As Starbucks faces a rising tide of employee unrest, the new CEO abruptly changes the way the coffee chain divides its profits between workers and shareholders.
In a letter Monday to employees, customers, investors and others titled “On the Future of Starbucks,” Howard Schultz announced the company would immediately suspend share buybacks. It was his first act on his first day back at the top job, which he had previously held twice.
Mr Schultz said halting buybacks would allow Starbucks to “reinvest more profits in our people and in our stores — the only way to create long-term value for all stakeholders.” When a company uses its funds to buy back and retire its own stock, it often increases its stock price, thereby rewarding investors and executives who typically hold large amounts of stock.
During Mr. Schultz’s last tenure as CEO, between 2008 and 2016, Starbucks spent more than $6 billion on buybacks. Last month, Starbucks announced Mr Schultz would temporarily return as chief executive, replacing Kevin Johnson, who took over in 2017. Mr. Schultz helped grow the Seattle-based company into a global powerhouse.
Now Starbucks is under pressure from growing efforts to unionize its stores, which it has resisted as workers push for better wages, hours and benefits. Since late last year, a handful of stores have voted to unionize, the first in the company’s history. Over 100 locations in more than 25 states, from nearly 9,000 company-owned stores nationwide, plan to hold elections.
Starbucks spent $10 billion on buybacks in 2019 but paused early in the pandemic. The company recently resumed that practice, spending $3.5 billion on buybacks in its most recent quarter that ended in early January. Last October, Starbucks announced it would spend $20 billion on buybacks and dividends over the next three years. That program is now suspended under Mr. Schultz, less than six months after it was announced.
Share buybacks have been criticized by employee representatives and others for diverting funds that could be reinvested in running a company, used to hire workers, or to cover higher wages and greater benefits. Last week, President Biden’s annual budget proposal called for a special tax on buybacks and a ban on executives selling stock in person for three years after a buyback.
Companies in the S&P 500 repurchased a record $882 billion last year, and analysts at Goldman Sachs are forecasting buybacks to top $1 trillion in 2022.
Though Starbucks has posted robust sales and earnings growth during the pandemic, its shares are down more than 20 percent this year. “Our company, like many businesses, faces new realities in a changed world,” Mr Schultz said in Monday’s letter, citing “restricted supply chains, the decimation caused by Covid, heightened tensions and political unrest, a racial reckoning and an emerging… generation looking for a new responsibility for the business.”
Mr. Schultz said in his letter that he plans to travel to stores and manufacturing facilities to find “ideas for building this next Starbucks.” In September he visited store leaders in Buffalo, NY, where the first company-owned store would vote to unionize a few months later. He told them the company had let them down because it hadn’t helped them solve operational problems at their stores and that he wasn’t anti-union but “pro-Starbucks,” the New York Times previously reported.
Starbucks isn’t the only corporate giant facing growing pressure to unionize. On Friday, workers at an Amazon warehouse on Staten Island voted to form a union, the company’s first in the United States.
https://www.nytimes.com/2022/04/04/business/starbucks-buybacks-schultz.html Starbucks halts buybacks to ‘put more profits into our employees’