NYC Comptroller & Investor Coalition: Starbucks’ Workers’ Rights Assessment Beset by Lack of Worker Input & Failure of Board to Accept Responsibility

New York, NY – New York City Comptroller Brad Lander, on behalf of the five New York City retirement systems, alongside Trillium Asset Management, PIRC, and the Shareholder Association for Research and Education (SHARE) (Proponents), released an analysis of Starbucks’ workers’ rights assessment conducted by independent assessor Thomas M. Mackall.

The analysis raises concerns about Board oversight and governance failures, a lack of worker input, and ambiguity about the company’s ongoing commitment to international standards. As Starbucks prepares to resume negotiations with workers who have unionized over the past two years, and as shareholders consider the nominations of independent Board members at the Starbucks annual general meeting this spring, the analysis raises important questions about boardroom accountability.

“If an assessment of how well a company is respecting its workers’ rights does not actually include input from workers, it is not assessing much,” said New York City Comptroller Brad Lander, noting that it does not appear that the assessor talked to any workers. “The Starbucks Board needs to accept responsibility for the companies’ shortcomings and set a clear tone from the top that it will hold management accountable to its commitments to its workers’ freedom of association.”

“The assessor’s report and the Board’s response represent a sadly missed opportunity for Starbucks to pour out yesterday’s bitter brew and start fresh with a bold commitment to respecting fundamental labor rights,” said Anthony Schein, Director of Shareholder Advocacy at SHARE.

“The Abridged Report is revealing and concerning. Given that the company’s 2021 SEC filings identified material reputational and operational risks related to potential unionization activity, it is troubling that, as the Assessor put it, ‘Starbucks was not prepared for the emergence of union organizing activity,'” stated Jonas D. Kron, Chief Advocacy Officer at Trillium Asset Management, LLC. “Starbucks Board leadership should publicly acknowledge this failure – doing so is an important step towards living up to its commitments to worker rights.”

The assessment was conducted following majority shareholder support for the Proponents’ 2023 shareholder proposal requesting an independent, third-party assessment of Starbucks’ adherence to its stated commitment to workers’ freedom of association and collective bargaining rights. An abridged report of the assessment was made public in December.

Rather than taking accountability for the Board failures outlined in the assessment, a letter to shareholders from independent Chair Mellody Hobson and independent Director and Chair of the Nominating and Corporate Governance Committee Jørgen Vig Knudstorp, which accompanied the publicly released version of the report, cast the assessment and its recommendations in a more positive light than warranted. The letter failed to publicly acknowledge the most salient takeaways that reflect on Board oversight, including that the company was unprepared for the emergence of union organizing activity in 2021, that Starbucks’ own Global Human Rights Statement (GHRS) was not a material consideration in response to the organizing activity that emerged in late 2021, and that the report identified circumstances where there was an “absence of strong and clear governance.”

Unfortunately, rather than assuaging investor concern, the assessment raises additional questions of accountability for such significant governance failures, and if the Board, as currently constituted, includes the right members to implement the needed reforms.

Recommendations made by the Proponents to insure a transparent and genuine assessment went unheeded by the Board. In addition to the striking corporate governance failures, the Proponents’ review of Starbucks’ assessment raises four main concerns:

1. A lack of worker input, undermining the credibility of the assessment from the start.

There is no evidence that the Assessor spoke to any workers or obtained any worker input. Workers obviously have vital perspectives on whether the company was adhering to its policies as it responded to their effort to form and join unions, and to collectively bargain.

The Proponents clearly communicated to Starbucks in advance that worker input was a threshold matter, a fundamental expectation, and necessary for a credible assessment.

Proponents emphasized the need to publicize the name of the Assessor so that there would be sufficient time for inbound feedback; timely, meaningful, and effective disclosure to all stakeholders of the Assessor’s identity would also be an imperative. It appears these recommendations went unheeded and the identity of the assessor was not made public prior to issuance of the report.

We do not know whether Starbucks’ workers were made aware of the assessment by the company or the Assessor, whether they were informed on how they could voluntarily and confidentially contact the Assessor to provide feedback, and whether the Assessor spoke to a single worker or obtained any worker input. No worker input is reflected in the publicly-released version of the assessment.

