Why Starbucks finds itself in the middle of a union firestorm

How did Starbucks, arguably one of the nation’s most forward-thinking companies, led by Howard Schultz, arguably one of the nation’s most progressive CEOs, become a poster child of anti-unionism?

As you may know, Starbucks has become the subject of a small but significant organizing campaign by Starbucks Workers United, which is affiliated with the SEIU, or Service Employees International Union.

This movement has unionized 210 of the company’s 9,000 U.S. stores, about 2.3%, with another 75 or so up for a vote.

Starbucks, led by Schultz, has been vigorously fighting the union’s efforts. Charges and counter-charges have become heated. Expect at least some update from the company at Starbucks’ investor day set for this coming Tuesday.

It seems like a strange state of affairs. Hobby Lobby or Walmart fighting unions, sure. But Starbucks?

To a certain extent, Starbucks is a victim of its own success. Under Schultz, the company has put into place some of the most generous benefits and work policies of any company in America. This includes higher wages, comprehensive health care coverage, stock options (including for part-timers), and free college tuition.

As a result, Starbucks has attracted a better-educated workforce, which turns over less often than at a typical QSR, with some data showing a 65% turnover rate, below the 150%-400% seen at most peers. Arguably, this more engaged workforce has more skin in the game and is more willing to fight for change, rather than just quit.

“I think it’s the case that people expect more from us,” a Starbucks insider told me. “We have had some foot faults, but I think we are held to a higher standard and we accept that.”

It’s also the case that the world has changed.

Schultz — who declined to comment for this story — seemed to suggest as much to the New York Times in June, saying in an interview: “…the truth is those benefits, as good as they are and were, are not good enough for the employee of today, primarily because Gen Z has a different view of the world. And also because the government has not provided them with a pathway that they believe they deserve.”

The pandemic factors into this as well.

“We started organizing in August of last year,” says Casey Moore, a barista and Starbucks Workers United member from Buffalo, where the first store was unionized last fall.

“There was a group of us kind of coming out of the pandemic, feeling very overworked and underpaid. We were called essential workers," Moore said. "But we didn't feel like we actually had the resources or the support from the company that we felt was essential.”

“People love working at Starbucks,” says Chris Chafe, a strategic advisor to the Starbucks Workers United campaign. “And the company did do a lot of things, to be intentionally inclusive and welcoming to a lot of different kinds of workers in a way that was pretty unique in American culture, and society and business.”

The problem, Chafe says, is that “Starbucks turned its back on strong practices” during that pandemic.

"[Starbucks'] workforce is simply not willing, on the other side of the pandemic, to be mistreated by a company that prior to the last couple of years, had made a different kind of effort to engage with them," Chafe said. "And so they're looking for a strong, serious, real voice at the table, to work with the company to make it a better place to work again.”

But union activists also say that Schultz and Starbucks are behaving unethically and even illegally when it comes to anti-union statements, closing stores and dismissing pro-union employees. The company denies those charges.

Starbucks says not only is the number of disgruntled employees small, but its workforce is being whipped up by activists who have their own agenda — which speaks to the point that unions aren’t necessarily the most progressive constituency in American society. In other words, saying a progressive company like Starbucks is at loggerheads with unions isn’t necessarily a contradiction.

What about Schultz’s background? Is there some sort of Freudian element that would make him anti-union? To the contrary it seems. Schultz grew up in a poor, working class neighborhood in Brooklyn, which I visited with him 18 years ago.

This, from a story I wrote about Schultz in Fortune back in 2004: “Schultz frequently tells a story about coming home one day as a boy to find his father, Fred — who worked a variety of blue-collar jobs to keep his family going — laid up on the couch with a broken ankle. His father [who was not in a union] couldn't work. He lost his job, and he had no medical benefits. The family's tight finances became even tighter. 'I will never forget that episode,' says Schultz. 'I never want that to happen to our employees.' That's why thousands of part-time Starbucks workers have full medical benefits.”

It seems that what irks Schultz isn’t paying (unionized) employees more money, it’s sacrificing a direct connection with them.

In his 2012 biography, 'Pour Your Heart Into It: How Starbucks Built a Company One Cup at a Time,' Schultz wrote: "I was convinced that under my leadership, employees would come to realize that I would listen to their concerns. If they had faith in me and my motives, they wouldn’t need a union."

In fact there has been unionizing activity at Starbucks going back to the 1980s, first with the United Food and Commercial Workers and later with the Industrial Workers of the World (the Wobblies!), but Schultz was able to push the unions out. That is until this recent, more successful, foray by the SEIU. A move that apparently compelled Schultz — who had been CEO from 1986 to 2000, then came back from 2008 to 2017 — to return again this past March, when a company source says stores were voting on unionization at a 25-per-week clip.

Union sources say there must be discomfort felt by Starbucks’ board members including board chair and Ariel Investments co-CEO Mellody Hobson and Microsoft CEO Satya Nadella. Maybe, maybe not.

In August, Starbucks union members in Buffalo leafleted a preseason Buffalo Bills-Denver Broncos game, calling out Hobson, who is part of the Broncos' new ownership group.

“Hobson has a long and generally positive relationship with Workers United and its predecessor unions,” said union organizer Chafe. “Her firm counts the National Retirement Fund, the pension fund for that union, among the very early institutional investors who showed trust and faith in her and [Ariel founder] John Rogers many years ago.”

As for Microsoft, in June Microsoft President Brad Smith said in a company blog post Microsoft will not resist unionization efforts. The company also entered into a labor neutrality agreement with the Communications Workers of America, according to Reuters, "allowing employees to 'freely and fairly' make [a] choice about union representation." It’s worth pointing out, though, that Microsoft may have a much smaller labor footprint to organize than Starbucks does. Still, it seems like an astute, and maybe even conciliatory, move by the tech giant.

What does this mean for Starbucks’ investors? The stock has underperformed the market over the past year, and matched the S&P over the past five years.

Is that because of unionizing? Or because of the company's resistance to the union? Probably neither.

The company has myriad other problems/opportunities like supply chain and sourcing, China, and competition which no doubt will come up on Tuesday along with, a company insider says, "all kinds of initiatives modernizing the partner (employee) and customer experience."

Layered on to all of this is the fact that the company has a new CEO, Laxman Narasimhan, soon to be in training with Schultz, and who will take the reins fully next April 1st.

Could Narasimhan be one the one who makes peace with the union? It likely will have to be.

Schultz told Andrew Ross Sorkin this week he is never coming back.

That may be music to the union's ears, but perhaps not to most Starbucks employees — or customers and shareholders either.

This article was featured in a Saturday edition of the Morning Brief on Saturday, September 10. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe

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