Public Controversy Facing the Starbucks Company - Case Study Example

Public Controversy Facing the Starbucks Company al Affiliation) Introduction According to Weale, the corpus of legitimacy alludes to a generalized perception usually directed towards institutions in regard to their behavior. This perception is based on the assumption that the behaviors of these institutions are; morally, legally and environmentally appropriate. In the current society, the concept of legitimacy theory is associated with provision of explanations to the behaviors institutions directed towards voluntary implementation of rules and regulations that govern environmental, legal as well as moral contracts. These contracts enable the institutions to recognize and appreciate their objectives in regard to the legally recommended rules of operation. The legitimacy theory is also associated with social perceptions directed towards organizations in regard to their responsibility to meet societal expectations and social rules. In some instances, when these institutions do not meet social, legal as well as environmental benchmarks of operations, they may be exposed to sanctions and or even being barred from operations. Starbucks is one of the current companies that have shown a violation of the requirements of the Legitimacy theory. The Company is currently facing a court case in London. The Case Starbucks is a major restaurant in Britain, the Company has been facing a serious allegations in regard to tax avoidance. Additionally, the Company has been controversies in regard to the information that it has been providing to the Investors. Apparently, a recent publication by a local newspaper in Britain indicated that the Company has been informing investors that it is making profits while in the real sense it has been experiencing losses. This has been perceived as controversial owing to the fact that the company has been providing different sets of information to its investors and taxmen. Research has indicated that over the last three years, the company has not made any profit and has also been avoiding taxes. This has created a negative image on the company, especially among the local British populace. Background Information about the Case The Company’s problem emerged from the issue of tax avoidance coupled with provision of controversial information to its investors as well as the taxman. From the year 2008, the company is reported to have made losses amounting to 26 million Britain Pounds. On the other hand, the Company’s Chief Financial Officer was providing controversial information to its investors as well as other members of the public. The research also indicated that the Company had not paid any taxes for a period of three years. Moreover, the company has also been reported to have the highest record of bill of taxes as compared to other Company’s like McDonald’s and Yum Yum. Specifically, the company has recorded a bill of tax amounting to 1.1 billion pounds as compared to other Companies like McDonald’s with a bill of tax amounting to 80 million US Dollars. The tax is also higher than the bill of tax owed by Yum Yum. The controversies facing Starbuck’s has led to a major public outrage with many local customers complaining over this issue. Data Corporate Disclosures Chosen for this analysis One of the corporate disclosures that were chosen for this analysis is a recent publication by the Reuters Website. The website provided a press release report that indicated how the Starbuck’s avoided taxes in Britain. This website also provided data in regard to the performance of the company over the last three years. Moreover, it indicated comparison of the Starbuck’s Company and other major fast food Companies like McDonald’s as well as the Yum Yum. Basically, this information indicated the amount of tax bill that the three major fast food Companies owed to the government inform of taxes. Another Corporate Disclosure source that was used by the Company is the Starbuck’s Company website. This was imperative owing to the fact that it provided basic information in regard to the company’s profile as well as the annual financial reports. Moreover, the corporate disclosure source provides information ascribed to the management profile of the Company. In a press release statement published on the Reuters website provided information indicating the statement that was provided by the Chief Financial Officer of the Company. The information provided basically involved the information in regard to the activities of the Company over the last three years. Moreover, the Chief Financial Officer also informed the general public in the statement that: The Company had been paying its taxes and has made profit without violating any legal parameter. Methodology In order to determine the specific issues that faced the Starbuck’s Company. This research was undertaken through the use of an impression management analysis. In the Reuters Website, information regarding the operations of the Company over the last three years is provided. This information describes various financial analyses of the company basically comparing the Company’s tax bills and other major Fast Food Companies like Yum Yum and McDonald’s. Moreover, various sets of information supporting the actions of Starbuck’s and those that do not support Starbuck’s are provided in the