From the general strike to the red light of corporate governance, labor risks at Starbucks Corporation (SBUX.US) may endanger shareholder value.

Two influential shareholder advisory agencies in the United States are warning shareholders that global coffee giant Starbucks Corporation (SBUX.US) may be overlooking the financial and reputational risks posed by labor disputes, and that these risks could impact the long-term growth trend of shareholder value. This warning comes more than a year after the company's contract negotiations with its American union organizationformed by its coffee store baristascollapsed. "The controversy surrounding labor disputes continues, and it is currently unclear whether the board has provided adequate oversight of the management's handling of labor relations," analysts from the global largest shareholder advisory agency ISS wrote earlier this month. This was not long before Starbucks Corporation's annual shareholder meeting on March 25th. ISS specifically mentioned the major strike initiated by Starbucks Corporation's American union and the recent $38.9 million settlement the company agreed to pay, emphasizing allegations that it violated New York City law, which requires fast food industry workers to receive predictable and stable scheduling. Both ISS and Glass Lewis noted that Starbucks Corporation recently disbanded a board committee set up during former CEO Laxman Narasimhan's tenure and responsible for overseeing long-term labor relations. The board of Starbucks Corporation established the "Environmental, Partner and Community Impact Committee" in 2023 under pressure from shareholder groups to address labor issues, including a passed vote that forced Starbucks Corporation to hire an external audit firm to review its handling of labor relations. Certain shareholder groups, such as the New York State Comptroller's Office and the union-affiliated SOC Investment Group, are trying to pressure Starbucks Corporation again, partly due to the formal dissolution of this committee by management and a joint letter claiming that long-term labor conflicts are threatening CEO Brian Niccol's massive reform strategy. However, Starbucks Corporation stated in a statement that these groups only represent a minority of shareholders. Glass Lewis cited the dissolution of the labor committee of Starbucks Corporation and recommended that shareholders vote against the re-election of board chair and director Beth Ford. Glass Lewis stated that the board of governance committee should "bear appropriate responsibility for failing to supervise risks that could harm shareholder interests." Labor risks are no longer just an employee relations issue, but a shareholder risk issue. The key focus for ISS and Glass Lewis is not just "whether there are labor conflicts," but whether these conflicts have already constituted substantial threats to the company's finances, reputation, and governance. And this risk has already started to materialize, with market concerns not only focusing on the labor dispute itself, but also whether the board of Starbucks Corporation has underestimated such risks, especially after disbanding the board committee dedicated to overseeing labor relations. Starbucks Corporation stated in its proxy filing that labor affairs oversight will now be the responsibility of the entire board, and other key responsibilities of the Impact Committee have been reassigned to other committees. An internal document stated that Starbucks Corporation made this adjustment to simplify the board structure and allow board members and committee members to "focus on core issues that drive long-term shareholder value growth." Starbucks Corporation spokesperson Jaci Anderson stated in an official statement that the board "possesses the skills and experience required for effective oversight of our strategies (including human capital management)." Starbucks Corporation stated that part of the reason it is able to offer "the best jobs in the retail industry" is that employees working over 20 hours per week can enjoy benefits such as health insurance, parental leave, and tuition for online courses at Arizona State University. Starbucks Corporation's annual SEC filing for 2025 details the risks that labor issues pose to shareholders, such as business interruptions caused by strikes, "adverse" impacts that future union contracts may have, and significant risks related to reputational damage that Starbucks Corporation's public stance on union issues could bring. According to Starbucks Corporation, union organizations have gained representation in approximately 6% of its U.S. stores. While union elections at the store level have slowed down since their peak in 2022, they are expected to continue until 2026. In December of last year, unionized coffee shop employees in 40 cities in the U.S. launched an indefinite strike. This strike has largely subsided, but rotating strikes at specific store levels are still ongoing. Starbucks Corporation stated that less than 1% of the stores were affected by these strikes, and all participants have officially returned to work. Both sides have blamed each other for the termination of labor negotiations at the end of 2024 and have expressed readiness to return to the negotiation table. Under Niccol's leadership, Starbucks Corporation is currently taking various proactive measures globally to boost sales. This includes the return of the Pumpkin Spice Latte, renovations of numerous physical stores in the U.S., upgrades to the mobile app and mobile ordering system to enhance customer experience, as well as the implementation of the "Green Apron Service" innovative business model aimed at achieving consistent and repeatable standards for transaction flow, sales, and customer service times in its coffee shops. Starbucks Corporation stated that stores that have implemented this model have seen improvements in transaction volume, sales, and customer service times. Although Starbucks Corporation has only renovated 70 stores so far, mainly in New York and Southern California, the company's management expects this pace to accelerate, with over 1,000 renovated stores expected to be completed by the end of the current fiscal year (ending in September 2026). CEO Niccol stated in an earnings conference call, "Although the sample size is still small, we are encouraged by the improvements in current sales and transaction volume."