Howard Schultz’s Presidential Run Could Hurt Starbucks

While former Starbucks CEO Howard Schultz explores an independent 2020 run for president, the public backlash is putting his old company at risk.
Then-Starbucks CEO Howard Schultz speaks Wednesday, March 23, 2016, at the coffee company's annual shareholders meeting in Seattle. (AP Photo/Ted S. Warren)

Then-Starbucks CEO Howard Schultz speaks Wednesday, March 23, 2016, at the coffee company’s annual shareholders meeting in Seattle. (AP Photo/Ted S. Warren)

On Sunday, former Starbucks CEO and Executive Chairman Howard Schultz announced he was exploring a run for president as an independent in 2020.

The billionaire coffee mogul, a lifelong Democrat, told CBS News’ Scott Pelley on 60 Minutes, “I am seriously thinking of running for president. I will run as a centrist independent, outside of the two-party system.”

Democrats have voiced concern about Schultz’s potential White House bid, saying Trump’s chances of getting re-elected are greatly enhanced if a third party candidate siphons votes from the Democratic nominee.

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Speaker of the House Nancy Pelosi, asked about Schultz’s possible run as an independent for president, said, “I’m not for anybody who stands in the way of a Democratic victory for president.”

Trump also recognized the opportunity and said he would like Schultz to run. As Maggie Haberman tweeted:

Backlash to Schultz’s announcement has been widespread and boisterous. On Monday evening, Schultz got shouted down at a book-signing event in New York City. A protester shouted, “Don’t help elect Trump! You egotistical billionaire asshole!”

Schultz may also pull votes from some centrist never-Trumpers, who otherwise would vote for the Democratic candidate. As Nate Silver said, “Democrats like to panic and, paradoxically, they’re also feeling very confident about their ability to beat Trump, so they don’t want anything to screw it up…Another issue is that lots of people who disapprove of Trump are going to be inclined to vote for him, especially if they identify as Republicans or Republican-leaning independents.”

Social media response to Schultz’s announcement has likewise gone full pitchfork — aimed both at Schultz and at Starbucks. The hashtag #BoycottStarbucks is circulating on social platforms. Though Schultz retired from his position as executive chairman of Starbucks in June 2018, he is inexorably linked to the company and brand. On Starbucks’ website, Schultz is atop the list of the Board of Directors as chairman emeritus — ahead of Starbucks current board chair Myron Ullman III and current president and CEO Kevin Johnson.

To be clear, Schultz is not a member of the Starbucks Board of Directors, nor is he compensated for his position as chairman emeritus. That his name tops the list speaks volumes about his association with the company and brand. As of December 2018 reporting, Schultz is the largest individual shareholder of Starbucks stock, owning more than 37.6 million shares.

In Starbucks’ 2019 Letter to shareholders, Ullman and Johnson wrote of Schultz’ retirement, saying the company “transitioned from founder-led to founder-inspired.”

Schultz no longer has formal ties to Starbucks — he can do as he pleases. But sitting members on Starbucks’ Board of Directors have a fiduciary responsibility to shareholders to protect their investment in the company. Backlash to Schultz’s possible bid for the presidency may be of concern to Starbucks’ board members and investors.

Mark Kalinowski, chief executive of Kalinowski Equity Research, said Schultz’ presidential run would hurt Starbucks, as reported by MarketWatch.

Kalinowski wrote: “[I]f Mr. Schultz is widely seen as doing something meaningful that could help tip the U.S. presidential election toward the current Republican incumbent, the relevant question for Starbucks’ shareholders might not be if Starbucks’ business would be harmed by Mr. Schultz‘s actions — only by how much.”

Boycotts are not the only threat to Starbucks’ business. If Schultz runs for president, the company would be the target of opposition research by both Democrats and Republicans, as well as the subject of heightened journalistic scrutiny.

I asked the largest institutional shareholders of Starbucks’ stock (NASDAQ: SBUX) about their concerns regarding backlash to Schultz’s presidential bid. Vanguard Group, the largest of these holds more than $5.3 billion of value in Starbucks stock. Spokespersons from Vanguard, BlackRock, State Street, Band of New York Mellon, and Polen Capital all declined to comment.