website. Moreover, the information provided in the Reuters website report describes a financial theme. There is a comparison on the amount of debts in tax that the Starbuck’s owes to the British government in relation to Yum Yum and McDonald’s. Additionally, the report indicates the annual incomes that have been earned by the company over the last three years. This information is also provided by the Company’s website. The reports are summarized, yet they are detailed in nature. They provide summarized press release information that was provided by the Company’s Chief Financial Officer, Alstead. Other information associated with finances of the Company is also provided in the website. Moreover, the Website describes different views i.e. of the media, government such the Mayor of London and the management team of Starbuck’s. Consequently, there is a comparison between the financial performance of the Starbuck’s and other major Fast Food Companies. This information specifically indicates the tax in bill each of these companies owed to the government. This information indicated that the amount of tax in bills owed by the Starbuck’s company was relatively higher than those owed by McDonalds and Yum Yum. Findings The analysis has led to the development of various results in regard to the allegations that have been made towards the Starbuck’s Company. To begin with, the Company might have been making loses for a period of three years. This information is indicated in the Reuters press release website indicates that actually the Company has been making losses over the last three years. There is also evidence that the Company had been providing controversial information to its investors. The company was reported to have made losses, while its management team had been telling investors that the company had been making profits. There is also evidence that the actions of the company is regard to avoidance of taxes has been negatively perceived by the public in Britain. The Mayor of London, Boris Johnson has criticized this act and urged the Company to pay its debts. However, the Company’s Chief Executive Officer and the Company’s Chief Financial Officer have asserted that the Company has been paying its debts and has not violated any legal tool that guides financial management. In a press release statement, the CFO of the Company Alstead asserts the Company has been complying with International Guidelines of Financial Management and has been paying its taxes appropriately. The information provided by the Company’s management team is relatively vague. It does not indicate the actual taxes paid by the Company over the last three years. Conclusion The theory of legitimacy is concept based on the behaviors of institutions and organizations in regard to their compliance of social, legal and environmental rules. To some extent, the actions of Starbuck’s Company have exhibited a violation of the requirements of this theory. To begin with, it is evident that the Company has not been paying taxes in Britain. This is a basic requirement in accordance to the legitimacy theory, which requires institutions to comply with business laws. Additionally, the essence of paying taxes is an imperative facet of social and economic development. Such forms of development require a participatory approach whereby: Different stakeholders i.e. organizations, members of the public, government collectively participate in social and economic development. This may be undertaken in the form of taxes that are usually paid to the central government. Therefore, owing to the fact that the Company has not been paying taxes, it may be considered to have violated this requirement as part of the Legitimacy Theory. On the other hand, payment of taxes by International Companies may be considered a form of corporate social responsibility. This is also a requirement of the Legitimacy Theory. This was also not satisfied by the Company. Moreover, the company may have violated financial rules that require honesty in financial reporting. The CFO and the CEO of the Company have repeatedly reported that the company has been complying to international rules of financial reporting. Bibliography Special Report: How Starbucks avoids UK taxes. n.d. Special Report: How Starbucks avoids UK taxes. Retrieved November 13, 2013, from http://www.reuters.com/.../us-britain-starbucks-tax-idUSBRE89E0EX2012101 Aguilar, A.2000, August 3. Starbucks and Culvers Waiting to Be Seated in Buffalo Grove. Daily Herald, pp. 12-15. Burks, M. (\2009. Starbucks. Santa Barbara, Calif.: Greenwood Press. CSR handbook (2001 ed.).2001. Washington, D.C.: Legal Services Corp.]. Choi, F. D., Frost, C. A., & Meek, G. K. 2002.International accounting (4th ed.). Upper Saddle River, NJ: Prentice Hall. Corporate Tax Avoidance. n.d.. Corporate Tax Avoidance. Retrieved November 13, 2013, from http://www.thisismoney.co.uk Hunnicutt, S.2009. Corporate social responsibility. Detroit, MI: Greenhaven Press. IFRS 7 financial instruments: disclosures.2005. London, U.K.: IASCF Publications Dept.. Robertson, L. 2009. Financial management. Oxford: CIMA Pub.. Starbucks Success.(Brief Article). 2000, February 1. Canadian Dimension, 13, 12-16. Starbucks Coffee Company. n.d.. Starbucks Coffee Company. Retrieved November 12, 2013, from http://www.starbucks.com Weale, A.2008. Legitimacy Theory. London: Routledge. Read More