Starbucks' union strategy criticized by labor coalition, potentially harming shareholder value.

• In March, a coalition of unions will present their argument against Starbucks during its annual meeting.
• The coffee giant has been criticized by the Strategic Organizing Center for having a "defective human resource strategy" due to the ongoing union movement.
• The Starbucks board is facing pressure from the SOC to remove three members, as the union fight has negatively impacted shareholder value.

In March, a coalition of unions will present its argument against Starbucks during a proxy fight, claiming that the company's human capital management strategy is flawed due to the ongoing union movement.

The Strategic Organizing Center alleges that the current situation has put the company at reputational risk, decreased shareholder returns, and isolated customers, according to polling conducted for a shareholder presentation. The coalition intends to replace three current Starbucks board members with its own nominees and will submit the investor presentation to the U.S. Securities and Exchange Commission on Tuesday.

The Board's anti-union strategy has resulted in one of the most glaring and destructive examples of human capital mismanagement in modern U.S. history, according to a proxy presentations read by CNBC. Starbucks' aggressive unionization response has not only failed to resolve the Company's dispute with employees but has made the problem worse.

Starbucks has a board of world-class business leaders who possess the necessary qualifications and expertise to drive the company's current operations and future success. The company has also continued to invest in its partners, including wage increases, training, and new equipment, resulting in a significant improvement in their experience.

Since the successful unionization of the first Starbucks-owned café in Buffalo in late 2021, nearly 400 Starbucks-owned cafes have voted in favor of organizing. The company has a global presence of over 16,000 cafes, both owned and licensed.

As the union battle at Starbucks intensified, Howard Schultz returned as CEO. He had stepped down last year, and Laxman Narasimhan had taken over. Despite Starbucks' announcement that it would resume contract talks in January, the two sides have not yet reached an agreement. Starbucks employees, including baristas, have staged high-profile strikes, including during Pride weekend in June and Red Cup Day in the fall.

According to the SOC's proxy presentation titled "Brew a Better Starbucks," the company has estimated that the unionization campaign has cost them nearly a quarter of a billion dollars and has negatively impacted the value of their brand.

A poll of 2,000 customers from all 50 states, commissioned by the SOC, found that two-thirds of those who visited the coffee chain in the past 30 days would be less likely to visit Starbucks if the company broke federal labor laws. This is higher than the 54% who said they would be less likely to visit in the face of price increases.

The SOC proxy presentation alleges that the company's board has endorsed an "unnecessarily confrontational" approach with the union. According to the National Labor Relations Board, NLRB regional offices have filed 128 complaints involving 430 unfair labor practice charges against Starbucks Corporation and Siren Retail Corporation after an investigation.

The Service Employees International Union, Communications Workers of America, and United Farm Workers of America are part of the SOC, which represents more than 2.3 million workers. Although the group owns only 162 Starbucks shares, its affiliated unions have millions of members with "hundreds of billions of dollars invested in pension plans with substantial Starbucks shareholdings."

Since November, when Starbucks launched its unionization campaign, its stock has fallen 6% compared to the 10.6% median gains of its peer cohort, and also compared to the 5.2% gains of the S&P 500 Restaurants benchmark during the same period.

Despite facing challenges such as labor organizing, macroeconomic effects, and the pace of recovery in China, Starbucks has maintained steady operating performance, according to the company.

The coalition has proposed three candidates for the coffee giant's board, who possess expertise in areas the company currently lacks, such as working with unions and experience with labor law. The candidates are Maria Echaveste, a former White House official; Joshua Gotbaum, a Chapter 11 trustee of Hawaiian Airlines and former White House Official; and Wilma Liebman, former chair of the NLRB.

In January, Starbucks appointed three new directors: Daniel Servitje, CEO of Grupo Bimbo; Neal Mohan, CEO of YouTube; and Mike Sievert, CEO of T-Mobile. This brings the total number of new board members to five in the past year. With the addition of these new members, Starbucks now has a diverse team of talented and experienced individuals on its board.

The proxy presentation focuses on three current Starbucks board members: Ritch Allison, Andy Campion, and Jørgen Vig Knudstorp, claiming that they lack labor-related regulatory experience as stated in the SOC presentation.

Starbucks submitted a proxy statement on Friday, asserting that its current board members possess extensive labor experience and contending that the nominees proposed by the Service Employees International Union (SEIU) lack the necessary breadth of knowledge and expertise to oversee the company's global and consumer-facing operations.

The Starbucks presentation highlighted the contributions of Allison, Campion, and Knudstorp, who brought "continuity and unique perspectives" to the team.

The company has created $92 billion in market value over the past two decades and leads its peer group in comparable store sales growth, unit growth, revenue growth, and earnings per share growth over the past year, as stated in the presentation.

Starbucks claims to outperform its peer group, which includes other companies, by 5 percentage points over the past three years. Since announcing its reinvention in May 2022, the stock has increased by 32%, surpassing both its peer group and the S&P. However, the SOC disputes this, stating that Starbucks' peer set is too broad and was chosen to be favorable to the company's recent underperformance.

In November, Starbucks announced that it had invested nearly $9 billion over the past three years to improve the overall partner and store experience, with over one third of that investment going directly to its partners through wage increases, training, new equipment, and technology.

The company aims to achieve ratified contracts for all represented stores by 2024, taking a constructive approach.

In December, the company announced plans to unlock $3 billion in efficiencies to fund reinvestments in its workers. During the most recent earnings call, Narasimhan reiterated the company's stance on the unionization movement.

We believe in a direct relationship with our partners and are committed to finding a constructive path forward with the unions representing 4% of our stores in the U.S.