Michael Gordon, Arthur F. Thurnau Professor of Business Administration and Faculty Director, Center for Social Impact at the University of Michigan Ross School of Business told me:

“Starbucks’ board must be aware of the potential blowback to his candidacy. Using nothing more than their moral authority, they can urge him to talk to Michael Bloomberg, the other would-be billionaire candidate, about how destructive such a run would be.”

Fellow billionaire Michael Bloomberg, former mayor of New York City, echoed Democrats’ admonition, urging Schultz not to run as an independent. Bloomberg tweeted with his statement:

Gordon continued, “While Schultz certainly has every right to run, the board might prevail on him not to do so. Even if he is far too optimistic about the good his candidacy might do, he may be more sober about the damage he might cause Starbucks — something he may have a more level-headed interest in protecting.”

Starbucks’ board has an obligation to shareholders to do everything in their power to mitigate risk to the company.

Tom C.W. Lin, Professor of Law at Temple University’s Beasley School of Law told me:

“Schultz’s exploration of a possible presidential run poses some business risk for Starbucks, as evidenced by the #BoycottStarbucks hashtag.”

The boycott movement has expanded into creative expressions on social media. As Jennifer Taub tweeted:

Lin added, “Starbucks’ corporate leaders should put forth a clear and strong statement distancing themselves from Schultz’s campaign and the positions of Schultz the candidate. That said, given how closely linked Schultz is to the company, it will be incredibly difficult for many in the public to disassociate the company from its former chairman and CEO.”

Starbucks quickly released a statement from CEO Kevin Johnson on Monday, expressing general support for Schultz. In it, the company attempted to dodge politics:

“Howard has moved forward to the next chapter of his life, where he has expressed an interest in public service, and potentially public office. Whatever he decides, it is my personal belief that Howard will continue to make a positive impact on the lives he touches, and I wish him well.

“Many of us will inevitably be asked if the company supports a possible presidential candidacy of Howard and what changes for Starbucks. As a company, we don’t get involved in national political campaigns. And nothing changes for Starbucks.”

Starbucks’ statement reiterates Schultz’s retirement, but does not make any bold declarations underscoring its separation from Schultz. Questions persist about whether Starbucks’ statement went far enough.

Charles R.T. O’Kelley, Professor and Director, Berle Center on Corporations, Law and Society at Seattle University School of Law, told me:

“Starbucks’ Directors must make the separation clear. You don’t want your company caught in the crosshairs of liberal or conservative politics. They should completely separate from Schultz, make a strong statement of separation aggressively and quickly. And remove his listing as chairman emeritus.”

But some experts think Starbucks’ tempered approach is appropriate.

Philip M. Nichols, Joseph Kolodny Professor of Social Responsibility in Business and Professor of Legal Studies & Business Ethics at the Wharton School of Business at the University of Pennsylvania, told me:

“My guess is that right now Starbucks should wait and see how far Schultz goes, and not get drawn into the deeply polarized politics in this country. If Schultz goes further and if the boycott movement persists, then Starbucks can begin to very politely distinguish itself from Schultz, taking care not to communicate in a positive way rather than a negative — communicating the distinction between the company and Schultz in a way that continues to emphasize the social aspects of Starbucks that its customer base appreciates but that does not thrust it into electoral politics.”

Starbucks’ separation from Schultz is not altogether clear, judging from his listing among board members as chairman emeritus. Lack of clarity has its own consequences.

Stephen Hahn-Griffiths, Chief Reputation Officer at Reputation Institute, told me: “Any ambiguity causes reputational problems. Globally, 14% of a company’s reputation can be directly attributed to the CEO. Even though Schultz is no longer an executive, of course he’s associated with the company. Both Starbucks and Schultz should make clear statements. It would be appropriate to declare intentions. It is possible for Starbucks to separate from Schultz, but uncertainty yields reputational decline.”

James McRitchie, shareholder advocate, corporate governance and publisher of CorpGov.net, told me: “It might be helpful for the company to clarify what, if any, powers and/or benefits Mr. Schultz retains as chairman emeritus.”

Shareholders of Starbucks stock will have the chance to make their voices heard at the company’s annual meeting of shareholders in March. Shareholder activists who own even one share of SBUX stock are allowed to attend the meeting.

Starbucks 2019 Annual Meeting of Shareholders on March 20, 2019 at 10:00 a.m. PT. Please note the new location at the WAMU Theater next to CenturyLink Field, in Seattle, Washington.

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News // 2020 / Business / Democratic Party / Howard Schultz / Republican Party / Starbucks