Trouble Ahead for New Starbucks CEO

Laxman Narasimhan, the new Starbucks Corp. (NASDAQ: SBUX) chief executive officer, was hired for the job but had to wait in the wings for months while on-again, off-again chief executive Howard Schultz put the company into an ugly position with its workers. Now, Narasimhan has to decide whether he wants to continue undermining the company’s relationship with the people working at its locations.

Schultz’s mistreatment of people who joined unions (or who might) got him pulled before Congress (where he took a public beating), into trouble with the National Labor Relations Board, and (worse) into a position where customers may start to boycott Starbucks. The modest amount Starbucks may save financially will not be worth the effort. (Customers are abandoning these 25 brands.)

The lowest-paid Starbucks employees can make as little as $15 an hour. This is below what is considered a living wage. Starbucks had revenue of over $8.2 billion, up over 8%, on which it made $855 million, up by about 4%. Schultz commented, “Starbucks performance in Q1 demonstrates the strength and resilience of our business and accelerating demand for Starbucks Coffee all around the world.” In other words, the company’s financial performance will continue to improve.

The company’s results would be worse if it did not pay its workers low wages. In Seattle, the location of Starbucks headquarters, the minimum wage is $18.69.

Starbucks may fight the union indefinitely. History shows it may lose that battle. When the company looks back on the struggle, it may find the process was not worth it. If the effects on customer behavior begin, they will start soon.

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