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What's Brewing at Starbucks?

Mark Lee of SustainAbility Radar asked the president and CEO of Starbucks Coffee Company to share his perspectives on the company’s corporate social responsibility efforts. Read More

Last month, the coffee mega-retailer won kudos for its Coffee and Farmer Equity (C.A.F.E.) Practices, a set of environmentally, socially and economically responsible coffee buying guidelines designed to help support local farmers while emphasizing environmental conservation and supply chain transparency. Mark Lee of SustainAbility Radar asked the president and CEO of Starbucks Coffee Company to share his perspectives on the company’s corporate social responsibility efforts.


Mark Lee: It’s striking that employees at Starbucks don’t capitalize job titles. You are the only Fortune 500 “president and ceo” I’ve encountered. What does this say about your company’s culture?

Orin Smith: One of the things we try to do at Starbucks is eliminate the non-essential differences that can develop in organizations between executives and the other people doing the work. We don’t think such distinctions are needed. At worst, if differences in title and status make staff feel demeaned, they can cut off the passion and commitment people have for their jobs.

So the non-capitalized titles are symbolic. We try to keep politics out of our environment. We seek to put people who have humility into executive positions — people who will roll up their sleeves and work with anyone else in the organization. The titles are one more way in which we say that we won’t let anything stand in the way of effective communication.

ML: Measured by growth and brand value, Starbucks has been one of the great corporate success stories of the last decade. What role has CSR played in your success?

OS: To a small, but important, group of customers, CSR is a priority; our CSR efforts increase their loyalty. For a larger proportion of our clientèle, CSR programs are not critical, but provide them with a warm feeling about the company. The majority of customers expect us to be responsible, but don’t give us a lot of credit for it. If they hear you have been irresponsible, though, they can react swiftly, and do great damage. So a reputation for responsible practices protects your business. Where CSR has proved most valuable is with our own people. They are generally very knowledgeable and passionate about environmental and humanitarian issues. They want to work for a company that cares about these problems.

ML: While the U.S. remains Starbucks’ largest market, the company is growing fast overseas, where cultures and attitudes towards big business, especially American big business, can be very different. What important lessons are you are learning internationally and how do those translate back to Seattle?

OS: Especially in Europe, consumers and governments are more interested in CSR. There is the beginning of a regulatory environment that demands transparency and a certain level of responsible business practice. I think Europe provides a picture of what will be expected soon in the U.S. and this helps us prepare for our future at home. For example, Starbucks has been working to get recycled content into our paper cups. Starbucks cares about this issue on its own merit, but the fact that requirements for recycled content are rising faster in some countries in Europe and Asia than here pushes us to find solutions even more quickly.

ML: Love it or hate it, nations and individuals often use the U.S. as a measuring stick against which to define themselves. In what ways is Starbucks’ reputation affected by being a ubiquitous American brand?

OS: I don’t think there is any question that our ubiquity creates negative exposure in some communities here and elsewhere, but it is also true that the convenience factor inherent to ubiquity — having many locations — is important to customers. By striving to be a good corporate citizen, we can usually overcome community objections. To overcome obstacles abroad where resistance to ubiquity may be most pronounced, Starbucks may need to be even more sensitive to local concerns. I am always asking our people “What kind of company do we need to be to cause people to want us in their community?”

In the U.K., we initially faced a lot of negative press about our lack of involvement in Fair Trade coffees. Shortly thereafter, we provided a significant Fair Trade offering. We also worked with NGOs and others to educate them that we routinely pay high prices, typically as high or higher than Fair Trade coffee prices. This approach has won a lot of converts. Oxfam, once one of our greatest critics, has examined our practices in great detail and now recommends them to other companies.

ML: Starbucks has made significant progress addressing CSR issues relating to working conditions and equity in its supply chain, as well as Fair Trade. Is it possible for the company to continue to advance in these areas alone, or do system conditions, for example, the way coffee is grown, priced and traded, limit how far you can go?

OS: At this point, we are optimistic. We have indicated publicly that, by 2007, we will purchase at least 60% of our coffee under our CAFE (Coffee and Farmer Equity) Practices. guidelines. The guidelines guarantee prices comparable to or above Fair Trade and demand changes in practice as regards environmental and humanitarian issues and transparency.

Implementation of this program may be limited in countries where coffee can only be purchased through government agencies and boards and not directly from the farmer. The CAFE Practices program requires that we have contact with farmers, so we can ensure money gets to them and can verify at farm level that CAFEs environmental and humanitarian standards are met. Some countries employ option methods for coffee purchasing, a practice that does not allow close contact with farmers. While a potential limit, we hope this situation will change over time.

ML: Which companies do you admire most for their CSR leadership? Does the U.S. have a leadership position on CSR as it does on business more generally?

OS: BP has clearly taken a lead in its industry and among companies in general. Unilever is a company that I think has great programs. In general, I think European companies have taken more of a lead globally, but American companies like Nike, Gap, SC Johnson and Timberland have great programs, and there are more and more U.S. companies sincerely trying to do a great job.

ML: Over the past several years, Starbucks’ CSR “voice” has been amplified through the expansion of your sustainability reporting efforts. Will demand for transparency continue to build?

OS: Absolutely. Concern over CSR practices is developing everywhere, so interest in transparency will grow. While it will be some time before North America sees regulatory pressure on CSR transparency, we can look at the increased emphasis on transparency around financial issues for clues as to how this might develop. As transparency pressures become more acute (because consumers and others demand more), this could become a requirement, but Americans are more averse to this approach.

ML: Do governments do enough to define and/ or reward CSR performance?

OS: In general, I don’t think governments have done a good job at the local, national or international levels. Because of market competition, there are limits to what individual companies can do on CSR. If one company spends or does too much, they can end up at a competitive disadvantage. The only way to afford CSR is to convince consumers to spend more in return for your guarantee of responsible practices.

Government could support CSR by better defining the boundaries within which companies operate. On a level playing field, with higher minimum standards, business could be left to do what is does best — efficiently serve market needs.

We find the most challenging situations in developing nations where the regulatory apparatus is not strong. Given their poverty, these countries can be seduced by the monies multinational companies can bring into their economy, which can lead them to allow or turn a blind eye to environmental and social practices that would not be accepted in North America or Europe. Only stronger international governance mechanisms can help this.

I’m also proud of what we pay farmers. We pay prices that let them feed and clothe their families while some neighbors are turning farms over to banks or abandoning them. And because we pay those prices, we can go to farmers and say “if you want to continue to supply us, you need to meet certain standards for environmental and social performance and be transparent in how you operate.”

ML: What’s next for you? Will we see you spending any time on CSR issues?

OS: I will continue to work on CSR issues. For a while, I’ll still do that with this company. Independent of Starbucks, I plan to work with a variety of other organizations, private and non- governmental, to promote CSR, for example Conservation International, where I’m an actively involved board member.

ML: After a decade and a half at Starbucks, you will step down from your position this March. What aspect of Starbucks’ CSR performance do you look back at with particular pride? Of our many CSR efforts, I’d say that I am proud of the way we treat our people, paying above industry average, offering health care and stock options to all employees and showing people respect in how we treat them every day.

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This article has been reprinted courtesy of SustainAbility Radar. It was first published in the February/March 2005 issue of that publication.

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