Ethical Issues in Starbucks Company

1 Ethical Issues in Starbucks Company Introduction Starbucks is one if the most successful coffee companies on the globe today. With more than 40 years in this business and having established more than 17,000 stores in over fifty countries, the company has something to boast about. The company specializes in serving drip brewed coffee, espresso and non-espresso-based hot beverages, tea and even ice-blended drinks.

In addition, the company also supplements its drinks with salads, pastries and sandwiches. The success this company has achieved over the years has been made possible by the company’s commitment to values of consistent improvement of all its stakeholders who include; people who grow coffee, those who are around all the company’s premises and the environment in general among others. This is through incorporation of good business practices and ethics not only for the benefit of the company but also for the good of all the stakeholders and the community around them. Despite its success Starbucks just like all reputable and major companies faces its challenges as well. One of the challenges that Starbuck Company faces is dilemmas in ethical issues.

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2 This is because any company that is in the market today must watch its ethical standards as this plays a significant role in both safeguarding the company’s assets and preserving its reputation which is an important strategic goal. Starbucks ethical dilemma emanate from failure to maintain a balance among its ethics values after adopting the wider concept of its stakeholders (Martine, 2008).

Ethical issues facing Starbucks Company The first and most significant ethical issue facing this second largest company in the country is managing its waste and dealing with paper cups that are dumped by the users after consuming the company’s products through recycling. This has become a very serious ethical issue where it is estimated that out of over 200 billion paper cups dumped after usage, 3 billion are from Starbucks Company. This is because out the all the company’s drinks produced, 80 percent are consumed outside the company’s premises using the disposable cups. The disposable cups have become the company’s first environmental liability (Kamenetz 2010). Besides this phenomenon the company has other environmental issues facing it. This is from the many stores and supply chains that the company owns internationally which all affect the resources around them and contribute to global climatic change. The dilemma that Starbucks Company faces in this issue is based on having its origin in United State. This makes the company have an influence in the way it runs its business. This is because the company management tends to base their management in the capitalist way. As a result, the company’s accountability to the stakeholders is only based on short- term benefits that the company gains from following these policies. For instance, the company has been trying to put in place measures to deal with the environmental effect its activities has (Des Jardins 1993). However, the plans that the company

3 engages are neither sustainable nor long lasting. This is because the company focuses on the benefits it is gaining from any investment it makes.

The other ethical dilemma that Starbucks is facing as company is upholding correct marketing ethics. This is in major areas like product development, policy applied in pricing distribution, and promotion (Okely 2009). Although the company has regulations on what the marketers should include in the advertisement of the company’s products, most marketers find themselves in the dilemma of defining the ethical boundaries when a claim is not clear from the target market. The other dilemma faced by marketers is deciding how much responsibility they assume when marketing a product that is harmful to the environment. In most cases the appropriate choice is not always very clear thus, marketers must use ethical standards to step up.

Another responsibility that the company marketers find themselves unable to clearly follow is the pricing ethics. This is mostly when putting the issue of competitors into consideration. This is because the company can either set very low prices in order to put its competitors at bay thus, affecting the profitability of their products or set very high prices that may be harmful to their consumers.

In addition, the truthfulness in the company’s interest towards issue like environment or education among other significant aspects that affect their stakeholders is another ethical dilemma that the company’s marketers are faced with. These are important areas which determine the stakeholder’s perception of the company thus cannot be overlooked. Managing this relationship with honesty is the responsibility of these individuals. The marketing department also handles the environmental concerns in order to improve the community perception through the green practices. The dilemma that most marketers find themselves in is the costs of some choices that are environmentally-friendly which sometimes may be high.

4 However, they must put their responsibility to the company’s stakeholders ahead of profits or expenses to be incurred.

Starbucks Company is also facing the dilemma of adopting ethical leadership. This is due to the pressure that the company management is facing from its various stakeholders. The high rate of disloyalty among most company partners including the consumers of their products has made the company to reconsider its foundations for a long term relationship with its various stakeholders (Brass, Kenneth & Bruce 1998). On one hand the company requires this relationship in order to meet its corporate objectives. This is because most supply chains like that of Starbucks demand a high level of dependability, trust and cooperation among all the stakeholders. While dealing with employees, for instance, the company requires empowering them through development of their career goals. In addition, putting pressure and unnecessary stress on the employees may lead to lack of loyalty among these individuals. This may increase lower performance among the employees, employee turnover and probability of engaging in unethical behavior.

