Former Starbucks CEO Howard Schultz testifies before Congress about unionization response
Former Starbucks (SBUX) CEO Howard Schultz is scheduled to testify before the Senate HELP (Health, Education, Labor, and Pensions) Committee on Wednesday, March 29.
The hearing is in response to accusations that the U.S. based coffee chain has "waged an aggressive and illegal union-busting campaign" over the last 18 months, specifically under the leadership of founder and three-time CEO Howard Schultz, according to a staff report titled No Company is Above the Law from the chair of the committee, Vermont Democratic Senator Bernie Sanders. While Schutlz stepped down as CEO last week, he remains on the board of directors.
One analyst predicts the hearing could send a ripple effect across the restaurant industry.
"Starbucks may serve as a leading indicator of where the industry is headed" when it comes to "labor evolution," Sean Dunlop of Morningstar told Yahoo Finance.
"Restauranteurs industrywide will be acutely aware of how this plays out," Dunlop said, who holds a three star rating on shares of Starbucks, equivalent to that of a Hold, and price target of $103. "As labor shortages have started to abate and quit rates have ticked down, union momentum has slowed, as we’d expected—but the industry is far from 'through the woods' on these issues."
For almost two years, the Seattle-based chain has tussled with its workers unionizing. In December 2021, a Starbucks store in Buffalo, New York, voted yes to unionize. Now the movement includes more than 290 company-owned stores that have voted to unionize. This, however, is a small percent of Starbuck's total U.S. footprint of 15,952 stores (as of Q1).
"The actual number of stores that have voted to unionize remains small, roughly 3%-4% of the firm’s U.S. footprint," Dunlop noted," so any ramifications from higher labor costs and fewer part-time workers would barely touch the corporate (profit & loss) P&L."
The labor group behind the push, Starbucks Workers United, also filed more than 500 charges with the National Labor Relations Board (NLRB) citing unfair labor practices against workers trying to unionize, such as "unlawfully interrogating employees about their union activities" in Oak Creek, Wisconsin, and "threatening employees with loss of benefits and by removing and prohibiting union literature at three stores" in Ann Arbor, Michigan, among others. In both of these complaints, an administrative law judge found that Starbucks violated the National Labor Relations Act (NLRA).
For the global coffee chain, Dunlop said, "A lot of this comes down to optics and brand positioning."
"Starbucks has long been perceived as a leader in the restaurant space with respect to the employee value proposition, so to see the unionization push strike at the coffee chain reverberates across the rest of the industry."
He reiterated the benefits that Starbucks provides its employees, such as stock options and health insurance, among others in addition to wage investments that "sent the industry down that path." Last May, the company announced that all partners, which it calls its employees, hired on or before May 2, 2022 got either a 3% raise or $15/hour, whichever was higher.
In response to the unionization efforts, Starbucks executives have said the company believes "a side by side relationship with our partners is the very best path forward," as CFO Rachel Ruggeri told Yahoo Finance in November 2022.
"Management’s line to workers has been that they can provide for them better (unilaterally) than Starbucks Workers United could," said Dunlop, who said the "precedent that a union deal sets matters more than the deal itself."
"The real concern ties to whether a brokered deal incites more union momentum across Starbucks’ own system and potentially industrywide; if potential employees start favoring unionized stores, or if the firm has to move towards a less flexible scheduling model, it could create significant operational disruptions."
At the hearing, Maggie Carter, a Starbucks barista at one of the first locations to unionize in Knoxville, Tennessee, will be presenting, in addition to a former barista, Jaysin Saxton of Augusta, Georgia. Per the NLRB complaint, Saxton was fired after leading an effort to unionize his store.
Sharon Block, who serves as the executive director of the Center for Labor and a Just Economy at Harvard Law School, former Republican Congressman Bradley Byrne and Rachel Greszler, of the Heritage Foundation, will also be present.
This comes as shares of Starbucks are experiencing upward momentum, up more than 48% since March 28, 2020, making it crucial that the company "manage(s) this fallout well" from a consumer and workplace perspective.
"The last thing management wants to do is be seen returning $20 billion in capital to shareholders over three years while their workforce feels underpaid and underappreciated—it’s no coincidence that one of the first things Howard did upon returning was to temporarily suspend share repurchases."
Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at firstname.lastname@example.org.
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