2. The assessment conducted a limited review of Starbucks’ adherence to the international standards they committed to follow in their Global Human Rights Statement (GHRS).

Starbucks commits to several international labor standards including the UN Guiding Principles on Business and Human Rights and ILO Core Labor Standards, which include standards which exceed U.S. labor law. However, the assessment only measures Starbucks’ compliance with U.S. law. As an example, the Assessor looked at “captive audience” meetings entirely through the lens of U.S. law and ignored international standards on the topic.

Compliance with U.S. law, while obviously required, is not Starbucks’ sole obligation, nor does it necessarily satisfy Starbucks’ GHRS obligations. Nothing in U.S. labor law prevents Starbucks from complying with the international norms it has committed to uphold.

It appears that Starbucks made commitments to internationally recognized fundamental workers’ rights which it did not take into consideration as it moved to restrain union activity.

3. The accompanying Board letter to shareholders calls into question whether it will seek to weaken commitment to and implementation of international labor standards going forward.

Investors believe that Starbucks should strengthen its implementation to ensure that it complies with both U.S. law and its policy commitments to international labor standards so that Starbucks workers can exercise their fundamental rights.

Instead of reaffirming their commitment, the Board Letter highlights the opportunity to “strengthen” Starbucks’ Global Human Rights Statement and referenced the assessment’s view that there are things the company can and should do to “improve its stated commitments and adherence to these important principles.” Investors are unclear as to what “improving” its stated commitments means to Starbucks, especially when the assessor’s narrow view of Starbuck’s current commitments has gone unchallenged by the Board and the assessor directly recommended “revising” the GHRS.

Proponents are concerned that the Board has left open the possibility of weakening the company’s commitments to international standards that it has already publicly pledged to follow – as eBay recently did, when its non-adherence to international standards was made public.

Proponents were encouraged by Ms. Hobson’s and Mr. Knudstorp’s indications that the Starbuck’s Board does not intend to weaken its commitments in a meeting held to discuss the Assessment after its release, and hope that commitment will be formally clarified and followed through by the Board.

4. The assessment does not absolve the company of any wrongdoing despite the tone in the accompanying letters to shareholders. In fact, it raises significant questions of conduct and accountability.

Starbucks touts the assessor’s statement that the company does not utilize an “anti-union playbook.” However, the assessment did not examine Starbucks’ strategy in its approach to union activity or its effect on Starbucks’ workers. Even without a formal “playbook” the strategy of challenging union elections, the delay of constructive collective bargaining and overall aggressive tactics, which resulted in many National Labor Relations Board actions and, as the Assessor recognized, from October 2022 to the Abridged Report date, Administrative Law Judges issued more than 35 decisions arising out of the post-August 2021 organizing activity.

The ALJ decisions in response to worker organizing raise serious investor concern. Additionally, Starbucks’ use of Littler Mendelson, a prominent law firm which touts its ‘union avoidance’ skills, calls this characterization into question.

Shareholders want to see a new era at Starbucks in its approach to respecting workers’ fundamental rights (including freedom of association and collective bargaining) that will build on the company’s long history as a leader of healthy human capital management, supplier responsibility, and environmental sustainability. Starbucks should take notes from companies such as Microsoft that have set a standard for engagement during worker organizing efforts.

Despite Starbucks’ framing, the Assessor also recommends that Starbucks change its approach to bargaining with organized workers, noting that: “[a]fter nearly two years since the first elections…Starbucks does not have any collective bargaining agreement in place in the U.S.” The assessment also recommends that Starbucks “redouble its efforts” and states that: “[t]his issue will not resolve without Starbucks’ engaging constructively with the union.”

There are some recent positive developments that hint at a change in the company’s approach to engaging with workers. These include the December 8th letter from Starbucks’ EVP Sara Kelly to Workers United proposing the resumption of collective bargaining, as well as the Board’s Letter indicating that management has begun to address opportunities identified by the assessment including elevating actions to embrace a constructive relationship with Workers United. However, more than an expression of intent is needed. Actual good faith collective bargaining along with a concrete timeline is required to show shareholders that Starbucks is taking its obligations under its GHRS seriously.

The coalition of investors vowed to follow the Board’s actions, the company’s approach and the ensuing results. The coalition holds more than 1.98 million shares in the company.

You can read the full analysis here.

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