Starbucks Ethical Dilemma free essay sample

Starbucks, one of the most well-known coffee shops in the world has experienced dramatic growth since the first store opened in 1971. After rising to dominance in its market Starbucks currently operates in 61 different countries with just under 17,000 stores worldwide. Recently the management team have been under severe scrutiny as the organisation has been accused of avoiding tax. An investigation conducted by Reuters discovered the company had paid only ? 8. 6 million in corporation tax since launching in the UK 14 years ago, even though cumulative sales of ? billion have been achieved. Despite the contrary the Starbucks PR team have fought back stating that they paid the correct level of taxes in the UK. (Neville and Malik 2012) An Ethical Dilemma in a Business Context Crane and Matten (2010) state business ethics is the study of business situations, activities, and decisions where issues of right and wrong are addressed. Considering this definition of business ethics it can be co ncluded that the Starbuck’s management team have found themselves in an ethical dilemma in a business context. We will write a custom essay sample on Starbucks Ethical Dilemma or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page As reported by Neville and Malik (2012) Margaret Hodge chair of the Parliamentary Committee stated that she thought it was right for customers to boycott the companies that had been avoiding tax payments. Furthermore when addressing the Chief Financial Officer of Starbucks over the matter she said ‘We’re not accusing you of being illegal, we’re accusing you of being immoral. ‘ Morality is concerned with the norms, values and beliefs embedded in the social processes which define right and wrong for an individual or a community as defined by Crane and Matten (2010) Coupling the morality definition and the statement from Margaret Hodge accusing the Chief Financial Officer of being immoral it can be argued that for businesses operating in the UK it is wrong and unacceptable not to pay the necessary taxes. Thomas Jones (1991) pioneered the idea of moral intensity and proposed it as way of expanding ethical decision-making models in relation to the importance of the issue, and the method decision-makers utilise when faced with ethical dilemmas. Considering the six factors that influence the intensity of a moral issue it could be seen that the moral intensity is high in this dilemma. The direct action group UK Uncut are extremely dissatisfied with the tax avoidance as funding for refuges and rape crisis centres faced cuts unless companies paid their fair share of tax. Sarah Greene an activist stated they plan to boycott Starbucks in the near future. HMRC estimated around ? 32 billion was lost in tax avoidance last year alone. (Neville and Malik 2012) As reported by Ebrahimmi (2012) Margaret Hodge stated that tax avoidance is unfair on hard working honest UK tax payers resulting in overseas companies gaining an unfair competitive advantage over UK companies; this then has a negative impact on the UK’s economic growth. Starbucks’ Chief Financial Office admitted that he had a secret signed deal with the Netherlands government where the Starbucks European headquarters is located. Solutions The Starbucks’ CEO has to compile a solution to the dilemma that will minimise the effect on the brand, and ensure that customers that were once loyal to the brand don’t vote with their feet and transfer to a competitor. A principle that must be followed is that ultimately the customer is always right. Analysing the information available it could be argued that the decision makers within Starbucks have acted in an indefensible manner. This is therefore crucial when deciding on a solution. The Stakeholder view established by Freeman (1984) concludes that corporations should serve a variety of stakeholders. Whereas the Shareholder view established by Friedman (1970) concludes that managers should maximise profit. Considering these two views it can be concluded that the Starbucks’ management have been operating under the Shareholder philosophy. Furthermore to this point it could be stated that the theory Egoism is relevant as Starbucks’ decision-making team have committed to activities that better the business and haven’t considered the consequences. Crane and Matten (2010) state an action is morally right if the decision-maker freely decides to pursue either their desires or interests following the egoism theory. Businesses should act ethically and be seen from a customer perspective to be acting in an ethical manner. Components of business ethics management are elements such as mission statements and codes of ethics. Throughout current business activities Starbucks’ management team have not followed their mission statement with regards to their coffee as it states: ‘It has always been, and will always be, about quality. We’re passionate about ethically sourcing the finest coffee beans, roasting them with great care, and improving the lives of people who grow them. We care deeply about all of this; our work is never done. ’ (http://starbucks. co. uk/about-us/company-information/mission-statement) Considering of all the above characteristics of the dilemma I think it is essential for the Starbucks’ management team to choose a solution which will recover the brand name. Shrivastava and Simokos (1989) established four basic responses that companies can take in a crisis; a super effort, voluntary compliance, forced regulatory compliance and denial as demonstrated in the diagram below. (Vassilikopoulou, Siomkos, Chatzipanagiotou, and Pantouvakis 2009) Analysing each of the actions I believe that the most beneficial option for the brand is a ‘super effort’. Shrivastava and Simokos (1989) state that this action can lead to a speedy recovery of lost business. The Chief Financial Officer could therefore discuss and negotiate with the National Treasury and try and reach an agreement with regards to the potential amount of tax that has been avoided. The decision to pay back tax has been reached as the CEO has been forced and pressured into it. The CEO therefore needs to show the brands credentials and true business ethos, and prove that elements such as the mission statement aren’t just hollow empty words. This could be done by investing in improving working conditions and the infrastructure in the less developed countries that provide the corporation with coffee beans. The investment could be calculated on a ratio basis: for every five million that is paid back in tax one million is invested into developing areas less privileged. This campaign will recover the brand name. The Starbucks’ management team will then have to develop a communication plan that identifies the key stakeholders, their information needs and how these can be filled. (Shrivastava and Simokos 1989) Time is also a crucial factor before implementing the chosen solution as Standrop (2006) identified that the more time that elapses between the crisis occurring and the companies action the harder it is for company customer trust again.