In an attempt to minimize such situations, Starbucks has set in place measures of establishing mutual trust especially with its employees. This is through offering them flextime among other benefits. This however, has put the company in a fix especially with the current increasing disloyalty among employees working for the company. This trend has a very damaging impact on the performance of the company in general. The other dilemma in Starbucks Coffee Company leadership is dealing with the company managers who are unable to create an organizational ethical climate. This is often caused by lack of enough opportunity for these managers to implement their personal ethics on the management systems and the decision making that is informal in the organization. The role of organizational leaders in influencing the

5 employees to make ethical decisions cannot be overlooked. These individuals whether influence each other in either making ethical or unethical decisions (Ferrell & Larry 1985).

Coming up with the appropriate Corporate Social Responsibility (CSR) is another dilemma that Starbucks Company is facing. This is because the current situation in the market requires any company to adopt the appropriate framework concerning Corporate Social Responsibility. The company has faced several moral tradeoffs especially when regarding its leadership quality and the company ability to maintain a position that may appear unpopular to some stakeholders but that is of benefit to the society due to its social responsibility (Heal & Garret 2004). This at times has involved some executives who have been forced to leave their tasks in the program of the company that is based on reshaping its corporate ethical framework.

This is due to their inability to remain committed stewards in ethical issues or through being involved in corrupt activities while undertaking these activities. The dilemma that this company is facing is that the society tends to blame Starbucks Company for all its environmental problems due to the perception that being a global company, it ought to come up with measures to deal with all the environmental issues involved. The society therefore, disowns this responsibility making it hard for Starbucks to handle the issue without the cooperation of its stakeholders (William & Jose 2010). Lack of the government’s responsibility in solving social problems facing most nations where Starbucks Company has opened its branches has worsened this crisis.

This is because the individuals in these nations become dependant on Starbucks to solve these problems.

Every business has its social responsibility which mainly focuses on increasing its profits while at the same time taking care of the political and human issues surrounding its activities. In any free society like the one that Starbucks Company is located in, the main social responsibility

6 of this company is based on utilizing the resources available in an appropriate manner with an aim of increasing its profits while at the same time avoiding fraud and deception in dealing with its stakeholders (Waddock & Graves 1997). According to the stakeholder theory, the company should respect the rights and interests of all its surrounding stakeholders. In addition, the company’s management should endeavor to bridge the conflicts that arise from its interests and those of its stakeholders. The decision to trade off some of the competing interests should only be arrived at after all the solutions to bring together these interests have failed. Starbucks Company has a variety of stakeholders all of whom require to be taken into consideration by the management of the company. Some of the stakeholders that are significant to Starbucks Company include; the company’s employees, clients, suppliers, the local community where their branches are located, the natural environment and even the companies competitors among others.

Starbucks Best Practices In an attempt to safeguard the company’s assets, Starbucks has set measures to ensure that all company’s employees gain a clear understanding of what the company expects of them.

This is through the establishment of outlined procedures for all the employees to follow. This includes establishment of ethical trading and responsible growing practices as one of the procedures (Smith 2003). The procedure has managed to maintain the products of the company top in the market. The other procedure that the company has put in place is the establishment of Coffee and Farmed Equity (CAFE) Practices. These are a set of guidelines that ensures that farmers who supply the company with their produce follow the social and environmental responsibility in their production and processing activities. These practices involve measurable standards that focus on four main areas. These are: Product Quality, Economic Accountability, Social Responsibility, and Environmental Leadership (Starbucks Corporation 2011). They

7 ensure that all parties involved are conducting company business in any area and that they do so ethically. For instance, Product Quality is very essential to ensure repeat business. Economic Accountability on the other hand, is set in place by the company management to ensure that the company purchases products ethically. For instance, this practice has been essential in making sure that Starbucks Company is able to establish ethically sourced purchases from both large and even small farms like those in Guatemala. This is because through the process, the company is able to track these purchases. The company’s commitment to training and overseeing the verifications of organizations that it partners with throughout the world has made these processes possible (Dyrud 2007). In an attempt to evaluate Social Responsibility and Environmental Leadership, Starbucks has a third-party that ensures this is met.

