Institutional Shareholder Services (ISS), a proxy advisory firm, has sided with Starbucks Corp in a board battle concerning worker pay and the company’s stock price. ISS recommended investors elect all of management’s directors, countering the nomination of three director candidates by the Strategic Organizing Center (SOC), a coalition of North American labor unions.
The SOC, including the parent of Workers United, which represents Starbucks workers, argued that Starbucks’ anti-union actions may have negatively impacted the company’s brand. However, ISS disagreed, stating that the coalition failed to establish a significant connection between these actions and underperformance, weakening its case for board change.
The vote is scheduled for March 13 unless an agreement is reached between the two sides beforehand. Starbucks expressed satisfaction with ISS’s recognition of the board’s strength and support for the election of its directors.
In response, SOC expressed disagreement with ISS’s recommendation, asserting that Starbucks’ board should be held accountable for endorsing anti-union measures that allegedly harmed shareholder value.
This board challenge at Starbucks has attracted significant attention as it represents one of the first instances where environmental, social, and governance (ESG) issues, rather than purely financial arguments, have become central to the campaign.
Although only a small fraction of Starbucks’ workforce is unionized, the movement has gained momentum, with around 370 stores voting to unionize since 2021.
Initially, Starbucks’ board faced criticism for its response to the nascent unionization movement. However, ISS noted that the board adjusted its approach and implemented proper controls by mid-2022.
As a proxy advisor whose recommendations often influence major shareholders’ votes, ISS commended Starbucks’ board for providing adequate disclosure throughout the conflict and for taking appropriate actions to address partner concerns.
Additionally, ISS praised both Starbucks and the coalition for committing to talks aimed at reaching labor agreements and resolving lawsuits, acknowledging that the coalition has achieved some of its objectives.
Overall, this board battle at Starbucks highlights the growing importance of ESG considerations in corporate governance and demonstrates the potential impact of social issues on shareholder activism.