CHAPTER 21
How Socially Responsible Can a Company Be?

The evidence seems clear that those businesses
which actively serve their many constituencies in
creative, morally thoughtful ways also, over the long
run, serve their shareholders best. Companies do,
in fact, do well by doing good.

—NORMAN LEAR, FOUNDER

THE BUSINESS ENTERPRISE TRUST,

IN AIMING HIGHER BY DAVID BOLLIER

As CEO, my primary responsibility is to the people of Starbucks: partners, customers, and shareholders. I also feel accountable to those who came before me, those who created the legacy of Starbucks and built it into what it is today.

To me, “corporate responsibility,” the term President Clinton used for a conference of CEOs in May 1996, means that management must take good care of the people who do the work and show concern for the communities where they live.

So what about “social responsibility,” the term used by companies that give a percentage of their earnings to charity, or sell organic products, or try to save the rain forest? We don’t use that term to describe Starbucks’ approach, in part because our company doesn’t have any political leanings, and we encourage a diversity of opinion among our people. On balance, though, I think it’s a positive when others categorize us with such enterprises because “contributing positively to our communities and our environment” has long been part of our mission.

Still, as an employer and a public company, Starbucks needs to sustain and grow its business. We need to generate profits to demonstrate that the company is healthy and well-managed. Actually, we’ve never distributed dividends; all our profits go right back into the business.

Some shareholders think companies should not make any charitable contributions; they prefer to make these decisions directly, rather than through stocks they own. But I have a different view. To reflect the collective values of our partners, we believe Starbucks as a company should support worthy causes in both the communities where our stores are located and the countries where our coffee is grown.

Who should set the agenda to decide which causes to support and how? And how far can we take this responsibility if it seems to conflict with the needs of building our brand and our business? Those are questions that become increasingly troubling as we grow and become more capable of making a difference.

WHEN THE UNDERDOG BECOMES

A WINNER, THE CHEERING STOPS

Before Starbucks went public in 1992, we were a struggling Seattle company trying to make it big. Once we made it, though, public attitudes toward us began to change. Some of the same people who once rooted for us began to snipe at us. Once they decided we were no longer an underdog, they looked for ways to knock us down.

When measured against five million satisfied customers a week, our detractors are few in number. But when you are sincerely trying to build an enterprise with high principles, you can’t help feeling discouraged when your intentions are misunderstood, and at times even misrepresented.

Many of our customers and shareholders still view us as a beloved local coffee company, an inviting Third-Place café, a tenacious enterprise that’s always trying out bold new ideas. But our very success tended to make others suspicious of us and eager to believe the worst they hear. I’ve been called a “coffee magnate” and accused of being arrogant and ungenerous. It’s the downside of success, and it’s hard to swallow.

Executives at big corporations grow accustomed to being magnets for attacks from cause-oriented groups. When Starbucks started being targeted, it caught us off-guard. We were so used to regarding ourselves as the good guys, as the struggling underdogs, that we couldn’t believe others would want to attack us. At first, we were confused by what we perceived as simple misunderstandings. We responded honestly, and sometimes we got bitten.

WHOSE CODE OF CONDUCT

SHOULD YOU FOLLOW?

When we set Starbucks’ standards high, we never anticipated that we would be criticized because we set high standards. That’s what happened in late 1994, when a network of Guatemala activist groups started a leaflet and letter-writing campaign against us.

Some background: In April 1989, Peter Blomquist, then Northwest regional director for CARE, the worldwide relief and development foundation, was standing in line at a Starbucks. While waiting to order his morning cappuccino, he picked up a Starbucks brochure entitled A World of Coffee, which included a picture of Dave Olsen and a map showing the countries around the world where we buy coffee. Almost all were locations where CARE sponsors health, education, and other humanitarian aid projects. “You could have laid that map over a map of countries helped by CARE,” Peter recalls.

