Starbucks Corp (SBUX), operates as a roaster, marketer, and retailer of specialty coffee worldwide. Most shareholders do not vote because reading through 70 pages of the proxy is not worth the time for the small difference your vote will make. Below, I tell you how I am voting and why. If you have read these posts related to my portfolio for the last 22 years and trust my judgment (or you don’t want to take the time to read it), go immediately to see how I voted my ballot. Voting will take you only a minute or two and every vote counts.
Starbucks Corp: ISS Rating
From the Yahoo Finance profile: Starbucks Corporation’s ISS Governance QualityScore as of March 1, 2018 is 3. The pillar scores are Audit: 1; Board: 6; Shareholder Rights: 2; Compensation: 5.
Starbucks Corp: Board Proposals
1. Starbucks Corp Proxy Voting Guide: Directors
Egan-Jones Proxy Services recommends against 1A) Howard Schultz, 1C) Mary N. Dillon, 1G) Satya Nadella, 1I) Clara Shih, 1J) Javier G. Teruel, 1K) Myron E. Ullman, III, and 1L3 Craig E. Weatherup. Although concerned about cybersecurity and affiliated directors serving on audit and nominating committees, I did not vote against directors for those reasons, although I may at other companies or in future at Starbucks Corp. However, I did vote against the directors serving on the Compensation Committee, since they recommended what I believe is out sized pay.2.
2. Starbucks Corp: Executive Compensation
Starbucks Summary Compensation Table shows the highest paid named executive officer (NEO) was Executive Chairman Howard Schultz at $18M. I’m using Yahoo! Finance to determine market cap ($83.6B) and I am roughly defining large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Starbucks Corp is a large-cap company. According to the Equilar Top 25 Executive Compensation Survey 2015, the median CEO compensation at large-cap corporations was $10.3M in 2014, so pay was well over that amount. Starbucks Corp shares underperformed the S&P500 over the most recent one, two, and five year time periods. At least Starbucks does not appear on As You Sow‘s list of the 100 Most Overpaid CEOs. Prior reports have shown that being on that list is correlated with lower returns in subsequent years.
Egan-Jones Proxy Services takes various measures to arrive at a proprietary rating compensation score, which measures wealth creation in comparison to other widely held issuers. “Some Concerns” is their rating given on compensation issues for Starbucks Corp. Egan-Jones concludes:
After taking into account both the quantitative and qualitative measures outlined below, we believe that shareholders cannot support the current compensation policies put in place by the Company’s directors. Furthermore, we believe that the Company’s compensation policies and procedures are not effective or strongly aligned with the long-term interest of its shareholders. Therefore, we recommend a vote AGAINST this Proposal.
Given continued underperformance, above median pay, the recommendation of Egan Jones, I voted “AGAINST” the say-on-pay item.
3. Starbucks Corp: Ratify Auditors
I have no reason to believe the auditor has rendered an inaccurate opinion, is engaged in poor accounting practices, or has a conflict of interest. However, Egan-Jones notes that Deloitte & Touche, LLP has been serving as the Company’s auditor for seven years and their independence is compromised. They also several other issues. I also believe that the companies should consider the rotation of their audit firm to ensure auditor objectivity, professionalism and independence. I have not set a specific number of years but in this case agree, so voted AGAINST.
Starbucks Corp: Shareholder Proposals
4. Proxy Access Bylaw Amendment
This is my proposal (James McRitchie), so of course I voted FOR. Starbucks has adopted a ‘lite’ version of proxy access. Our proposal seeks a more robust version based on the SEC’s vacated Rule 14a-11 and CII’s Best Practices. It is telling that proxy access has yet to be used at any company. One primary reason is that shareholders like Vanguard, BlacRock and State Street, which could use proxy access, have never even filed a proxy proposal. Smaller funds like CalSTRS (only $232B) would not be able to find 19 other like minded funds with enough shares to form a viable nominating group. Vote FOR. Egan-Jones also recommended FOR.
5. Report on Sustainable Packaging
This proposal by As You Sow on behalf of several people and organizations is sorely needed. As the proposal points out, “Experts predict there will be more plastic than fish by weight in oceans by 2050.” Starbucks Corp should not be adding to this burden.
A comprehensive policy on sustainable packaging for Starbucks consistent with its environmental leadership posture includes at a minimum: making cups recyclable, ensuring that cups collected are actually recycled, increasing recycled content, removing plastic straws, and identifying a feasible path toward a scaled commitment to its original goal for reusable cup usage.
