It’s always uncomfortable and awkward writing about racial issues in America. Nevertheless, for Starbucks Corporation (NASDAQ:SBUX), it cannot be helped: the company has a race-relations problem. Not only that, recent controversies can have a serious impact on Starbucks stock.
Only a few days ago, Starbucks was forced to apologize when one of its Los Angeles-area stores committed racial discrimination against a Latino customer. When picking up his order, a man identified only as “Pedro” found a derogatory slur on his drink’s label.
This inflammatory incident comes mere days ahead of a planned racial-sensitivity training seminar. On May 29, all Starbucks locations will close to attend this mandatory event.
In April, a Starbucks manager in Philadelphia called the police when two young African-American men refused to leave his store for loitering. When the pair still refused to leave, they were arrested, setting off a national outcry.
Starbucks Chairman Howard Schultz quickly stepped into the fracas. Sitting down with the affected gentlemen, Schultz negotiated a deal which satisfied all parties. Part of the concessions that Starbucks made was to change store policies to prevent future racially-charged incidents.
Moving forward, Starbucks restrooms will be available to all patrons, irrespective of whether they’re paying customers.
While these incredibly embarrassing incidents have yet to negatively impact Starbucks stock, it’s worth noting that shares have gone nowhere. Year-to-date, the coffee shop is just slightly under parity.
However, that doesn’t mean Starbucks stock is out of the woods. They’re generating headlines for all the wrong reasons. Plus, some employees are apparently so stupid that they think they can get away with slurring the company’s customers.
That says a lot about management’s discernment and their hiring policy. Still, the reason I’m cautious on Starbucks stock may surprise you.
Starbucks Stock and “Race Trolls”
As a racial minority in America, I know firsthand that racism exists. I also know that no amount of sensitivity training or bias education will ever eradicate racism. As long as people exist, racism, along with many other social dilemmas, will too.
Starbucks’ new training and education seminar won’t change that. Thus, the official association between SBUX stock and the company’s admission of racial problems is troubling. In other words, Starbucks isn’t a racist company; they unfortunately hired a few, stupid racists.
To add more context, Starbucks isn’t the first publicly-traded company embroiled in racial controversies. In 2013, a Korean-American woman sued CVS Health Corp (NYSE:CVS) for picking up an order which had a racist slur. Two years later, a Yum! Brands, Inc. (NYSE:YUM)-owned Pizza Hut store scrawled similar racial epithets on a customer’s order.
In these cases, the best policy is to terminate the offending employees immediately. But by imposing a company-wide sensitivity training, you imply that the entire organization is racist.
Starbucks’ decision to change store policy is also risky. A detailed report from ABC News reveals that both store employees and police officers politely asked the aforementioned African-American gentlemen to leave.
Here’s the tricky area: while it was racist for the manager to target black customers for doing what white customers do all the time, a business does have the right to refuse service for a myriad of reasons.
With Schultz opening his restroom doors, he’s now vulnerable to “race trolls.” Anybody of a federally protected class can cause trouble at a Starbucks location, intending to incite a response. When that response comes, the trouble-maker can cry racism and threaten a lawsuit.
That opens Starbucks stock to never-ending liabilities.
Companies Have Rights, Too
Some of you reading this might think that’s a stretch. I challenge you to consider how easy it is to pull-off race-trolling.
Starbucks tacitly admits it has a racial-bias problem. They’re shutting down all their stores for sensitivity training, not just the “racist stores.” That means everybody in the organization is on pins and needles. In this environment, it’s incredibly easy for anyone to falsely play the race card.
More so, punitive rewards may be larger in future race-related legal cases because SBUX publicly admitted guilt. With such admissions, a race troll could falsely but convincingly claim a history of racial discrimination.
I’m not giving a pass to racists. What I’m saying is, let’s not let a few bad seeds denigrate an entire brand. Terminate the wrongdoers and move forward.
Embracing corporate guilt is the wrong way to go. More importantly, companies do have the right to remove disruptive customers, regardless of their race or class. But now, Starbucks has given up that right, which can very easily lead to abuse from race trolls.
Schultz made the right move in reaching out to the arrested pair. But I firmly believe he faltered in making absurd concessions. They will make the company legally vulnerable, which makes me shy away from Starbucks stock.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.