The Role of Stakeholders within Corporate Social Responsibility: Starbucks - Case Study Example

The Role of Stakeholders within Corporate Social Responsibility (CSR Starbucks An Essay on a Contemporary Business Organization Schooland Course # Introduction A stakeholder is any person, or group of people, such as customers, or the employees of a company, that are affected in any way by the actions of a company. Consequently, if a company decides to stop making a certain product, stakeholders (consumers), who purchase that product to use in their own business, for example, will be seriously affected by that action. Another example is when a company must cut its costs, and one step towards that goal is to cut down the amount of employees to a bare minimum level. The unemployed now have to find new jobs, even selling their homes and moving somewhere else, in order to take on a new job. That is if they are lucky enough to get another one in today’s market. As a consequence, a corporation who thinks more about what stakeholders want and need, may do far better than those which look solely at the financial bottom line (Key, 1999; Juholin, 2004). The best applications are when the financial bottom line is observed in conjunction with how stakeholders will be treated over a period of time. In today’s highly visible and vocal world, addressing both sides is essential to surviving well. With the advent of social media in particular, and the Internet overall, the ability to make complaints and statements about how one feels regarding an action taken by a company, is any company’s worst nightmare. Bad publicity flies quickly across many social media platforms and is usually more interesting to readers than good news. The perceptions of stakeholders, therefore, have a lot to do with how successful a company will remain (Crane et al., 2013). Companies under attack for negative events must move quickly to solve the problems caused by such events, and get them rectified as quickly as possible, and as publically as possible, where applicable. It is a public relations scenario operating at its finest when stakeholders see that a company has stepped forward to make amends and solve the problem(s) (Wilcox & Cameron, 2011). The Stakeholder as a Partner In order to succeed in the global marketplace, businesses must have stakeholders on their side. This means getting the message out about something that will be happening, such as a new product, or changes in operations. Finding out what customers think, want and need from the company, is important in targeting the customer base properly in order to develop new future products. Otherwise, money is wasted in developing products that will not sell well. Aside from the market research, market strategy, and advertising conducted with consumer stakeholders, there is also the aspect of being an environmental partner in various communities, a giving back in development to those who live in areas where the company operates. How companies operate with their associated partners also becomes a big part of the success of any company. The Starbucks Company will be used for this paper to look at the coffee farms that are part of the umbrella operations in coffee growing, and the assistance provided for the farms and the workers directly. The Starbucks Global Community of Coffee Farms: A Stakeholder CSR Case Study Company Overview Starbucks began operations in 1971 in Seattle, Washington, with its first store. Starbucks, over the next few years, provided coffee to fine restaurants and espresso bars in the local area. By 2013, Starbucks had expanded to 11,457 stores in the United States, and over 19,000 global stores. Starbucks continues to expand exponentially, and in 2013, its United States market share was 32.6%, with 74% of revenue coming from the beverage sales, and 20% in food sales. The rest of U.S. sales came from single serve coffee sales, packaged goods, coffee making equipment and associated Starbucks merchandise (Statista, 2014). Starbucks currently has one-fifth of the U.S. coffee and snacks industry market place. Its main business objective is the company’s commitment to ethically grow and provide the highest quality Arabica coffee bean on a global level. Starbucks goal is to attain a 100% threshold for the Arabica coffee bean to be ethically grown and traded on a global level by 2015 (Starbucks, 2014b). 2013 Report Update (Fig. 1, Starbucks, 2014b) The Coffee Farms Starbucks developed a program, with the assistance of Conservation International (CI), called the Coffee and Farmer Equity (C.A.F.E.) Practices, which partners with thousands of global coffee farms, utilizing over one million workers on those farms. The programs assists farmers in improving working conditions, farm and soil development, and long term sustainability. The partnership also continually measures operations and assistance impact on these farms, which also includes the purchasing program infrastructure for ensuring fair trade practices (Starbucks, 2014b). As such, these farms, the owners and their employees, are considered stakeholders by the nature of their association with the Starbucks conglomeration, and with the program in