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Starbucks CEO Orin Smith believes his shareholders benefit from the company's drive to be a good corporate citizen. After all, the company has persuaded customers to pay $3.00 for a socially responsible cup of coffee.
Smith delivered the keynote address at the Dialogue on Social Enterprise on April 20. "Alliances for Social Change: The Social Value of Collaboration," was co-sponsored by Harvard Business School and Harvard's Kennedy School of Government. Sessions focused on the role of partnerships and their potential to bring together the strengths of various sectors—public, private, and nonprofit—to address social problems. (See related story on developing for-profit businesses within nonprofit organizations.)
Although social responsibility has always been valued at Starbucks, stressed Smith (HBS MBA '67), Starbucks must answer to its Board of Directors and investors. A profitable business is truly the bottom line, he said, and being socially responsible is, in some ways, an outgrowth of best business practices.
| Aligning self interest and social responsibility is probably the most powerful way of dealing with these problems… |
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— Orin Smith, Starbucks Coffee Company |
As the second most highly traded commodity in the world (oil is number one), coffee is not just big business, it's huge business. When you consider that coffee is 70 percent of the GNP of some countries, and that coffee-producing countries, (many of them Third World countries) are conservation and political hotspots, it's clear that the business of coffee affects many lives and economies.
Smith said Starbucks is committed to creating an important difference for all stakeholders, including coffee growers, Starbucks employees, shareholders, and most importantly, customers.
One of the company's most important achievements was to persuade the consumer to pay a high price for quality, which enables Starbucks to pay a high price to growers for the highest-quality product.
"Before Starbucks, it was unthinkable to imagine paying $3 for a cup of coffee. Today it's commonplace…all around the world," said Smith.
Educating the consumer is carried out in a number of ways. The company's social responsibility programs, driven by Starbucks' Corporate Social Responsibility department, aim to bring the guiding principles of "The Starbucks Experience" to light. The principles are based on producing the highest-quality product, making a strong connection with the consumer, creating the highest level of partner [employee] satisfaction, giving back to the community, and minimizing environmental impact.
To this end, Starbucks works with its "partners" (the baristas and others who work at the retail stores) to create thousands of community programs at the local level through in-store book drives and other specialized programs. One store developed an American Sign Language tutoring program so partners could interact with their hearing-impaired customers. Smith says that the partner programs are crucial because most employees want to contribute to "something bigger." Again, this means better business, stressed Smith.
Philanthropy—with limits
For the coffee growers and their dependents (Smith estimates that group at 100,000,000 world-wide) Starbucks entered into a relationship with CARE in the 1990s. Through this program they help to fund schools and clinics, and for many growers it's the first access to healthcare programs. And Starbucks is well-known for its involvement in Conservation International, he said.
But there are "severe limits" to the philanthropic programs at Starbucks, said Smith, even though the public may think that money supplies are limitless. "I work for my Board of Directors…and my investors," said Smith, "and my investors are disinclined to see us invest much in these programs unless we can see tangible benefits."
"I think the most powerful way to deal with global, large-scale problems is to try to use market forces to create social and environmental values," said Smith. Starbucks consistently pays the highest prices to growers, and encourages environmentally sustainable cultivation practices and promotes fair wage and business practices. They are also involved active in Fair Trade programs that aim to put more money directly into farmers' hands.
"Essentially, what we have done is provided a much better economic opportunity for coffee growers…this is far more powerful than anything we could have done with our giving and philanthropic programs," said Smith. "From all indications, this is a sustainable model, and one that is going to grow."
Collaboration is key
Collaboration is another key part of the business model, said Smith.
"We collaborate everywhere," he said, pointing to partnerships with many suppliers, distributors, and vendors, as well as with the farmer/producers. Key to the success of these partnerships are shared values, trust, and integrity on both sides, with clear goals and expectations from the start of the partnership, he explained.
Starbucks collaborates with nongovernmental organizations (NGOs) in some coffee-producing countries. Sometimes these collaborations are difficult, but for the most part they are productive. Occasionally there are some government collaborative opportunities too, including programs that help set coffee growing standards in countries, which certify farmers as preferred suppliers.
Poverty, standard of living issues, and despair are widespread and deeply ingrained in many parts of the world, said Smith. "These problems are enormous and overwhelming," and no one group can fix these problems, he continued. Governments often can't tackle these global problems—corruption sometimes gets in the way, and many governments simply don't have the resources. NGOs have filled some of the voids left by governments, but they can't do it all, said Smith.
Businesses have a crucial role to play by creating market incentives. "Far-sighted business leaders can help in the way they develop their business models," and must collaborate with NGOs and governments to tackle social problems, he said.