ESG, Big Labor and Starbucks

By Robert Bork Jr., March 6, 2024

Most controversies in the ESG arena concern the E, for environment. At center stage is ExxonMobil’s lawsuit against shareholder activists Arjuna Capital and Follow This for their campaign to force the company “to change the nature of its ordinary business or to go out of business entirely.”

The S, for social, has gotten plenty of play too. Coca-Cola faced pressure in 2023, when activists tried to force the company to assess state policies on abortion restrictions that ostensibly affect its bottom line.

But these campaigns are historical anomalies. The shareholder activists who bedeviled executives the most have long pressured companies to cut costs and boost productivity according to their idea of how the business should operate. Sometimes these activists injected new life into companies under sclerotic management. Sometimes they were simply gadflies. Either way, these people wanted to increase the value of their shares, not to pressure companies to take stands on extraneous issues or to destroy their investment. Yet the latter model is now becoming the norm, including in ESG’s third initial: governance.

The latest comes courtesy of the Strategic Organizing Center, a coalition of unions using a $16,000 investment in Starbucks to push three labor nominees onto the company’s 11-member board. All three candidates—former members of the Clinton and Obama administrations—are liberal stalwarts. One, Wilma Liebman, as chairman of the National Labor Relations Board in 2011 pushed for labor intrusion into boardrooms with control on management decisions such as company relocations. The coalition hopes that by placing activists on the board, it will pressure management into boosting union membership for employees who don’t seem to want a union card. Employees have reportedly voted in favor of unionization at only some 400 of the more than 9,000 stores in the U.S.

Though the unions have played a role, the real muscle behind the campaign is in Washington. President Biden’s NLRB appointees—the legal sword of our “most pro-union president in American history”—are using their sway to investigate and prosecute companies, from Amazon to SpaceX. Often they decide cases and complaints with in-house administrative judges, depriving defendants of critical due-process protections.

The Securities and Exchange Commission, under Chairman Gary Gensler, is doing its part with new “universal proxy rules” to force companies to list activist directors on a single proxy card alongside those recommended by management. This will confuse many investors, who will likely conflate dissidents with management’s nominees, while giving the unions a free ride on mailing proxy cards. SEC disclosures show that the Strategic Organizing Center and the Service Employees International Union are ready to spend up to $3 million on the cost of proxy solicitation.

With a Starbucks shareholder vote set for March 13, it’s time to ask: Who benefits if these activists are forced onto the Starbucks board?

It won’t be consumers, who will lose when bureaucracies like the NLRB and SEC inject themselves into the boardroom to tilt the playing field toward director nominees with activist agendas. It is hard to imagine customer-centric companies like Starbucks or Amazon improving by becoming union-centric.

It won’t be the card-carrying members of the SEIU, whose dues are going to unionize a company where they don’t work.

Starbucks employees likely won’t benefit, either. The company says it has already increased hourly pay by 50% since fiscal 2020, while offering employees more working hours. It is also giving part- and full-time employees full tuition to earn online degrees from Arizona State University. Instead of voting with their feet, Starbucks employees stayed behind the counter, reducing staff turnover.

This dynamic is why the ESG movement is increasingly perceived not merely as a social movement but as a cartel. In a 2022 letter to BlackRock’s Larry Fink, 19 state attorneys general questioned the effect on fiduciary responsibility when big asset managers work in tandem with nongovernmental organizations and proxy advisers to restrict oil and gas production. The attorneys general asserted that ESG investors violate the Sherman Act, the nation’s foundational antitrust law, by engaging in a “restraint of trade.” This has manifested in the environmental arena, when asset managers have made huge investments in oil and gas while seeking to restrict the supply of oil and gas.

In the coffee business, a partial union takeover of Starbucks likely will mean higher prices and worse service. No amount of sugar will make that go down any easier.

Originally published at the Wall Street Journal.