Let's tip our glasses to coffee purveyor Starbucks for holding the line against the demands of social-activist investors.
Pax World Funds, a family of self-proclaimed socially responsible investment funds, announced last week it was divesting 375,000 shares of Starbucks, worth an estimated $23.4 million, because Starbucks refused to back out of a deal with whiskey-maker Jim Beam Brands to create and sell a coffee liqueur.
"Extending our brand into new channels outside of Starbucks stores is part of our long-term growth strategy," said a Starbucks official. "The test-market phase of this new product rollout confirmed what we already knew - Starbucks coffee lovers want this product."
Starbucks's research indicated nearly 50% of its customers already consume coffee liqueurs - a $4 billion business in america. They are also nine times more likely than the national average to drink a coffee liqueur, so the company's incentive is compelling.
Yet, in a February 17 letter, Pax urged Starbucks to reconsider its decision, stating, "We are deeply concerned by the company's decision to partner with Jim Beam Brands to produce coffee liqueur."
as a matter of policy, Pax doesn't invest in companies deriving more than 5% of their revenue from defense contracts, or deriving any revenue from the manufacture of weapons, gambling, tobacco, or alcohol products or from the production of nuclear power. Having received no answer from Starbucks, Pax divested.
"While we continue to admire and respect many aspects of Starbucks' business and corporate citizenship activities, the company essentially forced our hand in this matter. We have divested ourselves of these shares reluctantly and only after trying to get the company to reconsider its course of action," said Pax's vice president of social research, anita Green.
One of the most critical distinctions to be made in this case is glaringly apparent in Pax's own statement: The brand of corporate social responsibility for which Starbucks is known is both voluntary and essential to its corporate identity. Given Starbucks' appeal to like-minded consumers, these policies are also perfectly consistent with the values of free enterprise. But a line is crossed when outsiders demand that companies cater to their special agendas.
This isn't the first time Starbucks faced activists wanting to dictate what the company sells. In 2001, Starbucks had all but surrendered to the Organic Consumers association, which had threatened to damage the company's "worldwide reputation and profitability" unless it stopped serving conventional dairy products - that is, milk and cream from cows supplemented with growth hormones. The action was part of the association's campaign to drive consumers away from non-organic products, especially those produced through genetic engineering and other modern technologies. The group made unsubstantiated claims that hormone supplementation damages the health of dairy cows, and that milk from supplemented cows increases cancer risk in humans.
The chief executive of Starbucks, Orin Smith, said he saw public perception as a greater threat than the unsupported health claims. He announced the company would stop serving conventional dairy product five days ahead of the launch of the Organic Consumer association's "Frankenbucks" campaign.
The company's capitulation didn't stop the launch, however, as the group staged protests in more than 100 cities where the company had retail outlets. Starbucks didn't have to wave the white flag for very long, however. I put together a group of public health experts and consumer advocates to counter the Frankenbucks campaign. Citing the views of health experts, including the former surgeon general C. Everett Koop, we pointed out to Mr. Smith that conventional milk is safe and environmentally sound, and that retailers needed to act responsibly in the face of attacks by fringe groups.
Starbucks soon reversed course. Today, conventional dairy products are standard in Starbucks retail outlets. You can get organic dairy products if you want, but you'll rightfully have pay a premium for them. It's the perfect solution, giving consumers a choice but avoiding the dangerous precedent of appeasing special interests.
Starbucks has long cultivated an image of being socially responsible. It's at the heart of their business plan, and that's perfectly fine. But, importantly, Starbucks also realizes the appropriate boundaries of its responsibility and that it's not in the business of satisfying the extremist agendas of social activist groups.
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