Starbucks has established Standards of Business Conduct which is found in the employees’ handbook. This policy is aimed at supporting the company’s Global Business Ethics Policy through ensuring that every single employee of the company is liable to ethical behavior.

In addition, the policy ensures that the employees are able to report any unethical practice by their colleagues through protection of all the individuals who take this initiative. This practice has played a significant role in maintaining the responsibility of the company of providing their partners with appropriate guidance towards upholding the values of the company regarding the ethical conduct.

The company’s decision to adopt the Corporate Social Responsibility (CSR) in its management has been a solution to many ethical issues facing many other global corporations.

The main focus in Starbucks Company which is stakeholders view in its responsibility as opposed to stockholders view has seen the company able to deal with these issues appropriately.

This is because the stakeholders view has logical roots due to its focus on the society and other

8 important entities that influence the running of a business (Wright 2011). In an attempt to avoid violating the ethical standards through illegal conduct by the employees, Starbucks Company has incorporated ethical training in its various workplaces in order to empower all the employees to make the right decisions especially when faced with situations that may force them to engage in unethical behavior.

Starbucks best practices There are several good practices that Starbucks Coffee Company has initiated making it earn itself a mark of success. Starbucks Company has made significant efforts in balancing the various social issues that have emerged in its business activities. For instance the company has given a guarantee to coffee farmers over a number of years. This act of fair trade has eliminated the uncertainty that would otherwise be prevalent among these farmers thus affecting the quality of coffee they produce (Hawken1993). By treating their coffee farmers as their equal trade partners, the Starbucks ensures that their relationship is based on respect where the farmers receive a good payment for their high quality products. This therefore makes both the farmers and the company beneficiaries of this relationship. In addition, the company has also made broad steps in dealing with the environmental issues facing it especially regarding the paper cup recycling. This is through putting measures in place to manage this waste, protecting the quality of water surrounding its various company branches, and preservation of biodiversity through reduction of agrochemical use.

The other measure that Starbucks has put in place to deal with its waste problem is liaising with its stakeholders in coming up with a solution that will be approved by all parties.

This was made possible through learning that involved the whole organization stakeholders which was aimed at increasing their understanding on the benefits of taking global initiatives to

9 practice ethical standards. For instance, the company’s decision to replace the paper cups with a new type that is 100 percent recyclable became successful after several interacted summits which led to a suggestion of placing recycling boxes on different areas in order to make it easy and cheap to meet the recycling plans (Kamenetez 2010).

The measures that Starbucks Coffee Company has adopted in providing all its employees with an organizational ethical climate are very important in improving their productivity and profitability. The company is known to offer support and fair treatment to its workforce. This is through offering them good health benefits and an employee stock ownership plan. The company does this for its entire workforce both those working on permanent basis and those under parttime working terms and conditions. This has worked to the benefit of the company where the rate of turnover among the employees of Starbucks Coffee Company is far much less compared to the company’s competitors. For instance, the annual employee turnover in Starbucks Coffee Company is only 55 percent while that of the other industries sometimes rising up to around 400 percent. This has resulted from the benefits the company offers to its employees making them appreciate this by remaining loyal to their employer. The company commitment to this mission of treating its employees with a high level of respect and dignity has led to dramatic increase in the productivity which has seen a six years consecutive increase in sales and profits with 50 percent increase each year (Smith 1996).

The adoption of ethical leadership in Starbucks management has assisted the company’s development of an ethical organizational climate. This is because leadership that emphasizes on a high level of ethical performance through shared core values improves the ethical climate of the whole organization. As a result, the organization benefits from this unified effort making it an organization that is renowned for its high level of integrity. Having adopted an ethically-

10 centered management, Starbucks Company has implemented high standards for the production quality in all of its products. In addition, the company has always been committed to improving its employees’ relations meeting the satisfaction of its customers.

