Starbucks Reputation Crisis: Analysis of Issues and Recommendations

This report provides an in-depth analysis of Starbucks' reputation issues, focusing on the impact of tax avoidance and ethical misconduct on the company's revenues, share price, shareholders, customers, and public relations. The report examines the controversies surrounding Starbucks' financial practices, including the discrepancy between reported profits and tax payments, and the resulting damage to their public image. It analyzes the effects on share prices and shareholder confidence, as well as customer loyalty and public perception. The report concludes with recommendations for Starbucks to rebuild its reputation, including embracing criticism, improving public interaction, and enhancing transparency in its financial operations. The analysis underscores the importance of ethical conduct and responsible business practices in maintaining a strong brand image and sustainable success in the hospitality industry.

Starbucks Issues Reputation

EXECUTIVE SUMMARY
This assignment has assessed the hospitality industry in which Starbucks' revenues, share
price, shareholders, their customers and relationship with the public have been critically
analysed. It has given an understanding of the organisation's situation and damaged that was
caused to their reputation. Methods through which Starbucks can rebuild and fix its image has
also been provided in this assignment.

Table of Contents
EXECUTIVE SUMMARY ............................................................................................................2
INTRODUCTION...........................................................................................................................1
ANALYSIS......................................................................................................................................1
CONCLUSION................................................................................................................................4
RECOMMENDATIONS.................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Organisations have to maintain a good image in the public eye, so that they are able to
operate and generate high amount of revenue. Ethics consists of culture and behaviour of
employees and management present in an organisation (Tunley and et.al., 2018). There has to be
systematic guidelines for ethics within a company, otherwise there can be severe damages caused
to the reputation of organisation, along with fall in share price and decrease in shareholders. It
can create a negative working environment and can cause employee turnover as well as decline
in customer visit, leading to low profitability. It is important for any organisation to ensure that
they create and maintain a good reputation and abiding to their responsibilities while running
business activities.
Starbucks is a world famous public coffee company that was founded in Washington,
American in 1971.There are over 28,000 stores present on a global platform. They serve
beverages such as coffee, tea, smoothies and sandwiches as well as baked goods of the highest
quality. They have over 200,000 employees and their revenue generation for the year 2017
amounted to a total of $22.3 billion. However, Starbucks has experienced many controversies
over the past years and this created many issues with regard to their public imager and reputation
(Davies, 2016). This assignment will analyse various points revolving around Starbucks'
company, management and its reputation in the hospitality industry, such as revenues, share
price, shareholders, customers and public relations. It will provide recommendations and
suggestions for rectifying issues that they have faced, so that they can rebuild their image in
public.
ANALYSIS
Revenues are the total income that an organisation makes from running business
activities and operations. The case study of Starbucks facing many issues regarding their
avoidance of paying taxes, even after generating high amounts of revenues over the past years,
shows that there were high levels of ethical misconduct in the organisation. It was observed that,
during the past 14 years, Starbucks communicated to investors that they were a profitable
company, so that there would be high rates of investments (Lindebaum, Geddes and Gabriel,
2017). Even after generating a revenue of £1.2 billion, they only paid tax worth £8.6 million,
which is very little as compared to other companies that generate similar revenues. While their
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financial reports depicted losses throughout the years, even though shareholders were provided
with high amounts of dividends. This adversely affected their reputation in the public leading to
a 5 points drop in their reputation rating falling from average to weak after this incident.
Starbucks has a long history of avoiding taxes, regardless of charging high rates from their
customers. Recently, the organisation earned a total of £162 million, but paid tax worth £4.5
million (Fury as Starbucks pays just £4.5m tax on £162m profits, 2018). This shows that there is
still lack of transparency and ethics in management of Starbucks. The owners have defended
themselves by saying that earning money in the UK is very difficult, hence avoidance of proper
tax payments . Therefore, analysis of revenues show that this organisation has generated earnings
worth £3 billion, but have not been sincere in paying taxes since the past 14-16 years. Moreover,
management has tried to cover up their profits and instead, depicted losses in their balance
sheets, but at the same time they have been successfully providing dividends worth millions to
their investors.
Share price refers to the price at which one share can be bought by investors. The share
price of Starbucks has been increasing for a long period of time. Even after the controversies of
tax avoidance, there has not been much decline in their market price. In April of 2012,
organisation's share price was approximately $31, but after the issues with government regarding
taxes, it declined to $20, a fall of $10 which caused severe losses of investments in the company.
