Executive Summary

The primary target of this paper is to study the significance of ethics in a business environment. The introduction part defines the meaning of ethics and business ethics. Moreover, the section discussed the Starbucks U.K tax avoidance case in 2012. To acknowledge that Starbuck’s case study is not an isolated case, Amazon and Google’s tax scenarios are presented. The analysis section of the report explores four ethical issues displayed by the Starbucks tax avoidance crisis. These four ethical issues include honesty, genuineness, transparency, and the significance of social media to an organization during a crisis. The analysis report segment delves into the implications of these issues to an organization’s reputation. The paper summarizes the ethical issues established from the case study in the conclusion section. The recommendation section delves into actions needed to foster ethical components laid down in the analysis report. This section suggests ways to improve an organizations reputation.

Introduction

Ethics are moral principles of conduct. Business ethics is the system that governs controversial practices and policies in the business environment. Starbucks Coffee Company was involved in the issue of tax avoidance. The company was established in Seattle, Washington in the year 1971. The firm placed itself as a socially responsible enterprise with core corporate values. However, in 2012, Tom Bergin in a Reuters report revealed that Starbucks had not been paying the required income tax. A public outrage emerged as the Bergin discovered that the firm had only paid 8.6m Euros since it was founded in Britain about 14 years ago. Transcripts of phone calls conversations between the firm and its investors indicated that the firm was making profits in U.K (Bergin, 2012). However, the firm had recorded making losses in the past three years. In their response, Starbucks changed its European headquarters from Amsterdam to London in a bid to raise tax payments. Additionally, Starbucks pledged to give back the owed tax within two years. Starbucks is not the only firm accused of tax avoidance in Britain. Other firms like Google and Amazon have been shamed for not paying corporate tax on their British sales. These companies seem to take advantage of the fact that tax avoidance is not illegal. For instance, in 2011, Amazon paid taxes amounting to 1.8m Euros despite its sales of 3.35bn Euros in the U.K. Besides, Google made sales of 395m Euros but paid tax expenses of only 6m Euros (Brooks, 2013). Apparently, the government needs to change laws governing the multinational corporations on matters of tax payments. Proper corporate reputation and image are significant to enhance relations with stakeholders, active public, and to foster strength in a turbulent environment. This report analyses Starbuck’s tax avoidance outrage and critically examines the ethical issues that emerged during the incident. It establishes the role of ethics and gives recommendations on ethical practices to consider.

Analysis

An organization’s reputation is crucial in the business environment. Firms build a reputation by acting within the expected ethics. Actions and ethical conduct are guided by the philosophy of an organization, which foster ethical operations. Most firms align their organizational structures with strategic ethical methods in their mission statements. The public perception of an organization is affected by the response strategies during a crisis or a scandal. As mentioned earlier, Starbucks Coffee Company was founded in Seattle, Washington in 1971. Starbucks U.K.  sought to nurture and inspire the spirit of humanity. With this mission, the company maintained the reputation of balancing corporate social responsibility with profitability. The analysis below explores the ethical elements that surrounded Starbuck during the tax avoidance crisis. Additionally, the review highlights the implications that the ethical issues had on the company. Furthermore, the paper aims to assess dangers caused to the firm’s reputation by the crisis. The analysis links the firm’s organizational culture with the company’s reputation. The following points present the themes established from the Starbucks tax avoidance case study.

Firstly, honesty is an ethical element of concern from Starbuck’s case of tax evasion. Starbucks U.K. claimed to have kept its honor to pay the U.K. Government the necessary tax on income. However, the honesty in their claims was hard to discern. Howard Schultz, Starbucks chief executive, defended the firm on allegations of tax avoidance. He said he would co-operate with the British investigation officials to determine it’s unit finances. Schultz further claimed that the firm had not been paying the required income taxes because it had not been making money in its U.K. market. However, transcriptions of conversation between the firm’s finance manager and its investors established that Starbucks had been profitable in the U.K. Consequently, there was a public outrage questioning the honesty of Starbucks. Customers were outraged and took to the streets to demand answers from the firm. Several individuals doubted the company’s corporate values as well as questing whether Starbucks was honest because it was put under scrutiny.

Additionally, politicians including Prime Minister David Cameron and several MPs condemned the incidence of tax evasion. The MPs told the company’s top management that their claim of not making a profit in the U.K. was outright false. Starbuck’s chief financial officer, Troy Alstead, denied having lied to shareholders about the firm’s chain accounts (The Guardian, 2012). According to Murphy (2012), the contradicting events of Starbucks tax avoidance was terrible for homegrown businesses. The reason is that the local firms could see that HRMC was picking on them.