He approached Dave about donating to CARE, and both agreed it was a natural fit. After traveling to almost every coffee-growing region in the world, Dave knew only too well how poor the living conditions are in rural areas of the Third World. By paying a premium to farmers who grow high-quality coffee, he believes we are inherently supporting local economies while also providing incentives for better-quality coffee. Still, we depend on coffee growers for our livelihood, and he was enthusiastic about the idea of helping improve their lives through an organization with a proven track record.

Dave talked to me about CARE, and we both liked its approach. CARE programs don’t just feed the hungry, they help improve basic living standards in poor countries by such efforts as educating people about basic health care and helping them get access to cleaner water. Although we were then a small, private company with annual sales of less than $20 million, we liked the idea of giving back to coffee-origin countries through CARE.

But at that point we were not in a position to give. Starbucks was growing fast in 1989, adding 20 stores on a base of 26, and we were still losing money—more than $1 million in that year alone. We had to make up our losses before we could even mention charitable contributions to the board. But Dave and I set a goal: Once the company became profitable, we would start donating to CARE.

In 1991, Dave Olsen took a trip to Africa to observe CARE projects in Kenya. He visited a school and saw hundreds of African kids using CARE’s magazine, the Pied Crow, to learn about hygiene, family and community, land reclamation, environmental protection, and rural development. Two hundred of the young students sang Kenya’s national anthem for him and his family, and tears came to his eyes. He came back fired up and ready to formalize our involvement.

In September of 1991, finally in the black, Starbucks launched a partnership with CARE, kicking it off with a benefit concert by Kenny G. We not only committed to annual donations of at least $100,000, but promised Peter Blomquist that we would integrate CARE into every aspect of Starbucks’ business. We began offering CARE samplers of coffee and other CARE-related items such as mugs, backpacks, and T-shirts, in our mail-order catalogue and our stores. When customers buy these items, a portion of the price they pay is donated to CARE. We have featured CARE in in-store promotions, stand-alone informational kiosks, and articles in Coffee Matters, as well as supporting it by organizing benefit concerts with Kenny G and Mary Chapin Carpenter.

Each year we increased our donation to CARE, until by 1993 we were CARE’s largest annual corporate donor in the United States. In 1996, for CARE’s fiftieth anniversary we sent three partners, Dave Olsen, Don Valencia, and events specialist Vivian Poer, on a fund-raising climb to the summit of Africa’s Mt. Kilimanjaro. Our contributions to CARE have supported programs in four coffee-producing countries—Indonesia, Guatemala, Kenya, and Ethiopia—including such projects as clean-water systems, health and sanitation training, a literacy effort, and a new project to help small farmers in Ethiopia’s Zege Peninsula where, according to legend, coffee originated. We target programs where we can help develop lasting, life-saving solutions that will remain long after CARE has moved on to address other needs.

Because our relationship with CARE has become a source of pride for our partners, we were taken aback when, shortly before Christmas of 1994, a Chicago-based group of Guatemala labor activists began passing out leaflets at our stores. They contained claims that were misleading and highly inflammatory. They said that coffee workers in Guatemala worked under inhumane conditions to earn only two cents a pound, while Starbucks sells the beans for up to $9 a pound. The leaflet led people to believe, falsely, that these workers were on our payroll and that Starbucks was pocketing the difference. Finally, it called for people to write to me and to organize against Starbucks.

We were understandably dismayed, for we believed we not only had been behaving responsibly but in fact had taken initiatives that went far beyond what any other coffee company had done. We hadn’t exploited our support of CARE’s programs in these countries for public relations purposes, and now we wondered if we had erred in not being more vocal about it. It was clear that we had to respond to this attack, but how?

Over the next few months, we received dozens of phone calls and thousands of cards and impassioned letters. Well-meaning individuals wrote, asking us to triple the daily wages of coffee workers, while others dismissed our longstanding support of CARE as “a hand-out.” Although we purchase less than 1/20th of 1 percent of all the world’s coffee, and coffee prices are set on international commodity exchanges, people seemed convinced that we single-handedly had the power to change the coffee plantation system in Guatemala.

