Action Plan For Star Bucks

Selected Company

The company selected for case study analysis is Starbucks. The biggest house of coffee worldwide is Starbucks, with around forty million consumers in a week. The brand makes promises of customer satisfaction as an outcome of their high quality of products on consistent basis and relaxing environment for customers in the shop to enjoy high quality service experience. This experience comprise of three things: coffee of Starbucks, people of Starbucks, and the atmosphere of coffee shops of Starbucks. The experience of the brand aims to provide and enriching and inviting atmosphere in which consumers can enjoy a relaxing experience and can respite from work and home pressure. Starbucks is registered on stock markets of public, and workers, partners have been motivated always to purchase stocks in the organisation(Mueller et al, 2009). Corporate governance’ yearly reports of Starbucks have been evaluated independently since 2002 by external auditors. This has always exerted to communities and its immediate collaborators, but now it also enlarges to its supply chain. The brand is also a partner of UN Global Compact and its service tradition is dependent upon TBL thinking. As it is globalized firm, so it has become important for this company to focus primarily on its corporate governance practices. The company has to ensure a balance in between interest of all stakeholders particularly among management, board of directors and shareholders. Due to high competition in market, it has become difficult for Starbucks to get high sales. It has been found by MacDonald (2007) that revenues of Starbucks have been dropped from last few years. The reason behind this is lack of management’s focus on corporate governance and ethical sustainability. It is significant to identify those specific issues due to which Starbucks are facing hindrances in the way of its success and high profitability. This case study is written to identify these key issues.

2. Brief Summary of Case

 

This case study is about critical analysis of issues related to corporate governance faced by the management of Starbucks. The case study includes analysis of four key issues that were being faced by Starbucks while directing and controlling its operations. The main focus of this case study is on corporate governance practices within Starbucks. For analysing the focus of Starbucks on corporate governance, some key issues faced by Starbucks are identified. The identification of these issues helped in evaluating the corporate governance management practices of Starbucks. This case study is helpful in knowing the key reasons of reduction in revenues and performance of Starbucks.

In current case study, the issues that have been studied are lack of qualified directors, balancing general business knowledge with specific industry knowledge,litigation and Protectionism and limits of oversight. These were four issues that management of Starbucks had to face and due to these issues the performance of Starbucks was negatively affected. In order to evaluate these issues, their influence on management practices of Starbucks was analysed. This case study will be helpful for management of Starbucks as in case analysis, some recommendations will also be offered. Moreover, this case study will also be helpful for other companies in identifying main issues related to corporate governance through which their performance can be negatively affected.

2.1. Issues

  • Difficulty of finding qualified directors

The risk faced by Starbucks was that the compensation of external directors increases; their independence might diminish and, in spite of working as supervisors for shareholders, they may largely operate as lapdogs for the management.

  • Balancing general business knowledge with specific industry knowledge

The issue faced by Starbucks was choosing external directors is the way to balance the knowledge of general business with particular knowledge of industry and technical proficiency in fields such as labour market, finance and accounting

  • Litigation and Protectionism

Starbucks also suffered from small claims of shareholders resulting in prominent costs and pressures to settle the issues.

  • The Limits of Oversight

The Board of organizations mostly handover their daily duties to the concerns officers and the top management who are responsible to take care of the specific works and they depend on the lower management as long as they are reliable to do the given work.

3. An identification of the main theories relevant to the case

2.1. Agency Theory

The origin of Agency theory is the economic theory and it was exposited by Alchainand Demsetz (1972) and moreover advanced by Jensen and Meckling (1976). Agency theory is stated as the connection between chiefs, like shareholders and representatives like managers and executives of organisation. In Agency theory, shareholders who are chiefs or owners of the organisation, employs the gents to carry out work. Chiefs entrust the operation of business to managers or directors, who are the representatives of shareholders. Undoubtedly, it is argued by Ballwieseret al (2012) that two elements which can affect the importance of this theory: First, the agency theory is a simple theory and conceptually which minimises the organisation to two contributors of shareholders and managers. Second, it is suggested by agency theory that managers or workers in companies can be self-centred. The shareholders in the agency theory look forward to the representatives to do something and make decisions in the interest of chief. In contrast, the representative may not unavoidablydoes decision-making in the best comforts of the chiefs as pointed out by Jensen and Mecking(1976). Therefore, management of Starbucks have to ensure that all decisions are made in the best interest of shareholders. In order to do so, the management has to discuss each important decision to owners before implementing it.

