Starbucks 2021 annual meeting is March 17, 10AM Pacific Time. To attend, vote, and submit questions during the Annual Meeting link and enter your control number. I recommend voting in advance. To enhance long-term value. Vote AGAINST Allison, Dillon, Nadella, Ramo, Shih, Teruel, Pay, Auditor. Vote FOR #4 Increase Diversity of Director Nominees / Employee Board Representation.
Starbucks Corporation, together with its subsidiaries, operates as a roaster, marketer, and retailer of specialty coffee worldwide. Most shareholders do not vote. Reading through 80+ pages of the proxy takes time but your vote could be crucial. Below, how I voted and why.
If you have read these posts related to my portfolio and proxy proposals for the last 25 years and trust my judgment, skip 7 minutes of reading. See how I voted my ballot. Voting will take you only a minute or two. Every vote counts.
Starbucks 2021: ISS & World Benchmarking Alliance Ratings
From the Yahoo Finance profile: Starbucks Corporation’s ISS Governance QualityScore as of December 3, 2020 is 8. The pillar scores are Audit: 8; Board: 1; Shareholder Rights: 8; Compensation: 9.
Starbucks 2021: Board Proposals
Egan-Jones Proxy Services recommends against Joshua Cooper Ramo. Directors who served for much longer than 10 years are not independent. Since I voted Against Pay (#2 below), I also voted against all members of the Compensation Committee, since they recommended the Pay. They include Richard E. Allison, Jr., Mary N. Dillon, Satya Nadella, Clara Shih, and Javier G. Teruel.
Vote: AGAINST Allison, Dillon, Nadella, Ramo, Shih, and Teruel.
2. Executive Compensation
Starbucks’ Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO Kevin Johnson at $14.7M. I’m using Yahoo! Finance to determine market cap ($124B). I define large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Starbucks is certainly a large-cap company.
According to MyLogIQ, the median CEO compensation at large-cap corporations was $13M in 2020. CEO Kevin Johnson is at $14.7M, so higher. Starbucks’ shares have underperformed the S&P 500 over the most recent one-, two-, and five-year time periods.
The fiscal 2020 annual total compensation for Mr. Johnson was $14,665,575, as reported in the Summary Compensation Table of this proxy statement. The fiscal 2020 annual total compensation for our median employee, a part-time barista in Canada, was $12,113. The ratio of our ceo’s annual total compensation to our median employee’s annual total compensation for fiscal 2020 is 1,211 to 1.
Egan-Jones Proxy Services found pay aligned with the long-term interest of its shareholders. They recommend voting For.
Mr. Johnson was ranked the 43rd most overpaid CEO in a recent study. Given my concern for the growing wealth disparity, sustained underperformance and a very hight pay ratio, I voted Against.
3. Ratification of Independent Auditor
I have no reason to believe the auditor engaged in poor accounting practices or has a conflict of interest. Egan-Jones recommends voting against the auditor if they served for seven years. Independence becomes compromised by that time. Deloitte & Touche, LLP served more than seven years. No other issues appear significant
Starbucks 2021: Shareholder Proposals
4. Increase Diversity of Director Nominees
This proposal from me (James McRitchie), so, of course, I voted FOR. Egan-Jones thinks “the proposal is unnecessary and will not enhance shareholder value.”
The Proposal clearly argues the following in support:
- According to the National Bureau of Economic Research, giving workers formal control rights increases female board representation and raises capital formation.
- Employees are also often more diverse than boards in terms of race, gender, and wealth.
- The German “co-determination” model of shared governance is lauded as an excellent check against short-term capital allocation practices.
- Polling demonstrates bipartisan public support (over 53%) for employee representation.
- Anticipated benefits include reduced turnover, better-informed decision-making, better monitoring of management, and reduced shareholder myopia since employees often take a longer-term view.
Starbucks opposes because “our partners have numerous ways to be heard and exert influence outside of board representation.” Mentioned are the following:
- Ethics & Compliance Helpline
- Company- and organization-wide meetings
- Partner-led groups
- Anonymous surveys
“Giving non-management employees a dedicated position on the board … or applying a different set of qualifications would adversely impact the role of the board in this process. Of course, my proposal does not ask for a dedicated position on the board for employees (“partners” in Starbucks speak). It does not ask Starbucks to apply a different set of qualifications in selecting members. It only seeks to have employees considered in the initial pool.
My proposal was an opening move. I would have withdrawn it if the Board had agreed to any significant step to increase workers’ voice.
For example, the Board could have appointed a formal workforce advisory panel or designated a director to liaise with workers. They could have set up a substantive employee stock ownership plan (an ESOP), with voting rights held by employees or elected trustees.
A worker on the Board, a workforce advisory panel or a designated director could institutionalize ongoing dialogue. An ESOP, with trustees elected by employees, could have a real influence on Board composition. Any of these changes would engage and empower workers, leading to a better place to work and a more profitable company for shareholders.
Instead, our Board refused to negotiate.
This is a new type of proposal, which has yet to be considered by most institutional investors or included in their voting policies. Most will vote with the Board by default. However, as I mentioned, this is only an opening move. I’m interested in hearing from other shareholders – and especially from Starbucks employees. I’ll be back. Email me at firstname.lastname@example.org.
Proxy Insight reported that Calvert voted Against Pay.
In looking up a few funds in our Shareowner Action Handbook, I see Trillium voted Against Dillon, Mahe, Knudstorp, Ramo, Shih, and Pay. They voted For Auditor and my proposal #4 to Increase Diversity of Director Nominees. CBIS voted Against Pay and Auditor; For #4 to Increase Diversity of Director Nominees.
- Directors: AGAINST Allison, Dillon, Nadella, Ramo, Shih, and Teruel.
- Auditor: AGAINST
- Executive Pay: AGAINST
- Increase Diversity of Director Nominees / Employee Board Representation: FOR
Starbucks 2021: Issues for Future Proposals
Looking at insightia for anti-shareholder provisions:
- No requirement to separate CEO and Chair
- No right of shareholders to take action by written consent.
Starbucks 2021: Mark Your Calendar
Pursuant to SEC Rule 14a-8, shareholder proposals intended for inclusion in our 2022 proxy statement … 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 24, 2021.
Be sure to vote for each item on the proxy. Any items left blank get automatically 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.” Peer groups are often chosen by aspiration. The “Lake Woebegone effect” may be nice in fictional towns, “where all the children are above average.” However, corporations live in the real world. All CEOs are above average. Ignoring that fact partly explains why their collective pay spiraling out of control. We need to slow the pace of money going to the 1% or our economy will fail to serve the majority. The rationale for peer group benchmarking is a mythological market for CEOs. For more on the subject, see CEO Pay Machine Destroying America.