It quickly became clear that Starbucks was being targeted for a reason: because we have both a well-known national brand and a reputation as a principled company. Precisely because of our CARE donations, activist groups knew we were concerned about issues impacting Third World coffee-growing countries. They wanted us to use our purchasing power to promote social change according to their agendas. Some of our supporters even began asking: “Why not just stop buying coffee from Guatemala?” Yet we knew that a boycott—or even a threat to boycott—would hurt most directly the people who could least withstand it—the coffee workers.

What these protesters didn’t understand was that, since we don’t grow coffee ourselves, we cannot guarantee which farm produces it, whose hands pick it, or how much farm workers are paid. The Guatemalan coffee we sell comes from thousands of different farms. It is processed, bagged, and delivered to an exporter before it is shipped to us. We can inspect the quality, but we cannot easily determine, for any given shipment, exactly which farms it came from. We are one customer, and not even the largest customer. If we refused to buy from Guatemalan exporters, they would sell to someone else. Our customers would lose out, and the coffee workers would not be any better off.

We can’t bow to pressure from every cause-oriented group that pickets our stores. But the working conditions of coffee workers is a matter close to our hearts, and we didn’t want even one customer to think we weren’t doing all we could to help them. So, after much internal discussion with Dave and the board, we decided to study the issues involved to see if it might make sense to establish a code of conduct for our suppliers.

At our next annual meeting, in February, I made a public commitment to establish a code of conduct, setting forth guidelines for our dealings with suppliers in coffee-origin countries. I also explained that the issues were far more complex than the picture presented by the protesters. Human-rights activists applauded the announcement, though I warned them that it wouldn’t be easy. “I don’t want to make an agreement I can’t live up to,” I said at the time.

Over the following six months, Dave led an intensive study of similar codes that had been adopted by such companies as Levi-Strauss, The Gap, J.C. Penney, and Reebok, as well as a close examination of our own beliefs, ethical values, and attitudes toward supplier countries. He held meetings with representatives from a variety of cause-oriented groups, as well as CARE and ANACAFE, the Guatemalan coffee producers’ association. Dave tried to keep the tone of these discussions upbeat and constructive. One message he wanted to get across: An attack on Starbucks is an attack not on a faceless corporate entity, but on a group of people who, in fact, share many of the same values and goals as our critics.

By September 1995, Dave and his group had completed “Starbucks’ Commitment to Do Our Part,” a framework outlining our beliefs and aspirations as well as a set of specific short-term commitments for helping to improve the quality of life in coffee-origin countries. We used the term framework rather than code of conduct because our guidelines necessarily differed from the codes adopted by importers of manufactured goods like jeans and shoes. Levi’s, for instance, buys from about 600 discrete factories worldwide; each factory has machinery contained within four walls, which makes it possible to inspect working conditions there. In contrast, Starbucks buys, indirectly, from thousands of farms in about twenty origin countries. We could never conduct meaningful inspections the way a manufacturer does.

We stopped short of threatening to impose penalties on Guatemalan plantations that didn’t live up to our standards, as some had proposed, because of the practical difficulty of enforcing those standards. We did, however, outline a specific work plan for educating suppliers about our mission and values, communicating our goals to the coffee industry as a whole, and gathering further information during visits to selected origin countries. Our aim was to do our part in ways that we believed could have measurable effects, and for which we could be held accountable.

As far as I know, no American company importing agricultural products has ever attempted a code of conduct for foreign suppliers. But after we announced our framework, some still criticized us for failing to put teeth in it.

In early 1997, we followed up by forming an alliance with Appropriate Technology International to help poor, small-scale coffee farmers in Guatemala increase their income by improving the quality of their crops and market access. With a $75,000 first-year grant, we initiated a revolving fund to facilitate loans for producer cooperatives, starting with the funding of a wet-coffee processing facility designed to minimize environmental impact. Most of the growers we’re helping are struggling to feed themselves and their families from the produce of a few acres of land, and they suffer from high rates of illness and malnutrition. We see this effort as just a first step, an innovative program that could be expanded to make a difference for coffee farmers in other countries, too.

