Proxy advisor ISS backs Starbucks in board challenge from labor group

By Svea Herbst-Bayliss

(Reuters) - Institutional Shareholder Services, a proxy advisory firm, on Thursday threw its support behind Starbucks Corp (NASDAQ:SBUX), recommending investors elect all of management's directors in a board fight over worker pay and the coffee chain's stock price.

Late last year the Strategic Organizing Center (SOC), a coalition of North American labor unions, nominated three director candidates to the board, arguing that Starbucks' anti-union actions may have permanently hurt the company's brand.

ISS disagreed and concluded that the coalition, which includes the parent of Workers United, which represents Starbucks workers, did not make its case.

"The dissident has failed to establish a material link between these matters and underperformance, undermining its request for over a quarter" of the board's 11 seats.

Shareholders will vote on March 13 unless the two sides reach an agreement beforehand.

Starbucks said it is pleased that ISS recognizes the strength of the board and supports the election of its directors.

SOC said it disagrees with the recommendation that board change is not currently needed at Starbucks. "Starbucks' board should be held accountable for endorsing a response to unionization that destroyed shareholder value," it said.

This battle has been widely watched because it is among the first board challenges to turn environmental, social and governance issues instead of financial arguments into the campaign's pillars.

Unionized workers make up only a small portion of Starbucks' workforce, but the movement has gained traction with some 370 stores voting to unionize since 2021.

While Starbucks' board mishandled the initial response to the beginning stages of the unionization movement, ISS wrote that it then reformed its approach with proper controls in mid-2022.

The proxy advisor, whose recommendations often guide big shareholders' votes, praised Starbucks' board since the start of the fight, noting how it provided investors with adequate disclosure. It also noted that the company took "appropriate action to address certain of the issues impacting its partners."

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ISS also praised both parties for this week's decision to commit to talks aimed at finding ways to reach labor agreements and resolve law suits between the two sides.

The coalition, ISS wrote, "has achieved at least a portion of what it ostensibly set out to accomplish."