Watch This CEO in 2013
Jan 2nd 2013 3:19PM
Updated Jan 2nd 2013 3:26PM
Starbucks' founder, chairman, and CEO Howard Schultz took on a great deal more in 2012 than most chief executives did. More than once he ventured away from simply running his company and publicly spoke about America's contentious political landscape, and like it or not, that impacts the business and consumer landscapes as well.
His last politically tinged move in 2012: encouraging baristas to write "Come Together" on Starbucks coffee cups as the fiscal cliff deadline loomed in Washington, D.C. Forget cynicism for a moment; it's arguable that moves like these are actually in shareholders' best interests, as well as in the interests of Starbucks' stakeholders overall.
How the "Come Together" campaign was for shareholders, too
Critics took aim at the "Come Together" campaign with an interesting nastiness -- maybe because it was begging for bipartisan cooperation in a climate in which many don't appreciate the ideas of cooperation and rational discussion about our nation's problems. Using everything from sexual innuendo to slamming a rich CEO's empty gesture, many dismissed Schultz's 11th-hour campaign as empty and devoid of meaning.
If you think about it, the campaign actually meant a lot of things. Economic issues emanating from political action (or lack thereof) affect Starbucks' business, of course, but these issues impact a lot more than investors of public companies. These issues impact the economy at large.
Take one less-publicized aspect of the fiscal cliff's terrors: the Farm Bill was set to expire. Like it or not, the expiration of farm subsidies would have left Americans in a pretty tight position when it comes to the price of dairy products, for example. The cost of milk alone would have imminently skyrocketed to distressing levels -- think $7 a gallon.
It wouldn't have just been about our grocery bills, though. Such an outcome would have directly and negatively affected Starbucks' bottom line. Dairy is one of Starbucks' major commodity costs next to coffee.
Meanwhile, for many Americans, a higher priced latte from Starbucks might hardly seem like an "affordable luxury" anymore. In fact, a spike in the prices of important staple commodities like dairy would have a negative ripple effect throughout our economy.
Indeed, our political class really has needed to "come together" to fix issues like fiscal responsibility, debt, and economic health hanging in the balance. As for those critics who wanted to know exactly why a message scrawled on a cup mattered, well, thanks for adding to one of our biggest current problems: the sense that regular Americans don't matter.
In the current climate, it's easy to think people with money are the only ones who really matter, but some of us still believe grassroots campaigns and regular Americans' awareness actually can move the needle sometimes. I believe Schultz's heart was in the right place in that campaign.
And gear up: Although the "dairy cliff" has been put off in the current fiscal cliff agreement, it's only a temporary fix, so later this year, the Farm Bill and dairy prices will be an issue once again.
The Year According to Schultz
The "Come Together" campaign may have been Schultz's last Washington-centered move in the final days of 2012, but he's been speaking out about political and economic issues for more than a year now.
In August 2011, Berkshire Hathaway's Warren Buffett -- long an outspoken and highly respected corporate leader -- attacked U.S. tax policy as "coddling" wealthy Americans like himself. (So far, no word on Buffett's thumbs-up or -down on Washington's current efforts.)
At the same time, Schultz joined the ranks of chief executives like Buffett willing to speak out and take a stand, suggesting that corporate America withhold political donations until Washington's politicians pulled their collective act together.
Speaking of grassroots and regular citizens, after Schultz made the suggestion, he said the positive response included messages from other CEOs and regular working Americans who supported the idea.
In November, Starbucks' Create Jobs for USA program, associated with its Indivisible campaign, celebrated its one-year anniversary. It has collected $15 million in donations, which has been distributed to community lenders across the country for small-business financing to help create or sustain 5,000 jobs.
The next phase is the launch of the Indivisible Fund, formed for "like-minded" corporations to invest in and help expand the Create Jobs for USA initiative. Like many impact investing funds, it will finance small community businesses and promise a return on investment. Starbucks has pledged $5 million in founding funds.
Meanwhile, Starbucks made some patriotic gestures in 2012 that will hopefully continue, such as its USA-made Indivisible mugs, which helped an Ohio pottery factory get back up and running again.
Schultz is also a member of an organization of CEOs called Fix the Debt, which is focused on fiscal responsibility.
Is Schultz forgetting shareholder value?
Of course, depending on what kind of investor you are, Schultz's outspokenness on political issues over the last year or so has either been kind of irresponsible or wicked smart.
For bottom-line "shareholder value" proponents, Schultz could be viewed as distracted from his core business of running the coffee giant (not that performance has suffered at the company). Of course, as mentioned before, the attempt to avoid a "milk cliff" component of the fiscal cliff debate actually was extremely significant in terms of Starbucks' profitability and overall economic health.
If you're a shareholder who believes in stakeholder value, like I am, then you're sure to agree that Schultz has had regular American consumers, workers, Starbucks itself, and Starbucks' shareholders in mind.
And then, of course, there's the fact that many corporate-governance-minded investors would point out: While Starbucks absolutely has a stakeholder-friendly approach to its business, Schultz is an extremely well compensated CEO. Last year, his base salary was $1.4 million, his cash bonus was $3 million, and his total compensation added up to $16.4 million. Granted, Starbucks has been a very successful business under Schultz, but these are not modest figures.
Compare that to Costco's former CEO Jim Sinegal, whose base salary remained at about $350,000 for years running, with bonuses at about $200,000. In 2011 and 2010, his total compensation was $2.2 million and $3.5 million, respectively. Granted, current CEO W. Craig Jelinek is doing quite a bit better than Sinegal did, with a base salary of $662,500, but again, Costco's compensation figures are anomalous compared to those of many retail CEOs, including Schultz.
Or take another stakeholder-friendly company, Whole Foods Market . Co-CEO and founder John Mackey decided in 2007, "I no longer want to work for money." Mackey's salary was also modest in the first place compared to that of many CEOs, since the company has long had caps on how much top executives can make. Currently, the company's policy caps executive compensation at 19 times that of the average worker's pay.
Politics, the economy, and Americans
Schultz, Sinegal, and Mackey are among my favorite CEOs due to a sensibility they all seem to share: that we are all intertwined and interconnected, and that there's more to a flourishing business and a growing bottom line than viewing profits in terms of next quarter or next year. All of them have exhibited an eye on stakeholder value, which doesn't erase shareholder value, but adds to it.
However, in the last year, Schultz has been out on the proverbial limb when it comes to talking about politics, the economy, and the fates of American workers.
Given the track record, Schultz strikes me as an interesting chief executive for us to keep our eyes on in 2013. Or maybe even 2016, if you get my drift.
As an investor, what do you think of Schultz's outspoken moves, some of which have been directly related to the company's business? Should more CEOs get involved in America's future in this manner? Add your thoughts in the comments box below.
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The article Watch This CEO in 2013 originally appeared on Fool.com.Alyce Lomax owns shares of Starbucks and Whole Foods Market. The Motley Fool owns shares of Costco Wholesale, Starbucks, and Whole Foods Market and has the following options: short JAN 2013 $47.00 puts on Starbucks. Motley Fool newsletter services recommend Costco Wholesale, Starbucks, and Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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