Additionally, tax avoidance was unfavorable for British business as well as the creation of a tax compliant atmosphere. In consequence with the firm’s dishonest claims over tax avoidance, the firm faced a drop in sales. Evident from Starbucks Coffee Company (UK) accounts report, the firm’s turnover from 413 million pounds to 399 million pounds in 2013.

Secondly, the genuineness of Starbucks is an ethical issue diensplayed during the crisis. Companies are expected to operate through good means of authenticity and genuineness. By working through ethical means, firms can gain respect and dignity. According to Kant (1786/1993), businesses can build authentic relations with the public when they act in good intentions. A constant ethical decision-making environment is suitable for business. Kant further argued that goodwill is an undefeatable virtue that is the highest goal of ethics. Firms need to base their actions on goodwill before their concerns. In doing so, they avoid self-serving attitudes and biasedness.

Starbucks was a reputable firm that operated with goodwill before its tax crisis in the U.K. During its tax crisis, the firm depicted good intentions when it agreed to pay more taxes even if it did not make any profits. Starbucks got a backlash in the Twitter platform with its hashtag spread the cheer. The hashtag created by Starbucks was a campaign for holiday cheers. The public criticized the firm for its tax policies. However, the firm accepted responsibility for the vulgar language displayed by Twitter users. Starbucks showed authenticity when it offered to apologize. An apology is known as attempting to regain trust. The management’s responses displayed an authentic character of good intentions, respect, and dignity. Starbucks managing director in the U.K., Kings Engskov,  said that they needed time to rebuilt the consumer trust. He further noted that they had been taking notes in the past few months. Moreover, Engskov requested an opportunity to restore the custom and confidence with their clients (Bowen and Sission, 2017). Additionally, he apologized followed the malfunction in the spread the cheer campaign where inappropriate tweets about tax avoidance were shown in a family-friendly event. The apologies in both incidences showed authenticity and reflected genuineness.

Thirdly, full disclosure as well as transparency. During the onset of the tax avoidance crisis, Starbuck’s openness was a significant concern. Clarity play a significant role in the management of a reputation under threat. It is a new element that is significant for both an organization and the consumer. The driving factors to transparency are better two-way communication, corporate social responsibility, and reputation. The conduct of public relations professionals and CEOs during a crisis determines the success of a firm. Statements made by executives during and after a disaster in ensuring informational transparency is a crucial phenomenon in business (Buon, 2013). The Reuter’s report discovered that Starbucks told its investors that the trade in the U.K. was profitable yet it was avoiding tax. After it had been exposed, the firm pledged to pay the more taxes than it owed and far than the law required it. Many individuals questioned transparency in business after this incident. They noted that it was becoming difficult to equal trust in the firms and confidence to be accorded to the leaders running the firms. The unfortunate timing in the promotion of the spread the cheer campaign showed that Starbucks had failed in offering informational transparency. The tax fraud allegations were a significant threat to the firm’s reputation. Despite this fact, the firm did not provide full disclosure to prevent the crisis. It did not respect the public by openly discussing and making the deal. It was evident that the firm’s response during the tax avoidance crisis regarded grounding the potential adverse economic impact. However, it is unclear whether the firm’s corporate values were of goodwill or it was trying to create a negotiation table for favorable tax rates.

Fourthly, the use of social media in giving ethical responses during an organizational crisis. Social media platforms include Instagram, Snapchat, Twitter, Facebook, among others. These are medias avenues on the internet, which promote social interaction as well as foster user-generated contents. Therefore, social media platforms offer public relations professionals a basis for evaluating the corporate culture and responsibility of their respective organizations (Wang, Qiao, Peng, 2015). The tax avoidance crisis that faced Starbucks was a case of an online crisis, which portrayed the matter of social media ethics. This scandal required proper methods of learning from mistakes, accepting responsibility, and apologizing. In a social media crisis, ethics should be an integral part of holding together the reputation of a company. Starbucks has websites, which sell their branded content. The positive engagement of the firm’s management during the crisis had a significant impact on keeping clients. Although Starbucks used Twitter in lousy timing during the crisis, the firm was able to determine the feedback of their customers. Moreover, Starbuck’s tax avoidance incident revealed the implications of social media. The ethical values of honesty and reputation insulated the firm against the social media backlash. The credibility in which firms respond to these public cries shows the respect and dignity a firm holds.