place, they can expect to receive fair trade for the work and product (coffee bean) that they produce for Starbucks. The Farmer Support Centre in Costa Rica, for example, uses a team of experts to assist farmers with any issues occurring on their farms, ensuring that the farms and surrounding communities will operate and exist in an environmentally safe habitat (Starbucks, 2004). One disastrous incident occurred late in 2013, when Farmer Martiniano Moreno in Chiapas, Mexico, discovered that “coffee rust” was destroying his most recent crops, as it was with other farms. Coffee rust is a fungus disease that dries out the plants, aggravated by alternating climatic conditions of rain and hot sun (Starbucks, 2014a). This led to Starbucks Mexico developing a new program, TODOS SEMBRAMOS CAFÉ, which put all the profits from the Shade Grown Mexico Whole Bean Coffee product sold in Starbucks Mexico stores, into purchasing rust resistant plants. These plants were given to those farmers who had lost all their crops and who needed to rebuild their farming plots. Starbucks provides whatever is needed to assist the farmers in stabilizing their farmers so that they all remain effectively growing the Arabica coffee bean in the best manner possible. This is a relationship that has been ongoing since 2002 and Starbucks maintains strong relationships with these farmers, providing necessary assistance and providing jobs to the region (Starbucks, 2014a). With nearly 400 Starbucks stores in Mexico, and Chiapas as the largest coffee bean producing region for Mexico, it is definitely a Starbucks social responsibility to take care of its financial and social obligations to the people who provide the foundation product for the company. Overall, Starbucks has invested over $70 million in the last 40 years to C.A.F.E. practices, farmer support centres and collaborative programs, farmer loans, and forest carbon projects (Starbucks, 2014a). Starbucks recognizes that supporting the producers in many ways, aside from just providing the coffee bean for growing, means keeping a loyal production team in place and fully functional, no matter where the producer may be located. Impact of Public Relations and Social Media on Stakeholders and CSR Starbucks has gone to great lengths to stay in touch with its current customers and to provide loyalty benefits through the Starbucks Card, which accumulates points so that customers can received free drinks and food after a certain level has been reached. Starbucks also has its own membership forum where customers can get together and talk about the products. Social media platforms on Facebook, Twitter, G+. Pinterest, YouTube, and My Starbucks Ideas, also play an effective part of keeping in touch with regular customers, and to also hear complaints (Schoultz, 2014). As with any other business operation, problems can occur without notice. Recently, in summer of 2014, Starbucks cancelled thousands of the Starbucks Gold Card accounts because there was no verification on record for how old the holders were. Thousands lost all their points for free coffee and other perks, simply because no form of identification had been given, even though birthdays were noted on the accounts. Commentaries were made on Twitter and other social media platforms, creating something of a PR nightmare for Starbucks (Soper, 2014). In hindsight, it would have been far more professional to ask the customers for proof of their age rather than deleting their accounts outright. Ideally, whatever proof was needed should have been asked for, right when signing up for the card. If customers had issues about providing sensitive identification, then baristas could verify at checkout that the customer was, indeed, who he or she said they were, by visually checking the required identification (i.e. driver’s license). The account could have had a note for the barista which pulled up during checkout, stating that the identification should be checked, although it is not clear if baristas have access to accounts in order to make notes. That solution would have been far more professional and friendlier. Starbucks’ solution was to send out text messages and emails, stating that those who had accounts cancelled, could create a new account and all the points collected from before the cancellation, would be added back on. The outcome was that it was an inconvenience, did not make customers (stakeholders) feel very welcome and appreciated, and may have some lasting bad feelings regarding the manner of customer service treatment (Soper, 2014). As Starbucks is such a large global business, it is expected that there may be an unpleasant issue now and then, as part of the law of averages. Starbucks does practice fair transparency by providing many communications on its website, including all annual and quarterly financial statements. Being willing to acknowledge mistakes and issues, means that stakeholders will be more likely to continue with their support of a company, and Starbucks appears to be forthcoming often in recognizing where mistakes have been made. How Starbucks Treats its Employees as Stakeholders When people look for jobs, most will also review what kind of benefits are