Monday, July 14, 2014

Business Leadership Wading into Partisanship in Politics: Howard Schultz of Starbucks

In 2011, the Huffington Post reported the following. “Howard Schultz is calling on his fellow CEOs—and other would-be donors—to boycott all campaign contributions to either party until the nation's elected leaders put aside their political posturing and find some common ground on long-term fiscal issues. Schultz wrote in a widely distributed email dated Monday that, like ‘so many common-sense Americans,’ he wants elected leaders to consider ‘all options, from entitlement programs to taxes,’ and reach a wide-ranging budget deal ‘long before the deadline arrives this fall.’ Schultz concluded with a promise: ‘We today pledge to withhold any further campaign contributions to the President and all members of Congress until a fair, bipartisan deal is reached that sets our nation on stronger long-term fiscal footing.’”[1] The CEO was essentially preaching his political ideology wherein “partisan and ideological purity” are not permitted to trump the “well-being of the people.” James Madison would have been proud, though perhaps a bit confounded as to why the CEO of a large company would venture out of his daily routine to make a sort of campaign speech. In a positive sense, the business executive’s vision was one of “collective confidence in each other” and “in our ability to solve problems together.”[2] This is a good example of a leadership vision being applied to the societal level by an organizational leader. This intangible asset comes, however, with its own risks and difficulties, which the aspiring business leader is well advised to consider.

First, regardless of the company’s reputation in society at large, if the CEO’s political message is itself partisan or can be taken as such, partisans of the opposite persuasion may begin to have their coffee elsewhere, and even perhaps launch a boycott of the company’s stores. The personal reputation of the CEO and the reputational capital of his or her company can be mitigating factors. Even though Schultz goes against the Republican exclusion of tax increases among the possible means of reducing the federal government’s deficit, his generalist appeal for a bipartisan deal in line with the people’s welfare along with his invocation of the ethical principle of fairness may have effectively relativized any partisan elements in his speech. That is to say, in staying mostly above the fray, the CEO can be interpreted as safeguarding his company from political retaliation.

Secondly, the leadership vision for society enunciated by a CEO can be in tension with the organizational strategic interests the company.[3] Stressing overarching values and principles that are themselves non-partisan is one way of obviating such tension. Yet some tension can be a good thing, for reputational capital appreciates “appreciably” if a management is willing to sacrifice in terms of the bottom line, at least in the short-run.

Even though it is not in Starbucks’ financial interest that taxes on coffee be minimized, Schultz’s letter to other CEOs notably includes the possibility of additional taxes in solving the problem of the recurrent gaping fiscal imbalance of the U.S. Government. He writes that “our ability to solve problems together” includes the two major parties in Congress coming to a deal on reducing the deficits. This “means reaching a deal on debt, revenue, and spending long before the deadline arrives this fall. It means considering all options, from entitlement programs to taxes.” The inclusion of taxes introduces a tension with Starbucks’ strategic interests, which also cannot be ignored. Crucially, the tension adds to the credibility of the CEO’s societal leadership vision with respect to Schultz’s more immediate self-interest and that of Starbucks as well.

According to Enderle, the interpretation by potential followers of the social reality in a potential leader’s vision “must not be affected by success-oriented considerations in favor of the corporation” or the general public will not recognize the message as credible.[4] In that case, the effort can really backfire on even a well-meaning, patriotic executive. While “corporate citizenship” seems a bit over the top (except to ad execs), CEOs are human and thus are not merely anonymous, interchangeable functionaries as Max Weber recommends in his theory of bureaucracy.

This diagram comes out of my dissertation, which formulates the theory and applies it to cases cross-culturally. (Image Source: S. Worden)

Indeed, a leader can draw on his or her innate sense of integrity to buffer pressing personal and strategic interests from suffocating any real fiscal sacrifice in the societal message.[5] Whether composed of other ethical principles or simply a consistency between word and deed, integrity can effectively bracket a manager’s temptation to fashion a leadership vision that is actually a subterfuge or projection of his or her own agenda or the organization’s strategic interests. For instance, although Schultz’s inclusion of taxes in his message can be taken as partisan in terms of the American politics at the time that increased taxes on coffee would be averse to Starbucks’ financial interests gives the CEO the credibility needed to wade into partisan waters. Put another way, that he was willing to sacrifice one some business gave him enough reputational capital that he could essentially spend some to get away with making a partisan point defanged of its financial bite.

To be credible in an ideal sense, a CEO’s societal leadership vision explicitly includes the possibility of tangible costs in terms of the organization’s financial or strategic interest. For example, Schultz could have included in his letter a sales tax on luxury beverages as a possibility. The willingness to take on stockholder interests in spite of his fiduciary duty would have given the CEO more credibility with other CEOs, who in turn would be more likely to buy into his leadership vision and thus join in his pledge. Republican CEOs, however, might relate the inclusion of revenue as partisan politically. So to be more credible, Schultz could have written that it should be up to members of Congress working together to decide whether to include additional revenue in the solution. So to have a fully credible societal vision, Schultz would have been well-advised to make explicit the possible costs that his organization and his political party might pay. Being willing to sacrifice one’s partial interest for the good of the whole is, after all, a salient principle in his societal vision.

In short, business executives proffering societal visions as leaders should realize that just as there is no free lunch, credibility on the societal stage comes with its own risks and costs. Although a possible drawback to Starbucks’ business is implied in higher taxes (even raising income taxes would reduce discretionary income, and thus money for dispensable luxuries like a latte or mocha), Shultz could have made the possible financial downside more explicit in order to raise more reputational capital for himself and his firm. Indeed, he could even have proposed a national sales tax in the spirit of putting the fiscal health of the U.S. Government above some incremental sales. Credibility, backed up by a leader’s integrity, is absolutely crucial to a vision being accepted and ultimately turned into reality—especially if the vision is societal and the leader’s fiduciary duty lies on the organizational level in maximizing stockholder returns.

1. Froomkin, D. “Starbucks CEO Howard Schultz Calls For Boycott on Campaign Contributions,” The Huffington Post, August 15, 2011.
2. Ibid.
3. Worden, S. “The Role of Integrity as a Mediator in Strategic Leadership: A Recipe for Reputational Capital,” Journal of Business Ethics, 46 (2003): 31-44
4. Enderle, G., “Some Perspectives of Managerial Ethical Leadership,” Journal of Business Ethics, 6 (1987), no. 8: 657-663, p. 661.
5. Worden, “Role of Integrity.”