Recommendations Some of the decisions that the company has implemented have been a start point of success in this company’s ways of dealing with ethical issues facing it. Firstly, Starbucks is one the companies that is committed to the quality of its products. This has been made possible by the company’s commitment to upholding ethical standards at work. Starbucks has also based its corporate culture on quality and upholding ethical standards. This has made the company to emerge the winner of many ethical awards where it has been set as a role model of social responsibility (Starbucks Company Fact Sheet 2005).

The company’s commitment to taking care of its employees and providing long-term value to all of its shareholders has been very essential in achieving this goal. In addition, Starbucks Coffee Company unlike many other companies dealing with this business has extended its social responsibility beyond the counters of its coffee bars. Through consistent upholding of high quality in its products, Starbucks has developed a code of conduct that ensures that the working conditions of the coffee producers from all the countries that supply it with this product are improved. This is through its practice of paying premiums price for its coffee and adoption of plans to improve the lives of all its workers (Schultz & Dori 1997). In addition, the company has upheld its social responsibility and ethics through various methods. Some of these ways include respecting all their employees and enlightening their consumers on the benefits of high quality coffee (Verschoor 1998).

11 Appendices An analysis of corporate philosophy which focuses on modern management training: a comparison of stockholder’s view with stakeholder’s view in the Corporate Social Responsibility. Accessed from: http://www.davidmorrissey.net/ethics.html

12 List of References Brass, D. J., Kenneth, D. B., & Bruce, C. S., 1998. Relationships and unethical behavior: a social network perspective. Academy of Management Review, 23(1), 14-31.

Des Jardins, J. R., 1993. Environmental ethics: an introduction to environmental philosophy.

Belmont, CA: Wadsworth Publishing Company.

Dyrud, M. A., 2007. “Ethics, gaming, and industrial training.” In IEEE Technology and Society Magazine, Winter 2007: 36-44.

Ferrell, O. C., & Larry, G., 1985. A contingency framework for understanding ethical decision making in marketing. Journal of Marketing, 49(3), 87-96.

Hawken, P., 1993. The ecology of commerce. New York, NY: Harper Business.

Heal, G., & Garret, P., 2004. Corporate social responsibility. 2004 Annual Conference of the Monte Paschi Vita: Columbia Business School Kamanetz A., 2010. The Starbucks cup dilemma. October 20, 2010. Fast Company, 7 World Trade Center, New York, NY Martine, M., 2008. Top challenges facing Starbucks. [online] Available at: http://lindsayecameron.wordpress.com/2008/12/01/top-challenges-facing-starbucks [Accessed 3, December, 2011] Okely, L., 2009. Common ethical dilemmas faced by marketing departments. [online] Available at: http://www.helium.com/items/1496496-ethical-issues-faced-by-marketers.

[Accessed 3, December, 2011] Schultz, H., & Dori, J. Y., 1997. Starbucks: making values pay. Excerpted from Fortune, September 29, pp. 261-272 Smith, C., 1996. A corporate citizen and their critics. New York Times, September 8, p. 11.

13 Smith, N. C, 2003. Corporate social responsibility: whether or how? California Management Review 45(4), 55 Starbucks Company Fact Sheet, 2005. Starbucks. Starbucks Company Fact Sheet, January 2005.

Starbucks Corporation, 2011. Being a responsible company. [online] Available at: http://www.starbucks.com/responsibility. [Accessed 3, December, 2011].

Verschoor, C. C., 1998. A study of the link between a corporation’s financial performance and its commitment to ethics. Journal of Business Ethics, 17(13), 1509-1516.

Waddock, S. A., & Graves, S. B., 1997. The corporate social performance-financial performance link. Strategic Management Journal, 18, 303-319.

William, F., & Jose, A., 2010. Cruz-Cruz three views of CSR (Corporate Social Responsibility). [online] Available at: http://cnx.org/content/m17318/latest/ [Accessed 3, December, 2011] Wright, M., 2011. The ethical dilemma facing consumers. [online] Available at: http://www.guardian.co.uk/starbucks-ethical-living/ethical-consumer-debates. [Accessed 3, December, 2011]