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Investment Analysis Paper on Starbucks Corporation

It is the utmost responsibility of the company’s board of directors to ensure that management formulates decisions and strategies that create value for its shareholders. Therefore, the board is responsible for overseeing and controlling management’s activities (Ross, Westerfield, & Jaffe, 2013). There are different areas that can be evaluated for forming an opinion on the monitoring capability of the company’s board of directors. For this paper, Starbucks Corporation was selected to review its corporate governance practices and effectiveness of its board of directors.

Monitoring Potential of the Firm’s Board of Directors

The definitive proxy statement of Starbucks Corporation indicated that the company’s board maintained a high level of independence (Starbucks Corporation – Definitive Proxy Statement, 2014). Out of 12 directors, 11 were independent. The independence of directors implied they had the ability to independently monitor management’s strategies and operational decisions. The board of directors was responsible for risk oversight and ensuring that business risks were mitigated. In addition, there were three committees that were responsible for the highest standards of corporate governance and monitoring of directors’ and management’s performance.

The leadership structure did not separate roles of the company’s CEO and the board Chairman. However, the leadership structure of the company’s board ensured the independence of non-management directors (Starbucks Corporation – Definitive Proxy Statement, 2014). In addition, there were three committees including “Audit and Compliance Committee”, “Compensation and Management Development Committee”, and “Nominating and Corporate Governance Committee” (Starbucks Corporation – Definitive Proxy Statement, 2014). These committees were given different tasks related to the compliance of corporate governance policies (Starbucks Corporation – Definitive Proxy Statement, 2013). Independent directors of the company chaired these committees. In 2013, the committee meetings were held throughout the year, and various issues were covered in these meetings including risks faced by the company, remuneration of directors, related-persons transaction, etc. (Starbucks Corporation – Definitive Proxy Statement, 2014).

Strengths

The company’s board maintained a high level of independence. Most of the company’s directors were independent who were elected as per the guidelines of SEC. Moreover, each board member was required to have minimum qualifications established by the company as per the SEC and NASDAQ rules (Starbucks Corporation – Definitive Proxy Statement, 2014). The directors’ profiles indicated that they had worked in different industries, and they could offer diversified expertise and knowledge to the board and its proceedings. The company provided different monetary and non-monetary benefits to its directors and associates to ensure that it could achieve and retain top talent (Starbucks Corporation – Definitive Proxy Statement, 2014).

Weakness

The attendance of directors remained low in all meetings of the company’s board and its committees. The average age of board members was almost 60 years (Starbucks Corporation – Definitive Proxy Statement, 2014). It could suggest a lack of contemporary vision amongst the board members. In the recent years, the company faced many challenges and its non-profit generating stores negatively affected its business. It is suggested that the company’s elects individuals who can bring new and better ideas to its business. The company ‘s business strategy was highly dependent on the vision of Mr. Schultz (Starbucks Corporation – Definitive Proxy Statement, 2014). However, it needs a new and fresh approach to its business. The company’s board had a one-tier system, which is often criticized for not implementing sufficient controls and monitoring tools (Ross, Westerfield, & Jaffe, 2013).

Ethical Concerns

There was no segregation between two important positions in the company. Mr. Schultz held both positions of the company’s CEO and the board Chairman that could suggest a major ethical concern related to the board’s structure.

References

Ross, ‎S.A., Westerfield, R.W., & Jaffe, J‎. (2013). Corporate finance (10th ed.). New York, USA: Mc-Graw Hill.

Starbucks Corporation – Definitive Proxy Statement. (2014). Web.

Starbucks Corporation – Definitive Proxy Statement. (2013). Web.

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