Reference no: EM132154862

On an overcast February afternoon in 2000, Starbucks CEO Orin Smith gazed out of his office window in Seattle and contemplated what had just occurred at his company’s annual shareholder meeting in prior years, the meeting had always been a fun, all-day affair where shareholders from around the country gathered to celebrate the company’s success. This year however., smith and other senior Starbucks executives heard an earful from the activist group Global Exchange at the meeting.

Global Exchange a human rights organization dedicated promoting environmental political , and social justice around the world, criticized Starbucks for profiting at the farmers expenses by paying too little for beans and not buying “fair trade” beans. Not only did the activists disrupt the company’s annual meeting to the point that the convention hall security police asked the activists to leave, but they also threatened a national boycott if the company refused to sell and promote fair trade coffee. Although Smith strongly disagreed with using the shareholders meeting as public forum, he knew there was strong like hood his company could face serious reprisals if it did not address the issues raised by Global Exchange

Fair Trade Coffee

Fair trade began after world war II as religiously affiliated nonprofit organization purchased handsome products for resale from European producers. Fair trade was an economic model based on fair labor compensation and mutual respect between producers and consumers. By the late 1990s. the fair trade movement had gained a foothold in the United States, and in early 1999, Transfair USA, a third-party certification agency, launched its fair Trade Certified coffee label. During that summer, Global Exchange began campaign to educate consumers and the media about labor conditions in the coffee industry, focusing on getting the message out to especially coffee consumers. Although the activists were successful in educating pockets of consumers, they knew their effectiveness was limited without directing blame for the farmer’ woes. Global exchange decided to take an anticorporation stance and focused its attention on the most visible brand in especially coffee: Starbucks.

At this time, fair trade coffees were coffees that were purchased directly from cooperatives of small farmers at a guaranteed floor price, unlike shade and organic coffees , fair trade coffees focused on the workers’ economic sustainability. Fair trade coffee attempted to cut out or limit the middlemen and provided much needed credit to small farmers so they could end their poverty cycle. Licensing organizations in individual importing countries certified fair trade coffee from farmers listed on the fair trade registry. Consequently, there was a lost of different certifying agencies, and fair trade coffee accounted for different market share in each country

Starbucks issues with fair trade coffee

For Starbucks, the real issues were brand perception and the consumer proposition. Starbucks hesitated to sign a fair trade license, not wanting to commit until it had carefully weighed all of the implications according to Starbucks executives, their chief concern with fair trade coffee was finding top-quality beans from cooperatives that had not demonstrated an ability to produce quality beans to Starbucks standards. From earlier cupping analyses, starbucks had little evidence that fair trade coffee met its quality standards, starbucks was beginning to move forward purchasing more if its coffee through direct relationships with exporters or farmers and negotiated a price based quality. The company was willing to pay higher price for great-quality beans and had developed long-term contracts with many of its suppliers.

Mary William, Senior vice president (VP) of the coffee department, was known throughout the coffee industry as a tough cupper who would not settle for anything less than top-quality beans and explained. “The relationships I have with farmers were built over the last 20 years. It’s taken some of them years before I would use their beans consistently and pay them $US 1.26 or more. Now I was being asked to use another farmer. Who I did not know and pay him the same price without the same quality standards ? on average, farmers sent samples and met with Starbucks coffee buyers at their farms for at least two years before Starbucks accepted their beans. The whole bean department would face several challenges in introducing fair trade coffee to 3,200 stories in the United States. And how would fair trade coffee be priced ? Starbucks coffee was a high-margin business, but if the company were to charge a premium for fair tradem how would customers perceive this ? although pricing was a secondary issue to consider, it was not a reason for Starbucks to abandon fair trade coffee.

The Starbucks Culture

in 1990 , starbucks senior executive team drafted a mission statement out the guiding principals behind the company. The team hoped that the principles included in thus mission statement would help partners (starbuck team for employees ) to gauge the appropriateness of their decisions and actions. As Orin Smith explained. “Those guideline are part of our culture and we try to live by them every day. Starbucks did three things to keep the mission and guiding principle alive. First, it provided all new partners with a copy of the mission statement and comment cards during orientation. Second, when making presentations, starbucks, leadership continually related decisions back to the appropriate guiding principle or principle they supported. Third, the company developed a “Mission review”system through which any partner could comment on a decision or actions relative to its consistency with one of the six principles. The partner most knowledgeable on the comment had to respond directly to such a submission within two weeks, or it the comment was anonymous, the response appeared in a monthly report. As a result of third continual emphasis, this guiding principles and their underlying values had become the cornerstones of a very strong culture.

Corporate responsibility at Starbucks

Just as treating partners well was one of the pillars pf starbucks” culture, so too was contributing positively to the communities that it served, and to the environment. Starbucks made this commitment not only because it was the right thing to do but also because its workforce was aware and concerned with global environment and poverty issues. In addition to sustaining and growing its business. Starbucks supported causes’ in both the communities where starbukcs stores were located and the countries where starbucks coffees was grown.

On the international level in 1991, starbucks began contributing to CARE, a worldwide relief and development foundation, as a way to give back to coffee-origin countries. By 1995, starbucks was CARE’s large corporate donor, pledging more than $100,000 a year and specifying that its support go to coffee- producing countries. The company’s donations helped with projects such as clean-water systems, health and sanitation training and literacy efforts. By 2001 starbucks had contributed more than $1.8 million to CARE.

At the end of 1999, Starbucks created a corporate social responsibility department, and Dave Olsen was named the department’s first senior vice president. According to Sue Mecklenburg “ Dave really is the heart and soul of the company and is acknowledged by others as a leader. By having Dave be the first corporate Responsibility SVP, the department had instant credibility within the company between 1994 and 2001, Starbucks CSR department grew from only one person to fourteen.

The fair Trade Decision

Starbucks had defined being a socially responsible “as conducting our business in ways that produce social, environment and economic benefits to the communities in which we operate. “ Starbucks knew that consumers were increasingly demanding more than just a “product” at the same time that employees were increasingly electing to work for companies with strong values. In a 1999 survey by Cone Communications, 62 percent of respondents said they would switch brands or retailers to support causes they cared about. Another survey conducted in 2001 showed that 75 to 80 percent of consumers were likely ro reward companies for being “good corporate citizen” and 20 percent said’d punish those who weren’t . the company cared about being a responsible corporation for a variety of reasons: increasing employee satisfaction, maintaining quality supply sources, obtaining a competitive advantage through a strong reputation, and increasing shareholder value. As he looked out over the busy port in Seattle’s South of Downtown district, Orin Smith pondered all of these issues. Although offering fair trade coffee was a good objective and consistent with the company’s aims of being a socially responsible organization, Smith knew he could not base his decision on this factor alone. Even though Smith had a rough idea of which issues his executive team would bring up during the discussion, as the CEO he had to consider the larger picture. He drummed his fingers on the desk and asked himself how Starbucks could support fair trade coffee given that the company had limited resources a strong reputation to protect and shareholder were willing to support causes only so much.

Case Questions

What are the key issues for Starbucks ?

What are the problems associated with the decision to offer fair trade coffee from a communications perspective ? what are the problems associated with not offering fair trade coffee ?

What should Smith do ?