Starbucks Proxy Fight Charted Alternate Path for Workers’ Rights

A novel union-driven proxy fight at Starbucks Corp. that ended this week highlights shareholder activism as a new route to push companies on workers’ rights.

The proxy fight, driven by activists at the Strategic Organizing Center, a union coalition, fizzled out one week after the coffee giant agreed with the main union representing its employees to start talks aimed at reaching a collective bargaining agreement. Starbucks shareholders were supposed to vote March 13 to decide if the company’s board members would be replaced by any of three nominees put forward by the union coalition due to their experience on labor issues, but the coalition ultimately withdrew its candidates.

“It appears that SOC’s pressure has yielded the desired result—Starbucks fundamentally changing its tack as evidenced by the agreement to bargain with Workers United,” said Amanda Brown, a labor and employment partner at Reed Smith.

Starbucks had been fighting against a nationwide unionization campaign for more than two years. The proxy battle came one year after a majority of investors supported a shareholder bid that asked the company for an independent audit of its labor practices.

“The proxy fight was a means to an end, and the unions achieved theirs,” said Kai Liekefett, a partner at Sidley Austin who focuses on shareholder activism. “To me it appears that Starbucks became concerned about losing the proxy fight and blinked.”

A burgeoning labor movement nationwide, including strikes last summer from Hollywood screen writers and auto workers, has drawn a response from investor activists concerned that negative attention over workers’ rights can hurt the value of a business.

The Starbucks battle was one of the first times that a proxy fight was focused on a single social issue. Companies were “watching this closely” because of unionization efforts in their own workforces, Liekefett said.

The efforts were “in part seen as a little bit of a guinea pig for if unions can obtain board representation in corporate America,” he said.

Promising Move

In withdrawing its board nominees, the union coalition said the coffee giant’s move to negotiate with Workers’ United is promising.

“We believe that by and large shareholders are optimistic the company has committed to these changes in good faith and intends to begin to repair its relationship with its workers, which will ultimately enhance performance and shareholder value,” SOC said in a statement. “We think it’s imperative that shareholders continue to monitor the board’s performance and Starbucks’ approach to labor relations issues in the coming months—and we plan to continue to hold the company accountable going forward.”

When the Strategic Organizing Center launched its proxy campaign late last year, it nominated three directors to Starbucks’ board to address what it said was the current slate’s failure to effectively oversee the company’s response to employee unionization efforts: Wilma Liebman, the former chair of the National Labor Relations Board during the Obama administration; Maria Echaveste, a former White House official in the Clinton administration; and Joshua Gotbaum, who worked in both the Clinton and Carter administrations.

Starbucks has defended itself against SOC’s assertions, saying in an investor presentation that it’s taken “a constructive approach” with its union engagement “despite challenges faced.” Starbucks said in a statement Tuesday that it appreciates SOC’s decision to withdraw its nominees. “Our board’s focus remains on driving long-term value for all stakeholders, including partners, shareholders, customers, and farmers,” the company said.

A company spokesperson pointed out that, before the agreement with Workers’ United last week, Starbucks in December sent a letter to the union saying the company was making “an earnest attempt to propose a path forward” on contract negotiations. The spokesperson also noted that the announcement to begin discussions with Workers’ United follows last month’s mediation over trademark litigation.

Starbucks’ agreement with Workers’ United “appears to be a major step forward for all involved,” ISS, an influential proxy advisory firm, said when recommending how investors should vote. The firm on February 29 had advised shareholders to support all management nominees, rather than the labor coalition’s picks.

Past Pressure

Starbucks dealt with pressure on workers’ rights at last year’s annual meeting, but on a much smaller scale than this year’s proxy fight. Shareholder proposals rarely pass, but a bid seeking an independent assessment of the coffee giant’s labor practices advanced with 52% of investor support.

In December, Starbucks issued the findings of the audit it conducted. The report said Starbucks committed “missteps” in the way it engaged with unionized workers because it wasn’t prepared for the organizing efforts that it faced. The report also said the company could improve, for example, its communication and management training on labor issues.

Starbucks said the report shows there is no evidence that the company has used an “anti-union playbook.” The company also said the report shows it “is not opposed to bargaining and continues to engage in meaningful negotiations with other unions elected to represent our partners.”

Some shareholders disagreed. Investors, including New York City Retirement Systems and Trillium Asset Management, said in January that the report “does not absolve Starbucks of wrongdoing—in fact, it raises significant questions of conduct and accountability.” The investors also raised concerns that it wasn’t clear if staffers were aware that they could voluntarily provide feedback to the auditor.

“Investors, customers, workers, and other stakeholders will continue to focus their attention on Starbucks’ management and board,” said Jonas Kron, chief advocacy officer at Trillium, after SOC withdrew its nominees. “It appears that the proverbial cargo ship has begun to make the long-awaited turn. But we are not entirely clear what the new course will be.”

Not Alone

Starbucks isn’t the only business facing friction over workers’ rights at annual meetings. Last year, about a half-dozen union-related investor proposals went to a vote at companies including Activision Blizzard, Amazon.com Inc. and CVS. Those proposals, seeking either a freedom of association policy or a labor practice assessment, secured a steady amount of investor support, in the range of 30% to 36%, except for CVS, which garnered 26% support.

The pressure is still on. The New York City comptroller’s office in November announced a new international investor network that will urge companies to respect workers’ rights.

The coffee giant has faced a wave of unfair labor practice charges filed against it, leading to about 130 complaints from National Labor Relations Board prosecutors alleging labor law violations. While most of the cases are still being litigated through the NLRB’s administrative process, the agency’s judges have ruled that Starbucks committed violations in dozens of cases they’ve decided thus far.

The company has denied wrongdoing and continues to defend itself against allegations of illegal conduct in administrative proceedings and in federal court. That legal fight includes a case that will go before the US Supreme Court in April. In addition to challenging the allegations against it, Starbucks has joined SpaceX, Amazon, and Trader Joe’s in arguing that the NLRB itself is unconstitutional.

There’s still a long way to go in the Starbucks saga, as the collective bargaining agreements and ongoing legal challenges are going to take more time, Reed Smith’s Brown said. But the shareholder activism approach appears to be a new route to try to evoke change, she said.

“Now they’re trying a different tack,” Brown said.

—With assistance from Robert Iafolla