A few weeks ago, Starbucks announced its plan to lavish its shareholders by reinstating its stock buyback program. The $20 billion commitment was to lavish the shareholders with exciting rewards for the next 3 years.
In a presentation to investors, Chief Financial Officer Rachel Ruggeri said, ” While our growth this year will not be linear, we are confident our approach supports a profit positive company today and over the long term, creating value for all stakeholders, our partners, our customers, and our shareholders.”
Three weeks down the line, Howard Schultz took the reins of this company for the third time as an interim CEO and scrapped the stock buyback program immediately. In a letter to the employees, Schultz stated that “This decision will allow us to invest more into our people and our stores – the only way to create long-term value for all stakeholders.”
Last year, Starbucks hit an all-time high of $882 billion, making it prone to the political microscope. The stock buyback program hands cash back to investors, thus boosting the company’s share price following the reduction of their number in the market.
Critics were opposed to this stock buyback program and recommended that the company should use the funds on workers as well as other investments in order to boost the broader economy. Further, President Biden proposed new rules to curb this practice.
As the spokesperson said, Starbucks’ decision was not influenced by the political climate. This suspension was “Starbucks agenda and only Starbucks agenda.”
Workers from several Starbucks stores unionized, and more are considering the option, although this is against the company’s wishes. The interim CEO discouraged staff from unionizing but instead recommended a “direct and shared relationship.”
The start of the health pandemic, whose effects were felt for nearly two years, and the rise in the job openings in the US to 11.3 million in February gave workers the enthusiasm to form unions. Therefore giving shareholders generous share buybacks at such a time would be hard to defend this decision. Instead, channeling the funds to staff would provide shareholders with better returns in the long run.
Additionally, Senator Bernie Sanders commented on Schultz’s appointment as an interim CEO by saying, “if Starbucks can afford to spend $20 billion on stock buybacks and dividends…it can afford a unionized workforce.” Schultz served as Starbucks’ CEO between 2008 and 2016 and spent over $6 billion on buybacks. He also turned the company into a global powerhouse during his tenure. He replaced Kevin Johnson, who took over from him in 2017 and suspended the stock buybacks immediately.
This announcement caused the Starbucks shares to drop by around 3% during today’s premarket trading.