6. Report on Paid Family Leave
This proposal was submitted by Zevin Asset Management, LLC, on behalf of the Claire L Bateman 1991 Trust and together with co-filers. “While new mothers in Starbucks’s corporate headquarters receive 18 weeks of fully paid leave, new mothers who work in retail stores receive only six weeks. Fathers and adoptive parents who work in Starbucks stores are left out entirely.” Yet, it is the lower paid store employees have the greater need paid leave. Starbucks has fallen behind leading companies like Amazon, Nordstrom, and Ikea, which have more equal approaches. Zevin and Starbucks were able to reach agreement, so the proposal was withdrawn.
7. Prepare an Annual Diversity Report
Trillium Asset Management LLC, on behalf of the Paul LeFort Revocable Trust, submitted this proposal. Shareholders currently have insufficient information to determine if Starbucks has a diverse workforce or has been successful in expanding diversity into senior roles. McKinsey & Company found that companies with greater ethnic diversity were 35 percent more likely to outperform. Starbucks Corp should provide the information necessary for shareholders to assess progress in this area.
I voted FOR.
In addition to votes reported by Proxy Democracy, Proxy Insight reported on Canada Pension Plan (CPPIB), which I pasted below. I expect they will report out a few more votes before the meeting. My recommended votes that differ from what the Board recommends are noted in bold.
|1a||Elect Director Howard Schultz||For||Against|
|1b||Elect Director Rosalind G. Brewer||For||For|
|1c||Elect Director Mary N. Dillon||Against|
|1d||Elect Director Mellody Hobson||For||For|
|1e||Elect Director Kevin R. Johnson||For||For|
|1f||Elect Director Jorgen Vig Knudstorp||For||For|
|1g||Elect Director Satya Nadella||Against|
|1h||Elect Director Joshua Cooper Ramo||For||For|
|1i||Elect Director Clara Shih||For|
|1j||Elect Director Javier G. Teruel||For|
|1k||Elect Director Myron E. Ullman, III||For|
|1l||Elect Director Craig E. Weatherup||For||For|
|2||Ratify Named Executive Officers’ Compensation||Against|
|3||Ratify Deloitte & Touche LLP as Auditors||For|
|4||Proxy Access Bylaw Amendments||For||For|
|5||Report on Sustainable Packaging||For||For|
|6||Report on Paid Family Leave||N/A||N/A||N/A||N/A||N/A|
|7||Prepare an Annual Diversity Report||For||For|
Starbucks Corp: Issues for Future Proposals
Looking at SharkRepellent.net for other provisions unfriendly to shareowners:
- Unanimous written consent (default Washington state statute).
- Proxy access provisions are Lite. A shareholder or group of no more than 20 shareholders holding at least 3% of the outstanding common stock continuously for at least three (3) years may nominate directors, so long as the number of directors elected via proxy access does not exceed 20% of the board. Nominees who receive less than 25% of the votes would be ineligible for nomination under the proxy access provision for the next two (2) annual meetings. Voting FOR proposal #4 could lead the Board to move on these issues.
Starbucks Corp: Mark Your Calendar
Pursuant to SEC Rule 14a-8, shareholder proposals intended for inclusion in our 2019 proxy statement and acted upon at our 2019 Annual Meeting of Shareholders (the “2019 Annual Meeting”) must be received by us at our executive offices at 2401 Utah Avenue South, Mail Stop S-LA1, Seattle, Washington 98134, Attention: Corporate Secretary, on or prior to September 28, 2018.
Be sure to vote each item on the proxy. Any items left blank are voted in favor of management’s recommendations. (See Broken Windows & Proxy Vote Rigging – Both Invite More Serious Crime). I generally vote against pay packages where NEOs were paid above median in the previous year but make exceptions if warranted. According to Bebchuk, Lucian A. and Grinstein, Yaniv (The Growth of Executive Pay), aggregate compensation by public companies to NEOs increased from 5 percent of earnings in 1993-1995 to about 10 percent in 2001-2003.
Few firms admit to having average executives. They generally set compensation at above average for their “peer group,” which is often chosen aspirationally. While the “Lake Woebegone effect” may be nice in fictional towns, “where all the children are above average,” it doesn’t work well for society to have all CEOs considered above average, with their collective pay spiraling out of control. We need to slow the pace of money going to the 1% if our economy is not to become third world. The rationale for peer group benchmarking is a mythological market for CEOs. For more on the subject, see CEO Pay Machine Destroying America.