Figure: The Agency Model

Source: (Alchain and Demsetz, 1972)

2.2. Stewardship Theory

Stewardship theory has its roots from psychology and sociology and is defined by Davis et al (1997) as a steward protects and maximises shareholders wealth through firm performance, because by so doing, the steward’s utility functions are maximised. In this perspective, stewards are company executives and managers working for the shareholders, protects and make profits for the shareholders. Unlike agency theory, stewardship theory stresses not on the perspective of individualism (Donaldson & Davis, 1991), but rather on the role of top management being as stewards, integrating their goals as part of the organization. The stewardship perspective suggests that stewards are satisfied and motivated when organizational success is attained.

Moreover, stewardship theory suggests unifying the role of the CEO and the chairman so as to reduce agency costs and to have greater role as stewards in the organization. It was evident that there would be better safeguarding of the interest of the shareholders. It was empirically found that the returns have improved by having both these theories combined rather than separated (Eddleston and Kellermanns, 2007).

Figure: Stewardship Model

Source: (Davis et al, 1997)

2.3. Stakeholder Theory

Stakeholder theory was embedded in the management discipline in 1970 and gradually developed by Freeman (1999) incorporating corporate accountability to a broad range of stakeholders. Stakeholder theory can be defined as “any group or individual who can affect or is affected by the achievement of the organization’s objectives”. Unlike agency theory in which the managers are working and serving for the stakeholders, stakeholder theorists suggest that managers in organizations have a network of relationships to serve – this include the suppliers, employees and business partners.

2.4. Managerial hegemony

            According to managerial hegemony, directors are considered to be highly significant for the success of business. While appointing directors, the management has to ensure that they fit with the company needs. According to this theory, Independent directors are likely to be appointed only if they sustain the dominance of the ruling group.Therefore, the management of Starbucks has to focus on the process of selecting directors. The skills and expertise of directors must be matched with needs of business. Those directors should be hired who do not only focus on getting their personal interests but those who think about the betterment of organization.

3. Key Literature Relevant to the Case

Alchian, A.A. and Demsetz, H. (1972) Production, information costs, and economic organization. The American economic review, 62 (5), 777-795.

Ballwieser, W., Bamberg, G., Beckmann, M.J., Bester, H., Blickle, M., Ewert, R., Feichtinger, G., Firchau, V., Fricke, F., Funke, H. and Gaynor, M. (2012) Agency theory, information, and incentives.Springer Science & Business Media.

Davis, J.H., Schoorman, F.D. and Donaldson, L. (1997) Toward a stewardship theory of management. Academy of Management review, 22(1), 20-47.

Donaldson, L. and Davis, J.H. (1991). Stewardship theory or agency theory: CEO governance and shareholder returns. Australian Journal of management, 16 (1), 49-64.

Eddleston, K.A. and Kellermanns, F.W. (2007) Destructive and productive family relationships: A stewardship theory perspective. Journal of Business Venturing, 22 (4), 545-565.

Freeman, R.E. (1999) Divergent stakeholder theory. Academy of management review, 24 (2), 233-236.

Jensen, M.C. and Meckling, W.H. (1976) Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of financial economics3 (4), 305-360.

MacDonald, K. (2007) Globalising justice within coffee supply chains? Fair Trade, Starbucks and the transformation of supply chain governance. Third World Quarterly, 28(4), 793-812.

Mueller, M., Dos Santos, V.G. and Seuring, S. (2009) The contribution of environmental and social standards towards ensuring legitimacy in supply chain governance. Journal of Business Ethics, 89(4), 509-523.

Scherer, A.G. and Palazzo, G. (2011) The new political role of business in a globalized world: A review of a new perspective on CSR and its implications for the firm, governance, and democracy. Journal of management studies, 48 (4), 899-931.

4. A summary of work completed to date and work still to complete

Up till now, one issue related to corporate governance faced by Starbucks has been assessed. The first issue identified in section 2 is encountered and addressed and after this the last three issues will be evaluated.

5. A draft timeline

 

4th week

6th week

8th week

10th week

12th week

Assessment of second issue

 

 

 

 

 

Searching literature related to second issue

 

 

 

 

 

Assessment of third issue

 

 

 

 

 

Searching literature related to third issue

 

 

 

 

 

Assessment of fourth issue

 

 

 

 

 

Searching literature related to fourth issue

 

 

 

 

 

Analysing key steps taken by company for mitigating these issues

 

 

 

 

 

Providing recommendations to the company and finalizing the case

 

 

 

 

 

 

 

 


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