The Starbucks Corp. (NASDAQ: SBUX) board of directors has elected Laxman Narasimhan as the company’s chief executive officer. He replaces CEO Howard Schultz, who has made a mighty effort to stop Starbucks’ employees from unionizing. In fact, some Starbucks watchers think Schultz pushed out former CEO Kevin Johnson because he had been too easy on labor.
The Schultz approach has driven a wedge between Starbucks and some of its workforce. Narasimhan has to decide if that is the wisest choice to run a company in which its hourly workers are the face of the business. Making more moves to cripple that labor movement might save money. On the other hand, the friction could be counterproductive for years.
Narasimhan’s other concern is that Schultz is as close to a company founder as anyone else. As he leaves his job, his influence on the board will not disappear.
It is hard to calculate how much a unionized labor force would cost Starbucks. It recently raised base pay to $15. When the decision was announced, company management estimated the costs of recent improvements in compensation at “approximately $1 billion in incremental investments in annual wages and benefits over the last two years.”
In its most recently reported quarter, Starbucks had $8.2 billion in revenue and net income of $913 million. Improving the compensation for its front-line employees is expensive, based on those earnings numbers.
The battle between union and labor goes back over 100 years in American business history. For the most part, employees have improved their compensation positions in that time. Management resistance has often been tremendous, and labor disputes can last for years at some companies.
Narasimhan has to decide whether a long period of strife between hourly workers and the company is worth it. It is bad publicity for Starbucks. It causes employee churn, which is expensive. And the union movement may win the battle as well.
Narasimhan’s decision is not just about money. It is about how Starbucks will be viewed by the public and its workers.
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