OPENING CASE Ethical Dilemma Starbucks's Corporate Social Responsibility Journey Starting with a single store in Seattle in 1971, be unhappy, demanding that Starbucks serve Fair Starbucks grew to 30,000 stores worldwide with Trade coffee once a week instead of once a month revenues of $25 billion in 2019. Since its 1987 pur- (the current practice). Although Global Exchange chase by Howard Schultz, Starbucks has positioned acknowledged CAFE to be a "launching point for itself as a company that, in the words of Schultz, improvements," it "in no way reduces our initial and "puts people first and profits last." In the 1990s, still unmet demands." it created a corporate social responsibility (CSR) Episode 2: UK Tax In 2012, news broke out that department and named a senior vice president for since entering the United Kingdom in 1998, CSR. Since 2001, Starbucks-in addition to its tra- Starbucks, despite its thriving business, had paid ditional Annual Report to Shareholders-has been only 0.3% of its sales of f3 billion ($4 billion) for UK publishing a Global Corporate Social Responsibility corporation tax between 1998 and 2011 for a total Annual Report, whose title changed to Global Social of f8.6 million payment. The tax rate should be Impact Report in 2017. Running hundreds of pages, 24%. Starbucks Coffee Company (UK) Ltd. claimed the Global Social Impact Report is available in nine to be losing money. However, the parent company languages. Yet, for a company so serious about CSR, informed investors that the subsidiary was profitable. it has become a perpetual target for CSR activists. Such news triggered a media storm, store pickets, Episode 1: Fair Trade In 2000, Global Exchange, a and consumer boycotts. Starbucks executives were nongovernmental organization (NGO) promoting the yanked before the UK Parliament to explain such idea of "Fair Trade," launched a campaign against behavior. It turned out that such tax-avoidance Starbucks. The Fair Trade movement advocated a behavior was legal. The parent company set up a minimum "fair" price of $1.26 per pound to ensure European headquarters in the Netherlands, where it a "living wage" for coffee producers-regardless needed to pay a combined Dutch and US tax rate of of the highly volatile market price, which was only 16%-as opposed to the 24% in the UK. After paying a 64 cents per pound at that time. Global Exchange 6% royalty of its sales to the European headquar activists demonstrated in front of a San Francisco ters, the UK subsidiary hardly made any money and Starbucks store after a local TV station aired a clip thus was hardly taxable. "We're not accusing you on child labor on Guatemalan coffee farms. A few [Starbucks] of being illegal," thundered a member days later, during Starbucks's shareholders meeting, of Parliament in the public hearing, "we're accusing Global Exchange activists took the microphone and you of being immoral." Quite a devastating attack demanded that Starbucks offer Fair Trade coffee. on a company that was serious about CSR. Overall, Things got heated and the activists were physically Starbucks was accused of using artificial corporate removed from the meeting. After rounds of protests structures to shift profits and tax burdens from the UK and negotiations, Starbucks eventually agreed to to lower-tax jurisdictions. Facing relentless pressure, sell Fair Trade coffee in its domestic stores. Soon Starbucks agreed to voluntarily pay f20 million in it became the largest US purchaser of Fair Trade additional UK corporation tax. coffee, purchasing 20 million pounds (6% of its Episode 3: Philadelphia Bathroom Incident In coffee purchases). In addition, Starbucks launched April 2018, two African American college students in Coffee and Farmer Equity (CAFE) guidelines, with a Philadelphia Starbucks store who did not buy any- inspectors, to "ensure the sustainable supply of high thing and were waiting for someone else asked to quality coffee, achieve economic accountability, pro- use the bathroom. Instead, the store manager called mote social responsibility within the coffee supply the police, claiming the two men were trespassing, chain, and protect the environment." By 2009, Star- leading to their arrest. This incident sparked a me- bucks had purchased 77% of its coffee from CAFE dia firestorm and triggered protests outside Star- suppliers. However, Global Exchange continued to bucks stores. CEO Kevin Johnson apologized, and 315OPENING CASE (Continued) founder and chairman Schultz said in an interview that he was "ashamed" by the incident. Starbucks reached an Sources: (1) BBC, 2012, Starbucks, Google and Amazon grilled undisclosed settlement with the two men. In May 2018, over tax avoidance, November 12: www.bbc.com; (2) Business Week, 2007, Saving Starbucks' soul, April 9: 56-61; (3) Forbes, it closed all 8,000 US stores for an entire afternoon to 2019, Starbucks' open bathroom policy comes with heavy cost, provide racial bias training for all employees-at a cost of November 12: www.forbes.com; (4) PR Week, 2018, Timeline $16.7 million in lost sales. The company clarified that "any of a crisis, July 6: www.prweek.com; (5) Reuters, 2012, Star- person who enters our spaces, including patios, cafes, and bucks's European tax bill disappears down $100 million hole, restrooms, regardless of whether they make a purchase, is November 1: uk.reuters.com; (6) Starbucks, 2018, Global Social considered a customer." While such an "open bathroom" Impact Report, www.starbucks.com; (7) Vax, 2018, Starbucks policy calmed CSR activists down, it came with a heavy says everyone's a customer after Philadelphia bias incident, May cost-not only in terms of extra cleaning cost, but also in 19: www.vox.com. terms of lost customers and reduced in-store time for (the er.54662.edu paying) customers who do show up. This effect is espe cially large among Starbucks locations close to homeless shelters. Given the large homeless population in many cities, can the "open bathroom" policy be sustainable