The leafleting incident taught us the downside of being responsible and responsive. It makes you vulnerable to an ever-wider array of special interest groups and individuals with diverse and sometimes unclear agendas. In Vancouver, British Columbia, our stores were spray-painted and vandalized after another group leafletted us because Starbucks supports the Vancouver Aquarium, which keeps whales in captivity. Yet another group asked us to pressure Pepsi, our joint venture partner, to stop doing business in Burma because of human-rights abuses there. We don’t even do business in Burma! Even the Audubon Society has petitioned us to protect migratory birds whose forest habitats are being cut down for coffee plantations.

As a company grows, its values will inevitably be challenged, but not in predictable ways. Big, successful enterprises can afford to be more generous and socially responsible than smaller ones, but they may also be held to impossibly high standards.

To be responsible to employees, communities, shareholders, and the greater good means to carefully balance a host of competing interests. You have to be very sure of your values and weigh them honestly against the need to sustain the enterprise. If you anger suppliers, if you alienate groups of customers, if you spend too much time and money on causes, you cannot build a strong, long-lasting company. If your company fails, or fails to grow, you can no longer afford to be socially responsible.

At Starbucks, we have to weigh what’s affordable against what we think is right. That’s why we keep giving to CARE even when profits are tight, as they were in early 1996. And that’s why we set up the Starbucks Foundation in 1997, recruiting Peter Blomquist as its director. But we will take a stand and support causes according to our own agenda, acting on our beliefs and values and not those dictated to us by others.

“Don’t say we’re doing nothing,” Dave says to our critics. “Say we are doing other than you would like us to do.”

No matter how others judge us, we will continue to hold strong to the values that sustained us when we were underdogs—cheering or no cheering.

WHAT TO DO WHEN YOUR ENVIRONMENTAL

ETHICS CLASH WITH BASIC BUSINESS

Running a company while keeping to high ethical standards presents another dilemma: Sometimes you can’t figure out how to live up to them.

Consider the case of the Starbucks cup.

For more than ten years, Starbucks has been selling coffee-to-go in a paper cup with a plastic lid. Yet that cup has been one of the most nagging issues we’ve dealt with, a brainteaser that seemed to pit our values against our brand image and our desire for customer service.

The problem is this: Hot coffee in a paper cup can be uncomfortable to hold. Espresso drinks like lattes are not as hot because they are tempered by the addition of steamed milk. But for regular drip coffee and caffè Americano, we have always had to put one paper cup inside another so the drinks will be easier to carry.

For customer convenience, double-cupping works fine. But every time we double-cup a serving of coffee, twice as many Starbucks cups end up in the trash—an apparent waste of material that runs counter to our environmental ethic. Living in an environmentally aware city like Seattle, I’m especially conscious of and bothered by the amount of waste we generate.

If you ask Starbucks retail partners—many of whom are in their twenties—what world issues concern them most, the overwhelming consensus is the environment. They hate to see disposable paper cups walking out of the store every minute, Starbucks napkins fluttering about the sidewalk, plastic lids that get used once and discarded. They love the coffee, but they don’t want to add yet another piece of refuse to landfills that are already overloaded.

In response to these concerns, Starbucks set up an Environmental Committee, a high-level group that looked for systematic ways to reduce, reuse, and recycle waste, as well as to contribute to local community environmental efforts.

We developed what may be a unique approach to addressing environmental questions. To coordinate efforts for our retail stores, we created an all-company Green Team, which consists of store managers from all our regions. Three times a year they meet with senior management and representatives from departments such as marketing and retail operations, coordinate plans for Earth Day activities, conduct recycling audits, and champion new ideas, which they then take back to their regions. It’s our way of trying to get the best thinking from our partners on how to become not only environmentally sensitive but a leader in this field.

Each district of around 10 stores has an environmental liaison, who coordinates efforts. Most stores appoint a partner to monitor recycling efforts and come up with innovative ways to cut waste. Stores often conduct Green Sweeps, sending people out into their neighborhoods, and even to nearby beaches, parks, parking lots, and other areas, to pick up trash. We encourage our customers to support our environmental efforts by offering them a discount if they bring their own cups for us to fill, selling commuter mugs, and serving drinks in porcelain cups if customers specify “for here” rather than “to go.”

