Just days before the director nomination period at Starbucks was set to close, the company was notified by the Strategic Organizing Center (SOC), a union coalition of its intent to nominate three director candidates to stand for election at the 2024 annual shareholders meeting under the SEC’s universal proxy contest rules according to a WSJ report.
Test for new proxy card rules? The universal proxy card rules have been in place for over a year, causing considerable speculation over how investor activists would use it, with no action until now. Now all eyes are on Starbucks, as both a prominent union target and the first company whose contested director election will list both management and shareholder nominees on the same proxy card. The results could have a major impact on future activists’ engagement patterns, while also setting a significant precedent of employee voice on corporate boards. It remains to be seen how Starbucks will proceed, and whether their response will set a precedent that will influence future activist engagement patterns.
Background: The SOC includes the SEIU, which is responsible for much of the recent organizing activity at Starbucks. The coalition, which owns just 161 shares, filed its first ever proxy contest against Starbucks, and intends to nominate former NLRB Chair Wilma Liebman, former DOL Secretary Maria Echaveste, and former government official Josh Gotbaum to help the Company address its treatment of workers, particularly on issues of pay and working conditions. All have extensive pro-labor backgrounds.
Second labor-related shareholder proposal in two years. Last year, Starbucks faced a shareholder proposal which requested an independent assessment of its track record on worker rights. The proposal won 52% of the votes after receiving support from proxy advisors. The company originally agreed to disclose its assessment by October 2023 but has since delayed the announcement until Q4 of 2024. Despite this pressure, overall director support has been high with two directors receiving 99% and the lowest receiving 84%, so it is unclear which directors the SOC hopes to replace.
Surprise attack? Notably, The Activist Investor, an activist investor research group, suggests that the SOC may have jumped to this step in its organizing efforts without following the typical engagement process, and suspect they “surprised” Starbucks without any attempts to negotiate a board seat quietly.
Outlook: Starbucks will look to balance their record of strong shareholder support with their need for improved labor relations. Presumably, it will not want to be the first company to lose a proxy contest under the new rules. One approach would be for Starbucks to quietly settle by agreeing to add one of the SOC’s nominees, expanding its relatively small board of eight to nine and appeasing the labor group with a pro-union director.
