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Ethical Issues faced by Starbucks

University: Anglia Ruskin University

  • Unit No: 4
  • Level: Post Graduate/University
  • Pages: 9 / Words 2196
  • Paper Type: Assignment
  • Course Code: MOD003325
  • Downloads: 174
Question :

This assessment will cover the following questions:

  • Starbucks is an American multinational chain of the coffee-house. Critically analyze the ethical issues emerging in the context of Starbucks organization.
  • What are the practices required for an effective implication of ethical issues?
Answer :
Organization Selected : Starbucks

INTRODUCTION

Ethical issues are very much prominent within organizations all around the world as they undertake several practices which are regarded as against the law of certain countries where they are operating currently. One of the most common issues they are facing is that of trust and integrity within the business as this would also impact their business and certainly their customers as well (Al-Dhamari, Ismail, and Ismail, 2018). The problem or the situation requires a person or organization to choose between alternatives that must be evaluated as right or unethical. Among these cooking, books, or conducting unethical means of practice to either under or overvalue the books of account of a company is the best-known practice that is taking place by companies these days. So in this particular report discussion is done on the same topic of over or undervaluing books of accounts by undertaking Starbucks as the case study.

It was noted in the year 2012 that the company was escaping the major tax policy within the UK by showing more investment to investors and less to the income tax companies. It was opened in the year 1998 and had sales till that time to about £3 billion then also had paid only £8.6 million in tax till 14 years.

ANALYSIS

Starbucks is a multinational American Coffee organization and is one of the leading and largest coffee house chain which is located 28218 locations and offers wide range of beverages and foods items like, smoothies, coffee beverages, tea, etc. The annual operating income of company is 4.135 billion US$ with approximately 238000 employees. The core values of coffee chain are focused on developing culture of belongingness and warmth among customers for which it offers welcoming experience to its visitors. The firm is acting with courage and power to develop status Quo. The mission statement of Starbucks aims at inspiring and nurturing human spirit. In accordance with mission of Starbucks it can be articulated that business implements every practice to inspire services and to keep business running.

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Tax avoidance 

The objectives of Coffee chain revolve around 3 goals that is involvement of community, ethical sourcing and environmental stewardship. However, the goals of company are encouraged and empower to serve satisfactory services to consumers as well as staff. However, in 2012 a report by new agency Reuters was published against Starbucks where company was accused for avoiding Tax. As per the investigation conducted it was determined that according to investor the business was profitable and was gaining continuous returns but as per claim of tax authorities it was identified that business was not in profitable and therefore was unable to pay taxes (Jenkins and Newell, 2013). In accordance with investigation, it was articulated that since Starbucks came into existence that is 1998, it has experienced revolutionary success and in first year of business the firm maximized 3 billion pound from sales of Coffee.

Tax avoidance is considered as legal until fiscal judge ask person or company to pay more tax. On the other hand, there is tax evasion which is illegal according to rules and regulation set by government (Bird and Davis-Nozemack, 2018). However, with continuous investigation over Starbucks for Tax avoidance implied that in last 14 years of business the coffee chain has paid only 8.6 million pound which is very less in comparison to profit earning of an enterprise.

Lack of Transparency

The news publishing company continued investigation on Starbucks for 3 years from where it is derived that in last three years coffee house did not any profit because of which the company is not liable to pay tax but on the contrary it was identified that the firm was recorded with sales up to 1.2 billion pound for which the business has paid not tax. The contrary of revenue and sales clear denoted the tax avoidance by Starbucks. As per details of tax contribution by Reuters, it was analysed that artificial corporate structures to take profit shift of Starbucks was also accused.

However, on the basis of lack of transparency it can be argued that tax avoidance cannot be considered as illegal as it occurred because negotiable changes managed by coffee chain to reduce tax pay with the motive of maximising revenue. This made it difficult in determining whether the business was coming up with fair amount of tax pay on its services which led to major criticism. In accordance with avoidance Starbucks paid 8.1 million pound at 24 % rate of corporate tax which was 4 % higher than corporate tax rate of UK which was 20% (Starbucks pays UK corporation tax of £8.1m, 2018). The investigation by new publishing company was also supported by tax pay of KFC which is American fast food chain which maximized revenue of 1.1 billion pound for which the firm paid 36 million pound for corporate tax. The annual revenue of the coffee chain was the ultimate base for accuse and claim.

Relationship with stakeholders 

The ultimate focus of Starbucks is on managing effectiveness in services with regard to shareholders, employees and customer. However, from the investigation by Reuters it was analysed that the Coffee Chain have positive and long term relationship with its investors. The focus of business is always on maintain beneficial relationship with investors and therefore, during investigation it was revealed that official and executives of Coffee Chain have always spoke about profits of company to its shareholders (Dowling, 2014). This is was the major concern from where it was argued that there were two contradictory situation of tax avoidance where investors were not aware about tax avoidance of Starbucks whereas according to accounts and expenses the business was not making any profit.

Starbucks is having major responsibility advocate both internal and public policies which are supporting on health of their business, their employees and society under which they are serving or operating into (Public Policy & Internal Standards, 2018). There are lot of policies which company is following or demonstrating their commitment in way of bringing very responsible within the business and undertaking profits as well. There are many ethical or global ethical standard of business which is followed by their guidelines in way of conducting business smoothly. Starbucks need to follow certain responsible rules and regulations like that of related to health care, equal employment opportunities and global human rights as well.

