Reference no: EM131642798

What political strategies would you recommend that Engskov pursue to enhance Starbucks’ likelihood of success in politics?

Discussion Case: The New Business Political Activist: Behind the Scenes, Less Visible Founded in 1971 and headquartered in Seattle, Washington, by 2006 Starbucks Corporation had grown to more than 1,200 coffeehouses located in 37 countries. Despite its size and rapid growth, Starbucks had traditionally been a cautious participant in the political scene, reflecting a corporate culture that focused internally on serving its customers, taking care of its employees (called partners), and maintaining profits. The company acknowledged, however, that some political activity might be necessary to influence public policy in areas directly relevant to its operations. As it noted on its Web site, “[a]s a growing and increasingly more complex global business, Starbucks participates in the public policy arena, which includes direct and indirect lobbying at the local, state and federal levels in the U.S.” Starbucks’ historic reluctance to engage in political action began to change in the mid-2000s, when the firm recognized the importance of U.S. government trade policies to Starbucks’ plans for future expansion. In particular, the company wanted the federal government to lower barriers to trade with countries in Central America and Southeast Asia that were major sources of coffee beans. Starbucks was also facing rising health care costs, particularly important to a company whose signature employee benefit program extended even to part-time workers. Starbucks believed it was essential for its CEO and chairman Howard Schultz and other company executives to “engage U.S. national policymakers in an effort to raise awareness and begin discussions about policy that will make America’s health care system more efficient, reliable, transparent and affordable while also improving quality.” Starbucks management realized that it could not remain in the political shadows any longer, since the firm’s financial success was increasingly dependent on its political achievements. Poised to become a reluctant but engaged political participant, Starbucks’ new commitment to activism met its first big test in 2004. Congress drafted a measure to create a new lower tax rate for manufacturing to replace an export tax break. Under this new measure, Starbucks could continue to deduct a portion of the cost of roasting and packaging green coffee beans. This provision was worth millions to the company. However, the Council of Economic Advisors, in reviewing the new proposed bill, suggested that this new provision was too arbitrary. A subsequent draft addressed this issue by specifically eliminating Starbucks from the exemption. Starbucks responded to this challenge by hiring a lobbying firm, Preston Gates Ellis & Roulelas Meeds. The lobbyists went to work, contacting many key members of Congress—an uncharacteristic move for the company. Schultz met personally with a number of political leaders, even though he appeared quite uncomfortable in this environment. These lobbying efforts were successful, and in the final draft of the tax bill the exemption covered Starbucks. But in an apparent effort to make a point, the Senate staff nicknamed the provision “The Starbucks Footnote,” ensuring that it would be noticed. This enraged Schultz, who had been uneasy with the direction of the company’s political strategy and new political visibility. But Starbucks was now a political player and a successful one. The new tax bill continued to provide Starbucks with needed financial benefits. Other issues on the political horizon would suggest that continued political efforts by Starbucks and its chief political officer, Kris Engskov, would be necessary. When a reporter reminded Schultz that many companies have political action committees, an effective form of financial influence by business, he asked about Starbucks’ plans to form a PAC. Schultz replied, “I don’t think we’re forming a PAC in the near term,” but then glanced at Engskov for confirmation. Engskov added diplomatically, “I think we will employ that as a tool at some point.” Schultz visibly slumped and said, “I think that will be up to Kris.” Since Starbucks’ initial plunge into the political waters, the company has pursued a very limited, behind-the-scenes political action strategy. The company retains a skeletal staff of political advisers; avoids making political contributions at the local, state, or federal levels; and supports a low-key, ad hoc (acting only when a specific issue arises) approach to political activity. Starbucks unwittingly found itself embroiled in politics in 2006 when a group of Democratic Party activists met at a Starbucks coffeehouse in Newport, Kentucky. The group was told they would have to leave, since the coffeehouse could not host a political gathering. Starbucks later apologized for the incident, which had angered the local activists, but remained firm in the company’s policy prohibiting its coffeehouses from being used for political meetings. By 2006, Schultz and Starbucks management were painfully aware that many public policies directly affected their company requiring their involvement, despite their efforts to avoid politics when possible. Starbucks was involved in the messy political action arena whether it wanted to be or not.