Conclusion

Aligning business practices with proper ethical values reduce chances of potential scandals. Authentic corporate strategies build good organizational reputations. Starbucks Coffee Company played out its moral values during the tax payment crisis. Besides, the company treated the public with respect and dignity by offering apologies and promising to change their course of actions. The firm took responsibility for its actions during the spread the cheer campaign, hence, showed its intent to doing good will. Besides, sound ethical practices were displayed when the firm pledged to pay back more taxes than the U.K. government required it. Consequently, experts reveal that Starbucks may have benefited from the crisis. Through the firm’s calculated response, its reputation was protected. The crisis may have promoted the Starbucks brand and enabled the firm to go on with its operations without shutting down from the U.K. market (Bowen and Sission, 2017). Additionally, the firm was perceived as dishonest and authentic. Many individuals questioned its corporate responsibility values. The firm might have kept its original reputation if it had operated within the proper organization value system. Besides, the firm should have used social media in the correct time to ward off misconceptions.

Recommendations

The ethical issues that tampered with Starbuck’s reputations could have been managed. The company succeeded in controlling the public outcry and insulated its reputation. However, some damage occurred as the public questioned the values of the company. The following recommendations give management practices and actions in case of similar situations. Firstly, the firm needs to provide full disclosure of its tax policies. Starbucks could have diverted the public outcry had it come out honestly on issues of tax payment. Honesty is significant in any organization. Good intentions breed trust among stakeholders and create a sustainable competitive advantage.

Secondly, during such crises, firms need to use social media platforms wisely and timely. The analysis depicted the implications of public relations during a crisis. The authenticity of an organization is maintained through informational transparency. Management should listen to feedback given by the public through Twitter, Facebook, and other platforms. Firms should allow credibility and time before responding to crisis when an outrage erupt in social media. In doing so, companies can act with genuine concerns and restore trust within society. Less damage is registered when a firm responds in proper timing. Public relations professionals can reclaim authenticity by listening to people with respect and dignity.

Thirdly, firms like Starbucks should align their corporate cultures with business operations. During crises, firms should evaluate ethical core values. In doing so, companies can protect their reputations. Stakeholders access the image of firms through their actions and corporate identity. Therefore, segments of organizations systems should be developed with genuine social responsibility values. Acting with good intentions is critical to upholding the place of an organization in the public domain. Even though tax avoidance is legal, it is ethically necessary to conduct proper tax policies. Consistency, transparency as well as accountability are guiding principles towards the success of organizations (Foster, 2013).

List of References

The Guardian., 2012. Starbucks executive denies lying over UK losses. Available at: https://www.theguardian.com/business/2012/nov/12/starbucks-executive-denies-lying-losses

Murphy, R., 2012. Starbucks Avoiding Tax has a Knock-on Effect on Homegrown Business. The Guardian. Available at: https://www.theguardian.com/commentisfree/2012/oct/16/starbucks-tax-british-business

Buon Viso, T., 2013. Examining Transparency in Crisis Management.

Brooks, R. 2013. Forget Starbucks – what UK companies are doing to avoid tax is far worse. The Guardian. Available at:https://www.theguardian.com/business/2013/feb/10/tax-loopholes-poorest-countries

Bergin, T. 2012. Special Report: How Starbucks avoids UK taxes. Reuters. Available at: https://www.reuters.com/article/us-britain-starbucks-tax/special-report-how-starbucks-avoids-uk-taxes-idUSBRE89E0EX20121015

Wang, Y., Qiao, F. and Peng, W. 2015, “Is the size or the valence of proactive engagement associated with purchase intention? A case study of branded blogs of Starbucks”, International Journal of Strategic Communication, Vol. 9 No. 3, pp. 197-216, available at: http://doi.org?10.1080/1553118X.2014.924125

Foster, B. P., 2013.Avoiding tax may be legal, but can it ever be ethical?. The Guardian. Available at: https://www.theguardian.com/sustainable-business/avoiding-tax-legal-but-ever-ethical

Bowen, A. S. & Sisson, C. D. 2017. Reputation management and authenticity. ResearchGate. Available at: https://www.researchgate.net/publication/263276690_Starbucks_reputation_management_and_authenticity_A_case_study_of_Starbucks’_United_Kingdom_tax_crisis_SpreadTheCheer_campaign

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