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Social responsibility and Tax avoidance

As per socially responsible Practices it is articulated that Starbucks came across major barriers with public relations in Britain because of neglecting tax. Apparently, 15 years of continuous operational success the firm paid corporate tax only once. The company avoided tax pay with the help of various accounting combinations like, royalty payments, interest expense and transfer prices (Campbell and Helleloid, 2016). Moreover, it was found out that the firm has successfully shifted its taxable income to other subsidiaries of Starbucks because of which organization was liable to pay taxes at lower rates. The firm was known for its corporate social responsible practices and it was the base for public relations of Coffee Chain but the investigation for tax avoidance creates change in perception of stakeholders which was the major downturn for Starbucks for certain time period. Some socially responsible practices of company comprise fair wages to all staff members and fair price distribution to Coffee growers of developing countries. Nevertheless, it was argued that tax pay was inconsistent but company never compromised its quality of services to consumers and relationship with shareholders. Thus, from the claim and investigation it was found that Starbucks was asked to join Fair Tax Mark Scheme (Starbucks pays UK corporation tax of £8.1m, 2018). In addition, the increase in UK tax bill led to difficult year for the business but it assisted in growing sales by 3.8 %. Hence, it was indicated that highest paid director earned 282,842 pound including pension contribution in 2015 after compensating to corporation tax.

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CONCLUSION

From the whole report it could be concluded that Starbucks for attracting more number of customers for its investments as always showing more profits while for avoiding tax they were claiming for loss into their financial reporting to all tax authority. This was the same case since the starting of its operation from year 1998 as it was earning more number of profits and not paying required or essential amount into tax. It was also noticed that Starbucks is reporting no amount into profits even after having huge amount of sales each year. this was having higher amount of revenue as included in above analysis apart from it companies like Amazon and Google was also following the tax shamming process.

This was one of the most faced criticism for a company like that of Starbucks which is regarded to as market leader in coffee company and coffeehouse chain in world. It was evading the tax since past 14 years which came into light in year 2012 and then it moved its headquarter to London from Amsterdam as well.

RECOMMENDATION

It could be concluded that the company is using unethical means of operation or practice which is termed to as cooking the books of account (Lawrence and Weber, 2014). Then it was also noticed that company is planning to change its way it is operating so that they could be able to end up paying corporation tax within UK. They are having almost ½ of the coffee house in UK then also they are not paying their corporation tax in UK. The company is operating under its board of directors who are primarily leading the conducting business as they are dividing whole of their business as per continents of world.

It could also be concluded that each of the continent which company is operating into is having its own Starbucks coffee house and which all is accountable to the central board. As per the ethical source of business it could also be included that company is having 4 of its category farmer support, coffee and tea cocoa. All of them would be working harder in way of improving the life of farmers and living conditions of plantation as company is having its own plantation. It was all into the media coverage from around the world that such a huge public company which is having huge amount of sales. Starbucks is having most number of sales then also their profits is lower down this is only done by company to evade the tax in UK.

So there are certain recommendations which were made on this respect for enhancing the environment and values of company Starbucks should be planning for maintaining its organisational culture. Apart from this it could that company should be changing its policy regarding the tax and corporate so that they are been able to attract investments. If they are not been able to do what their customers or investors are demanding then it would not be possible for them to have desired profits.

The amount of profit which they are having or making each year must be shared by all its investors and government agency for asking on the tax each year. There are many companies which are avoiding the tax like that of Amazon and Google but it is highly means of carrying unethical practice. They are avoiding tax for the reason of paying less amount of tax as their profits would be decreased. But it was also included that tax avoidance is legal to certain extent as it is not the same as that of tax evasion as if the fiscal judge is including that company must be paying more tax whereas tax evasion is strictly prohibited and illegal in court of law.

So it could be recommended or suggested that company should be making strict law and policies in respect to this tax avoidance which in future could be turned into huge crime as regarded to as tax evasion.

Related Sample: Requirements of Implementing Changes Within an Organisation

REFERENCES

  • Bird, R. and Davis-Nozemack, K., 2018. Tax avoidance as a sustainability problem. Journal of Business Ethics. 151(4). pp.1009-1025.
  • Campbell, K. and Helleloid, D., 2016. Starbucks: Social responsibility and tax avoidance. Journal of Accounting Education. 37. pp.38-60.
  • Dowling, G.R., 2014. The curious case of corporate tax avoidance: Is it socially irresponsible?. Journal of Business Ethics. 124(1). pp.173-184.
  • Jenkins, R. and Newell, P., 2013. CSR, tax and development. Third World Quarterly. 34(3). pp.378-396.
  • Al-Dhamari, R.A., Ismail, K.N.I.K. and Ismail, S.S.H., 2018. vorheriger Artikel Does the capital of social capital matter? Rela... nächster Artikel “Meta regulation in practice: Beyond normative... Journal of Management and Governance30(2017).
  • Lawrence, A.T. and Weber, J., 2014. Business and society: Stakeholders, ethics, public policy. Tata McGraw-Hill Education.
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