Starbucks and union rights: the calm before the storm?

The company has been criticized for practices deemed to be anti-union, but this has not affected its stock price for the moment.

It has been a complicated fortnight for Starbucks in terms of Environmental, Social and Governance (ESG) criteria, particularly with respect to union rights. On March 23, the company held its annual general meeting. On that day, two executives from Norges Bank Investment Management (NBIM), the entity managing the Norwegian sovereign wealth fund, one of Starbucks’ main shareholders, published an article in the Norwegian business daily Dagens Næringsliv.

Headlined “Starbucks needs to get its act together,” the article explains why NBIM voted in favor of a resolution calling on the coffee chain to commission an independent assessment of how it respects workers’ rights to organize and bargain collectively. “In recent years, Starbucks has been involved in a number of controversies related to unionization at its coffee shops in the United States. Reports include firings of unionized employees, benefits given only to non-unionized employees, and mandatory briefings on the downside of unions. The federal agency responsible for enforcing unionization laws in the United States, the National Labor Relations Board, has filed a number of complaints against Starbucks. Some of these are the subject of ongoing litigation. As a shareholder of the company, we do not find this acceptable. (…) Freedom of association and the right to collective bargaining are fundamental labor rights – and human rights.”

While a strike affected a hundred Starbucks coffee shops in the United States, the majority of shareholders voted in favor of this resolution. A few days later, on March 29, the ex-CEO, Howard Schulz, was heard by a committee of the Senate where he had to explain his methods judged as anti-union. For Senator Bernie Sanders, “Over the past 18 months, Starbucks has waged the most aggressive and illegal union busting campaign in the modern history of our country.” In response, Mr. Schulz denied that he had violated the law and prevented employees from organizing, while expressing his belief that “Starbucks does not need a union”.

These events were widely covered by the media and financial information platforms. The shareholder resolution submitted to the general meeting was described as a “significant development” by Refinitiv. And on April 3, among the “5 things to know before the opening of the stock market on Monday”, CNBC mentioned the firing of a unionized Starbucks employee the previous Friday.

However, during this turbulent fortnight, Starbucks’ stock price does not seem to have been affected by the controversies surrounding union rights. In a March 29 note, investment bank TD Cowen described Schulz’s Senate hearing as a “non-event for shares”. On April 2, technical analysis firm Daybyday observes a bullish trend. For ESG analysts, union rights are important, carrying impact materiality. For financial analysts, on the other hand, this issue seems to have no financial materiality, at least in the short term. But the story does not end there. Sustainability issues must also, and above all, be understood in the medium and long term. And the perception of market players evolves over time. This brings us to the notion of dynamic materiality: the idea that ESG issues that do not seem material to investors today may become so tomorrow. This notion seems relevant to us in the case of Starbucks’ respect for union rights.

Several future events are likely to change the situation. First, what will be the attitude of Starbucks’ new CEO, Laxman Narasimhan? If he makes strong decisions to stop putting obstacles in the way of employees who want to join a union, he may be able to calm things down and avoid damage. What about the customers, especially the young and progressive ones on the East Coast and in California? A movement to boycott Starbucks coffee shops, perhaps even from American universities, would certainly make investors nervous. Nor should they be indifferent to the results of the independent audit requested by the majority of shareholders. The content of these results could lead the Norwegian sovereign wealth fund to place Starbucks on its exclusion list. If this happens, it is likely that other institutional investors will follow suit.

We will also have to watch carefully what happens with investment funds labeled “sustainable”, “responsible” or “impact”. Currently, Starbucks’ ESG ratings range from average to good, depending on the agency. MSCI gives the company an A, which places it between average and good, while qualifying it as a laggard in the labor conditions category. Starbucks is included in several funds categorized as either article 8 (light green) or article 9 (dark green) under the European SFDR regulation. Given that freedom of association is central to ESG standards and criteria, how long will the company remain in these funds? The next few months will tell us whether the issue of respect for union rights at Starbucks can be considered an emblematic case of dynamic materiality.

This article has been translated from French and has been initially published in allnews.

Source: Covalence / allnews