These prices continued to vary in the same range for almost a year and this shows that Starbucks
destroyed their reputation in the share market due to negligence of tax payments (Moghaddam,
Akhavan and Mehralian, 2015). This analysis of share prices depict that this organisation
performed business activities in an unethical manner. Even through there were several issues
regarding this matter, Starbucks has managed to maintain a good share price even today, due to
its large portion of customers and high quality products. There are still many individuals that are
interested in buying shares of the company, due to high rates of return. This shows that lack of
ethics in management and negligence of tax payments did not affect share prices of Starbucks
(Moorhead and et.al., 2016). There was minimum damage done to their reputation in the share
market and they did not have to do much changes to fix it.
Shareholders are those individuals that are part owners of an organisation. Shareholders
of Starbucks consists of board of directors and investors that have bought shares of the
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organisation. They are given dividends when profits have been ascertained for year end. These
individuals were told that Starbucks earns significant amount of profits and their share of
dividends would be high (Lashley, 2016). This increased the shareholders in company and
people starting investing in it due to good returns. When the issue of tax avoidance was found
out, there was a fall in shareholders as well as their value. People were no longer interested in
making investments in an organisation that does not pay the required taxes as it may cause issues
for them as well. The shareholders too, got confused when they received their profits, but when
they analysed the financial reports, it was found that company depicted losses. However, there
were many investors that sincerely paid their taxes, hence there were no issues for them. They
kept their shares in the company as they believed in its growth. There were some shareholders
that felt betrayed that they were not provided with details regarding Starbucks and their overall
performance (Tan, 2017). There was lack of transparency within the organisation, which caused
some of them to lose trust. Therefore, the analysis of shareholders of this company shows that
they had mixed feelings about their investments, but a majority of them stayed in the
organisation instead of leaving it, due to the high amount of profits that were generated and paid
to them.
Customers are those individuals that purchase products and services from a certain
organisation. Customers of Starbucks are considered to be extremely loyal towards to them,
regardless of any issues or controversies that have risen in the past. This is due to the products
and services that is offered by the company. They have created a place where in people get a
variety of options to choose from and there is always something available for everyone.
However, there were some downfalls after the tax issues, where in customers stopped visiting
coffee shops leading to a decline in sales and revenue generation (Valentine and Godkin, 2016).
They felt cheated as they were paying taxes for the government and their money was instead
being distributed as profits to shareholders. Analysing the behaviour of their customers show that
there was moderate damage done to their reputation among clients. The services and products
that Starbucks offers is unique which makes people attracted to them regardless of situations.
Their customer base consists of high class individuals that are not much bothered about
controversies and only purchase for satisfying their needs. Organisation tried to reduce prices
and provide attractive offers, so that they regain loss of customers and cover up losses that they
have faced. Therefore, customers were not adversely impacted by tax avoidance of Starbucks
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and company was able to retain them (L'Etang and et.al., 2015). It is still one of the most famous
coffee shops and their sales have helped them to earn high profits.
Public relations or media coverage refers to an organisation's method of communicating
with the public so that they are able to maintain a relationship with them by creating a good
image that is favourable for them. The tax avoidance case of 2012 created a negative reputation
for Starbucks as they had not been paying required taxes in the past years. Their statements
towards public and to tax officials were completely different. There was extreme ethical
misconduct as improper information was provided in financial records of the organisation
(Macnamara, 2014). Management of Starbucks are responsible for damaging their own image
and they were unable to maintain good public relations. However, they initiated customer
services through which direct contact could be made between consumers and managers of
districts. This allowed them to improve their reputation as well as build stronger relationships
with existing customers. This helped in decreasing criticisms that they had been receiving.
Owners also made statements to the public by saying that these practices were unethical and
unfair, causing a huge disgrace to Starbucks. They tried to maintain as much transparency as
they could, so that they could build the trust of shareholders and customers. Although, tax
avoidance through manipulation of financial records is not illegal, management of organisation
has promised the government that they will pay the required amount, to cover up the remaining
payment (Starbucks left with 'no choice' over tax avoidance issue, 2012). They have also planned
to create a new board of executives, so that proper plans for business activities can be done and
risks of future tax problems can be reduced.
