Corporate Governance - Starbucks

Executive summary

In the following report the corporate governance structure of Starbucks Corporation has been reviewed and analyzed.  The board of directors, which consists of a majority of independent, non-executive members has been shown to prioritize and protect shareholders’ interests and allows for the board to be more transparent and to be more accountable to shareholders on corporate activities and performance.  Starbucks has achieved a board of directors with a quite diverse background and skillset.

Starbucks has very strong Corporate Social Responsibility and sustainability goals and is quite achieved in these areas.  These goals have been incorporated into their vision, mission and values of the company and are strongly supported and trained all the way through the organization to the very front line.  This has promoted customer and community loyalty and will continue to support further growth and development of this company as it continues to expand into more countries.

Table of Contents

Introduction        3

1.  Distinction between Governance and Management        4

2.  Performance and Conformance Aspects of Governance        4

3.  Shareholder Rights        5

4.  Types of Director Appointments        5

4.1 Board Types        6

4.11 Solely executive        6

4.12 Majority executive        6

4.13 Majority non-executive        6

4.14 Solely non-executive        6

5.  Board Committees        7

6.  Theories        8

6.1     Agency Theory        8

6.2     Stewardship Theory        9

6.3 Systems Theory        9

7.  Functions of the board        9

8.  Sources of governance power        10

9.  CSR and Sustainability        11

Conclusion        13

Reference List        14

Introduction

Corporate governance refers to the system of practices, rules and processes, and relations by which corporations are directed and controlled.  It involves balancing the various interests of the stakeholders.  Corporate entities need to be created.  They are artificial in nature and their form of constitution is usually formal and directed by law or corporate legislation.  The constitution is what determines the nature of the entity including its rights, duties, how members are elected and appointed.  The example company to be used in this assignment will be Starbucks.  Starbucks is an international coffee chain that has seen exceptional growth over the past years.  They are involved in their communities and have a strong sustainability focus throughout their corporation.

1.  Distinction between Governance and Management

There is a definite distinction between governance and management.  Governance refers to the strategic task of setting the organization’s goals, and direction and could be considered as the “what” issues.  According to Saltaji (2013) “the difference between management and corporate governance is that management runs company’s activities and governance ensures these activities are managed and done well and correctly”.  Management is the overseeing of the day-to-day operations of the company and focuses on the “how” of the issues.  According to Kultys (2016), “As far as corporate governance is concerned (in the context of the prevailing today agency theory), managers are being treated as agents of shareholders (principals)”.  According to Tricker (2016) “The board is not part of the management structure, each director has equal responsibility and similar duties and powers under the law”.

2.  Performance and Conformance Aspects of Governance

The board needs to look at the company’s strategic environment and consider the future of the company as well as looking at its component parts.  In doing so, strategies are formulated and then these strategies need to be followed up by creating policies that will guide management action, focus on plans for subsequent control, and monitor and supervise executive management performance.  In order to satisfy accountability factors, the board must indicate legitimate claims of accountability to shareholders on corporate activities and performance. A memorandum is a document stating the company’s name, outlining the purpose of creation, the address, and share information (nominal amount and classes).  The articles of association are the rules that the company is governed by.  Public companies, because they offer their shares to the public, must strictly comply with registration requirements whereas private companies, who may not offer shares to the public, do not have to follow as requirements are not quite as demanding.

3.  Shareholder Rights

Certain rights come with share ownership and these rights are determined by the country’s company law and by the company’s articles of association.  Some of these rights would include the right to inspect the shareholder register, attending and voting at shareholder meetings, and the right to receive notices but do not include having the right to manage the business or to participate in the day-to-day aspects of the business.  The act of incorporation itself imposes certain obligations on the officers of the company.  

4.  Types of Director Appointments

Boards can have different types of directors and many believe that the type of directors has a direct influence on corporate performance and behaviour.  There have been many major studies done but it has proven particularly difficult to isolate the link between these as there are so many variables and factors that can affect both performance and behaviour.  Therefore, the best that can be currently determined as fact is that board governance is continuing to evolve and it does have an effect on corporate performance and behaviour to some degree.