Starbucks: Commendable or Untenable?

In the past three days, I’ve probably frequented at least three different Starbucks coffee shops to keep my brain whirring at a relatively high RPM as I approach finals week.  I remember a while back that Starbucks made quite the stink about the fair-trade-ness of a limited release batch of coffee, how they sourced if from small, family-owned Colombian coffee growing operations, or some variation on this bucolic imagery. Why bother advertising this? The answer: because people like to think that they are “generating grass-roots social change” and, as a general rule, don’t particularly enjoy writing checks to charity; they can have their (coffee) cake and eat it too by supporting impoverished, illiterate, disease afflicted people in third world countries with the purchase of their venti-soy-iced-carmel-macchiato-with-an-extra-shot. They can sleep easily at night (provided that the caffeine wore off) knowing that they did their piece to end world hunger, or poverty, or lack of clean drinking water (that means you, ETHOS), or whatever.

This leads me to believe that the average Starbucks customer, indeed, the identity of Starbucks itself,  is at once the socially aware, un-showered, Bohemian Whole Foods shopper and the ruthless, BMW driving, MBA-ed yuppie–clearly, a contentious and awkward situation indeed. It doesn’t like to mention this latter persona. The average Starbucks customer must also have a relatively short memory, because a few years ago one of the 24-hour news outlets–ever in need of a story–did a piece on how Starbucks systematically underpays its coffee suppliers for their crop, and that because of corporate “greed” hundreds of people are living in complete destitution. Granted, newsmongers have a penchant for sensationalism, but they have a point: something doesn’t pass the smell test when, due to pricing power, a large corporate entity simultaneously drives down the market rates of its raw materials and rapidly, absurdly inflates the price (and pretension) of what was once a pretty pedestrian product: a cup of joe. 

I’m not necessarily saying that what Starbucks is doing is wrong per se, it just doesn’t sit right with me. So here’s my question: is it ethical for a corporation to engage in generating the cliched grassroots change, or any charity for that matter, to scrub clean a tarnished corporate reputation? Furthermore, is it ethical to use such charitable giving as a selling point?

I was fortunate enough to have lunch with a prominent Nobel Prize-winning economist at the University of Chicago, Robert Fogel, with a good friend of mine. On the wall of his office was a picture of himself, Gary Becker, and Milton Friedman: which makes him, rather decidedly, a member of the Chicago school of economics. Fogel made it clear that Chicago economists believe that in all situations the market efficiently distributes resources among its participants; what he didn’t say, but what Friedman said explicitly, is that the use of corporate resources–which are, after all, shareholder resources–in charitable activities is tantamount to theft from shareholders, not explicitly, because they are frittering away a portion of someone’s retirement fund, but implicitly: they are taking from shareholders the potential earnings from assets allocated to socially-minded endeavors.  The explicit cost to shareholders, in short, is the opportunity cost of the earnings from capital investment.

Does buying slightly more expensive coffee constitute what Freidman is essentially calling fraud? You bet it does; it is not the duty of publicly held companies to engage in “social business” with shareholder money; such decisions are essentially unilateral because, let’s face it, so few shareholders will go through the time to do due diligence research and vote on these issues. Because we shareholders are lazy, that’s why.

I’m now forgetting who, but I’m willing to wager it was Miamonides (or maybe it was just uninterpreted Talmudic law) that dictates to followers that it is unethical to do charity work and tell people about it. All charity, according to this principle,  should be anonymous. This seems to fly in the face of modern, “enlightened” social business.  Why does what Starbucks is doing seem so, well, icky? Because they are doing “good work” not necessarily because it is the ethos of the company dictates it, not because the shareholders gave explicit approval, but because (a) they are trying to reinvent themselves as a socially minded business to garner approbation from socially minded consumers and (b) telling a good sob story with a readily available quick fix (buying a pound of super-ethically-sourced coffee) is a fantabulous way to boost sales… even if, on the surface, it “is for all the right reasons.” Keep in mind, it’s not Starbucks giving the money, it’s you to whom Starbucks passes on the burden of giving, and it’s your stock portfolio that could suffer for it. But, again, you’ll be able to sleep, and you’ll be able to keep real social problems at arm’s length: out of sight, out of mind, but in your favorite mug.


One response to “Starbucks: Commendable or Untenable?”

  1. Plain and simple, CSR (Corporate Social Responsibility) is marketing. Does marketing “fritter away” the shareholders’ money? Technically. But it brings further business. If companies in that special echelon of companies like WFMI and SBUX /don’t/ trumpet their greenness and how much they’re giving back, they lose business because they’re thought of as the forerunners of all these new requirements for corporations to do initiatives and cause marketing — and as yuppies keep hearing about all this stuff they know that their friends might think less of them if they shop at ‘un-green’ businesses. And there’s no better motivator for yuppies.

    So those are the cold hard facts. Now, I completely agree that ‘it’s not SBUX who is doing the giving, it’s who is doing the giving’ — but I think all this stuff should perhaps be seen as this cloudy, capitalism-based, market-driven social tax that actually might be able to get good stuff done in the world. Because if enough of the big ones make cause marketing enough of their strategy, it becomes a generic thing, and everybody’s stock portfolio is then equaled out. Also, I’m not sure if you took into account that cause marketing is generally more effective and requires smaller buys, and so their marketing budgets tend to stay constant.

    As long as the giving is genuine (and if it’s not, the market will eat those companies alive as this stuff gets more prevalent), I say go for it — provided it’s coming out of the marketing budget and the budget is constant, which it can easily be. Some of these companies’ marketing budgets are larger than small countries’ GDPs.

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