CONCLUSION
This assignment concludes that Starbucks' case of tax avoidance shows the ethical
misconducts that have been followed in an organisation. These behaviours have led to damage of
reputation and public image of the company. Analysis of revenues, share price, shareholders,
customers and public relations show that there has been both a positive as well as negative
impact towards Starbucks. After the news of this incident, there was a decrease in profits and
sales, with less number of customers showing up to purchase their products. Moreover, share
prices declined by $10, hitting its lowest after several years. On the other hand, they were able to
fix damages that had been created, by maintaining a healthy relationship with public through
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social media and responsibilities towards their environment. Overall, they have successfully in
rectifying the problems that had been created by them with the help of certain recommendations
and strategies that their management has implemented.
RECOMMENDATIONS
The case of Starbucks and tax avoidance damaged their organisation image to a great
extent. In order to ensure that they stay successful in the hospitality industry, there are some
suggestions that can be used by company, so that they can rebuild their reputation (Tunley and
et.al., 2018). Some recommendations include the following:
Embrace criticism
Starbucks can embrace the criticism and feedback that they get from customer and
understand what people are trying to tell them, so that they can plan changes and create a better
reputation. They will be able to fix the damages that have been caused due to tax avoidance and
hampering of financial information (Lindebaum, Geddes and Gabriel, 2017). Overall, analysing
statements of critics will help them in effectively repairing their image and increasing their sales
once again.
Interact with public
Starbucks can interact with the public as they have a strong public relations management.
They will be able to convince people that they have taken courses of action to change how they
run business activities and ensure that taxes paid by customers will be given as per taxation
policies (Moorhead and et.al., 2016). They will not use those earnings for profits and dividends
as well as allow management to understand concerns of shareholders regarding taxation policies.
Maintain transparency
Maintaining transparency can help Starbucks in rebuilding their image, as giving right
information to shareholders and public, will help create trust and build strong relationships. This
will aid in retaining customers as well as shareholders, which will eventually lead to increase in
profitability and sales (Valentine and Godkin, 2016). Providing open and true financial records
can help Starbucks in effectively fixing the damages that has been created due to their tax
avoidance.
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REFERENCES
Books and Journals
Davies, P.W., 2016. Current issues in business ethics. Routledge.
L'Etang, J. and et.al., 2015. The Routledge handbook of critical public relations. Routledge.
Lashley, C., 2016. Business ethics and sustainability. Research in Hospitality Management. 6(1).
pp.1-7.
Lindebaum, D., Geddes, D. and Gabriel, Y., 2017. Moral emotions and ethics in organisations:
Introduction to the special issue. Journal of Business Ethics. 141(4). pp.645-656.
Macnamara, J., 2014. Organisational listening: A vital missing element in public communication
and the public sphere. Asia Pacific Public Relations Journal. 15(1). pp.89-108.
Moghaddam, J.Y., Akhavan, P. and Mehralian, G., 2015. Intellectual capital, ethical climate and
organisational performance: an interaction analysis. International Journal of Learning
and Intellectual Capital. 12(3). pp.232-250.
Moorhead, R. and et.al., 2016. Mapping the Moral Compass: The Relationships between In-
House Lawyers’ Role, Professional Orientations, Team Cultures, Organisational
Pressures, Ethical Infrastructure and Ethical Inclination.
Tan, L., 2017. Relationships among Perceived Role of Ethics and Social Responsibility, Internal
Corporate Social Responsibilities and Organisational Commitment in the Service
Industry (Doctoral dissertation, UTAR).
Tunley, M. and et.al., 2018. Preventing occupational corruption: utilising situational crime
prevention techniques and theory to enhance organisational resilience. Security Journal.
31(1). pp.21-52.
Valentine, S. and Godkin, L., 2016. Ethics policies, perceived social responsibility, and positive
work attitude. The Irish Journal of Management. 35(2). pp.114-128.
Online
Fury as Starbucks pays just £4.5m tax on £162m profits. 2018. [Online]. Available through:
<https://www.express.co.uk/news/uk/1020131/starbucks-accused-corporation-tax-
avoidance>
Starbucks left with 'no choice' over tax avoidance issue. 2012. [Online]. Available through:
<https://www.prweek.com/article/1162484/starbucks-left-no-choice-tax-avoidance-
issue>
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