contact the auditor voluntarily and provide feedback.
“This is, in and of itself, a lapse in board oversight,” the investors said.
The audit also said Starbucks committed “missteps” in how it engaged with unionized workers because it was caught off guard by a wave of organizing. In their report, the investors characterized the lack of preparation as a “serious board governance failure,” adding that it was unclear whether the current directors could implement reforms. Many were in their posts when the unionization wave emerged.
Starbucks is contending with a proxy fight from the SOC Investment Group, which nominated three members to the company’s board and argues the current slate of directors “has tolerated an unacceptable level of reputational risk, a counterproductive approach to labor issues and a flawed allocation of resources.”
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In a letter to shareholders Thursday, Starbucks said SOC’s nominees lack the “necessary experience, skills, qualifications and other attributes” to offer a balanced perspective on business strategy.
“We stand behind our board and each of our directors’ background, qualifications, and judgment to effectively oversee Starbucks ambitious partner-driven strategy,” the spokesperson said Friday.
Starbucks’ board has also placed undue emphasis on the assessor’s statement that the chain has no “antiunion playbook,” according to the investors’ report, which said the finding is limited to the absence of “written materials expressly calling for a violation of US law.”
Yet the audit doesn’t analyze the goal of the company’s approach, or the strategy’s effect on workers, the investors said. Starbucks’ hiring of “prominent union-avoidance” law firm Littler Mendelson also casts doubt on the assertion.
“Whether or not such a ‘playbook’ exists, it is clear that the company used aggressive tactics in its approach to union activity,” wrote the investors. The other groups behind the investor effort are Pensions & Investment Research Consultants Ltd., representing the UK’s Merseyside Pension Fund, and the Shareholder Association for Research & Education.
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Overall, the assessor used a narrow interpretation of international standards to determine whether Starbucks was meeting its commitments to labor and human-rights practices, according to the report. It’s also unclear how the chain plans to improve its adherence to the standards.
In its Friday statement, Starbucks said the audit found that found that the company has given partners reassurance that it respects their organizing rights.
Starbucks now needs to show progress in bargaining, the group said, pointing to a letter the company sent in December to its workers’ primary union as a good sign. However, the investors said the chain needs to engage in “actual collective bargaining in good faith” and provide a concrete timeline.
Workers United, the union representing most Starbucks workers, has also criticized the audit. A review commissioned by the labor group found the report contains some positive recommendations but “falls short in several fundamental respects,” like suggesting that “a wealthy, powerful multinational corporation with sophisticated human-resources management” and counsel from a labor law firm was “outmaneuvered by the union.”
Regional directors of the US National Labor Relations Board have issued more than 100 complaints accusing Starbucks of illegal antiunion tactics, including closing stores, firing union leaders, and refusing to fairly negotiate at unionized cafes. Judges and NLRB members have ordered the company to reinstate some three-dozen activists. The company denies wrongdoing.
–With assistance from Josh Eidelson.
(Updates with Starbucks comment starting in sixth paragraph.)
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