Growing ProtestsInternational Response Israel-Hamas2024Sports Business and CultureMarch 2024WorldU.S.

Starbucks Boycott Raises Questions of Ethical Investing Practices

Pamela Pajuelo
Staff Writer

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Starbucks has recently faced backlash due to its perceived stance and position on pressing social issues tied to the Israel-Gaza conflict. Protests at Starbucks locations can be traced back to the company’s lawsuit against Starbucks Workers United which seemingly began in opposition to the union’s public demonstration of solidarity with Palestine, as reported by The Associated Press.

Through this tumultuous social and geopolitical event, Starbucks has experienced direct observable consequences. These have been diverse in nature, from targeted boycotts by consumers following “the chain’s drawn-out battle against employees’ unionization efforts” as reported by Bloomberg, to The Strategic Organizing Center (SOC) withdrawing its director nominations, naming Starbuck’s response to its employees attempt to unionize as “misguided.”  Starbucks actions had “materially damaged the value of the Company’s brand and negatively impacted its shareholders, partners and customers,” reports Business Wire 

Since the filing of the lawsuit in October 2023, the company’s performance has been on a downward trajectory, with its stock price declining 8.96 percent. This translates to a staggering loss of $11 billion, as reported by The Economic Times. Such impact on the company’s performance is part of a broader conversation worth having. With respect to investing, how should one balance financial and ethical considerations? Balancing financial and ethical considerations is a key challenge for investors.

Starbucks CEO, Laxman Narasimhan, disclosed during an earnings call that the coffee chain was reporting slower sales in the first month of 2024, causing yet another hit to its share price. He attributed this negative impact to the volatile situation in the Middle East, adding that this was primarily driven “by misperceptions about our [Starbucks’] position.” The impact of these events on Starbucks’ performance invites a broader, more nuanced conversation.

Grappling with the ideological framework that influences investment decisions presents an intriguing paradox. This dichotomy underscores the purpose of investors who have a responsibility to the performance of their portfolios, but who also may benefit from the opportunity to purchase Starbucks shares at a discount. 

In branding, Starbucks is a formidable entity that has cultivated consumer loyalty through user-generated content and customization. The company has also harnessed blockchain algorithms in its digital advertising. As Marcen van Oost stated in a LinkedIn post, Starbucks has positioned itself as a non-banking entity through their rewards program, thereby “amassing significant customer deposits” and leveraging consumer behavior. The company is undervalued due to the ongoing controversy. However, it is reasonable to anticipate a rebound once the issue subsides. This expectation is tied to the rapid rise and fall in activism, a trend that lacks depth and fails to effectuate true change. Such reasoning poses as a catalyst to integrate the company in a portfolio. Despite the current downturn, Starbucks is formidable and large enough to navigate the downturn, thus, investors may benefit from the opportunity to purchase Starbucks shares at a discount.

While one may expect ethical concerns to have a play in investing, one of the first lessons taught in Intro to Finance is “leave [your] activism at the door.” In settings such as finance courses and even in discussions at Seton Hall’s Student Managed Investment Fund (SMIF), the notion to prioritize financial returns over the social and ethical implications of a company’s actions is encouraged. This approach, while prevalent, is not without controversy, and reminiscent of the concept of shareholder primacy, which posits that an investor’s primary goal should be to maximize shareholder value. Nonetheless, some investors use strategies like Socially Responsible Investing (SRI), which encourages them to consider the social and environmental impact of the companies they invest in. 

Using the example of investing in a controversial company like Starbucks serves to showcase the importance of considering the potential long-term benefits of being a socially responsible company.

While trade-offs are inevitable, the vision of corporations being both profitable and socially accountable requires action. The growing trend toward ethical investing, as reported by The New York Times, shows institutions committing to ESG initiatives. For instance, some Texas schools have withdrawn funding from BlackRock over its ESG practices, says Reuters. As traditional ideologies like shareholder primacy are challenged, it is vital to advocate for socially responsible investing principles. Corporations exist because of their consumers, and consumers must influence them to improve their ethical practices to ensure consumer well-being. These events serve as stark reminders of the importance of awareness and corporate transparency.

Image courtesy of Getty Images

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