offered at the company and also find out how the company treats its employees. Health benefits are now a big issue in the United States, and other bonuses such as paid college tuition, make a company far more attractive (Juholin, 2004). Starbucks, along with other large corporations, now provides college tuition reimbursements for a bachelor’s degree, special bonuses, 401(k) matching and discounted stock purchasing options, health benefits for the employee and domestic partners, adoption assistance, 30% off in-store discounts, and one free pound of coffee, or tea, once a week (Starbucks, 2014c). This is also included for part-time workers over 20 hours a week. This package provided to the employees is called “Your Special Blend.” Each employees receives a package tailored to the individual. However, a recent event concerning baristas and their dress code, came up earlier this month when Starbucks put out a new dress code, requiring that employees cannot wear their engagement rings while working. Part of that list also includes wristwatches, bracelets, wristbands, and oversized earrings. Also added to the list was the fact that tattoos on the face and neck were not allowed, nor were nose rings. Nose studs and ear gauges were allowed, so long as they were 10mm or smaller (Baker, 2014). Also on the forbidden-to-wear list are blue jeans, sweatshirts, t-shirts, sports sleeves, open-toed shoes, sandals, clogs, cowboy boots, perfume, strong deodorants and powders. Painted fingernails and “unnatural” hair colours were also banned. Starbucks replied that these were new regulations implemented by the standards of the Federal Department of Agriculture (FDA), which required that items that could drop into foods and beverages, should not be worn. In essence, they do have a point as one can envision minute food particles getting caught up in diamond settings. One would expect that thin plastic gloves would be required while handling food, however. Whatever the reasons made available, this did not go down well with customers and some workers. For those with tattoos, it is hard to imagine trying to get those removed in a hurry, particularly if on the face. The neck can be covered up with turtleneck shirts but that would be uncomfortable during hot weather. Several months before, Starbucks had removed several drinks from the menu as well. One of the holiday favourites, Eggnog latte, went missing, along with the Gingerbread latte, and when the dress code event became public, there was a social media flurry online with the Twitter notice #boycottStarbucks! The rant went viral with customers, as stakeholders, complaining about both the loss of the drinks and the new dress code in rather vivid commentary. It was a PR nightmare. (Fig. 2, Baker, 2014) Jeff Lavery above, put his feelings in a more eloquent way with a selfie below. (Fig. 3, Baker, 2014) Some stakeholders blamed the whole fiasco on President Obama, claiming this was unconstitutional. (Fig. 4, Baker, 2014) It was clear that Starbucks had blundered badly, and the company very quickly made changes. While the dress code at this time, remains the same, both drinks were put back on the Starbucks menu within a day or two (Baker, 2014). It would seem that Starbucks should poll its customers first before making any changes that, ultimately, would cost money to fix and reverse. The Stakeholder versus Economics Models of Theory In conducting research on companies and how success is defined in the marketplace, different views have been taken, such as whether to use the economic model as the theory for study, or to use a stakeholder theory instead. Key (1999) presents that the economic theory encompasses contract theory, agency theory, as part of determining how firms behave, particularly when representing to the shareholders, or stockholders. Profit is the main goal of the economic theory, and that economic values are governed by rational choices and its level of utility. Therefore, values become the foundation of any theory developed in order to explain behaviour, or the actions of a firm when looking at business operations (Key, 1999). In the economic model, profit is the goal, along with the freedom to contract, where needed. The value of the stakeholder would not be a large part of this, as seen in the early part of the 20th century. Yet, with the changes in state laws over time, where the stakeholder becomes the larger focus, the need for transparency becomes a larger issue, with the stakeholder becoming more the goal, rather than just the economics of operations (Key, 1999). Corporate Social Responsibility (CSR) becomes the bigger picture in how the business firm responds to its stakeholders, which means nearly everyone who has something to do with the business (i.e. employees, customers, vendors). The levels of interaction with stakeholders can be separated in the following ways: responsibility (CSR1); responsiveness (CSR2); and rectitude (CSR3) (Key, 1999; Frederick, 1994). With this, the business firm becomes more focused on its outside environment, rather than focusing only on the internal components of economics. How the business firm, or corporation, interacts with the community (stakeholder), becomes an important part of the company’s brand and its reputation, and its responsibilities to the community. Some of the corporation’s stakeholder focus would then be labelled as corporate stewardship, charity, and philanthropy, whereby the company assists the community by making donations to causes, assisting in cleaning up polluted areas, particularly if the company’s production operations caused them (CSR1, CSR2, CSR3), and furthering development programs in the community (Key, 1999). In presenting the case of Starbucks and how it interacts, positively and negatively, the stakeholder theory in this concept, is fully applied. Starbucks follows an economic model when it helps build up the farmers who grow the coffee bean for the company. But it also goes further to help farmers and employees sustain themselves, even when not directly working on the farms, so as to provide a stability for these stakeholders. In the other application, using social media, where there was an issue about favourite drinks being removed, the company claimed responsibility for the mistake (CSR1), responded to the negative statements (CSR2), and fixed the problem by putting the drinks back on the menu quickly (CSR3) (Key, 1999). Wood (1991) also presented looking at the stakeholder system in three sections: the individual level, the organizational level, and the institutional or societal level (Key, 1999; Woods, 1991). Yet, it is a mistake to merely base the analysis process to one level, that of the relationship between the corporation and the stakeholder (Key, 1999). The environment surrounding both the corporation and the stakeholder(s) is constantly changing; it cannot be considered as static. In analysis, for example, when obtaining the outcomes, the results present a picture in time. Yet, if one changes the variables, the picture changes. Conclusion Corporate communication to all its stakeholders is vital to successfully presenting the brand, the experience of the products, and the overall message of the company within the community environment. When many of the early theories of economics and the stakeholders were developed, most of the researchers and theory development had barely heard of the Internet, social media, cell phones and personal computers/laptops. In retrospect, stakeholder awareness, both on the consumer/employee side, and company awareness of stakeholders were at elementary levels of interaction. Today, both theories should work hand in hand in consideration of new technology. Present day interaction is fast, on a global level, and most direct communications are by social media (Twitter, Facebook) on corporate sites, rather than using the postal service to get a letter to customer service, whenever help was needed. Phone calls still require the same amount of waiting time, although the majority of answering systems are automated to at least get you into a line to speak to a live person. Yet, one can go to the corporate website and engage in “chat” to speak with customer service, or technician, and get issues taken care of fairly quickly. All the technology has been developed to assist people in doing things faster and better (hopefully), although it sometimes goes wrong. Quick-acting people have to step in on the corporate side and fix problems quickly and efficiently so that the stakeholder is happy and continues to be a customer. Competition is high in the corporate world and keeping the customer happy is paramount to a solid economic base. Therefore, it can safely be intimated that stakeholders rule the economic levels of nearly any business (Key, 1999; Crane et al., 2013). In marketing, corporations with a good marketing infrastructure, such as in market research, market strategy and advertising, know everything about their customers, know how to create messages for different groups, and know how to remain engage positively with the stakeholders for the long haul. References Baker, D. (2014). New Starbucks Dress Code a Tall Order for Baristas? U~T San Diego Online. (6 November 2014). Retrieved from http://www.utsandiego.com/news/2014/nov/06/starbucks-boycott-dress-code-eggnog-latte/. [8 November 2014]. Crane, A., Matten, D., & Spence, L.J. (2013). ‘Corporate Social Responsibility in a Global Context.’ (Ch. 2, 3-26). In Crane et al., Corporate Social Responsibility: Readings and Cases in a Global Context (2nd ed.). Abingdon, UK: Routledge. Frederick, W. (1994). From CSR1 to CSR2: The Maturing of Business & Society Thought. Business & Society, 33(2), 150-156. Retrieved from http://bas.sagepub.com/content/33/2/150.abstract. [7 November 2014]. Juholin, E. (2004). For Business or the Good of All? A Finnish Approach to Corporate Social Responsibility. Corporate Governance, 4(3), 20-31. Retrieved from http://www.emeraldinsight.com/doi/abs/10.1108/14720700410547477. [7 November 2014]. (Juholin, 2004) Key, S. (1999). Toward a New Theory of the Firm: A Critique of Stakeholder “Theory.” Management Decision, 37(4), 317-328. Retrieved from http://www.iuc-edu.eu/group/sem1_L3/2011%20STRATMAN/11R%20key%20stakeholder%20theory.pdf. [6 November 2014]. (Key, 1999) Schoultz, M. (2014). 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