Our system is not always as effective as we’d like it to be, but it ensures that our operations people are always conscious of our environmental goals.

Often good ideas originate in the stores and percolate upward. One store removed plastic knives and spoons from the condiment bar, making them available only upon customer request. That initiative dramatically reduced the number of plastic utensils that are thrown away. One region negotiated with a local dairy to take back used milk cartons. We need to rely on local store initiative because recycling practices and services vary across the country.

In October 1994, we hired Sue Mecklenburg from the University of Washington business school to serve as director of environmental affairs. By the time she joined, we had already implemented numerous initiatives to reduce waste in packing and shipping. There wasn’t, she recalls, much low-hanging fruit. So she set to work on the biggest environmental issue still facing us: double-cupping.

In 1995, we assembled a Hot Cup Team, with members from environmental affairs, purchasing, marketing, R & D, retail operations, and food and beverage. Their first step was to talk with suppliers. The primary alternative to paper cups, they discovered, is polystyrene, which insulates hot beverages far more effectively than paper.

We chose three kinds of polystyrene cups and conducted focus groups on their use with 250 customers. The favored alternative was a thin, pressed polystyrene, the kind used in convenience stores and gas stations. We produced a quantity with our logo and test-marketed them in Denver. While some customers thought these cups were an improvement over double-cupping, many disapproved. Polystyrene didn’t reflect the quality people had come to expect from us, and the public perception is that plastic is even less environmentally friendly than paper. To dispose of used cups, we shipped them to a polystyrene recycling facility in California. In fact, while it’s technically possible to recycle polystyrene, it’s impractical in many cities.

We had to face another practical difficulty, too. Typically, our customers leave our stores with their cup. A collection bin placed by the door would be useless to someone who drank her coffee away from the store. Anyone planning to finish it in the store could have requested a porcelain cup in the first place. Realistically, there is no way most of our customers could recycle polystyrene cups independently.

Switching to polystyrene would have saved Starbucks $5 million a year at that point in time—and far more as the number of stores multiplied in future years. But we decided against it. It didn’t solve the environmental issue, and it wasn’t consistent with our image.

Back at Square One, we started looking for a better paper cup, but we couldn’t find one that met our needs. So we decided to test market a paper sleeve. Instead of two cups, we would slip a ring of corrugated cardboard around the middle of each paper cup of regular coffee. The sleeve used only about half as much material as a second cup and even contained some recycled paper. By the time we printed our logo on it, we realized the sleeve wouldn’t save us any money, but we decided to offer it anyway.

For a longer-range solution, though, we decided to look outside the company. In early 1996, Sue approached the Environmental Defense Fund, which had partnered with McDonald’s to find an environmentally preferable alternative to the plastic clamshell in which they had been packaging their hamburgers. Eager to help companies develop innovative solutions to environmental problems, the Environmental Defense Fund had jointly established the Alliance for Environmental Innovation with The Pew Charitable Trusts. In August 1996, Starbucks and the Alliance agreed to work together to reduce the harmful environmental impacts of serving coffee. Our goal is to reduce the use of disposable cups both by increasing the use of reusable cups and by introducing a new, environmentally preferable single-use cup.

We contacted about forty-five parties—cup suppliers, industrial designers, and so on—who we thought might know of ways to solve our problem. We met with about twenty-five of them, reviewed their ideas and prototypes, developed a short list of eight cups that we presented to focus groups in three cities, and tested the three semifinalists in Seattle, Chicago, and Boston during the summer of 1997. Our goal was to identify a preferred alternative by the fall of 1997 and then move to production in 1998.

Holding yourself to a higher standard is expensive and time-consuming. It requires you to spend an enormous amount of time and money dealing with issues that many other companies would comfortably ignore. When the problems seem unsolvable, you have to keep after them.

It’s an ongoing struggle. But we care how people feel, what our partners are thinking, what the customer believes. So we keep at it.