Boardroom games

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Ethan Wu (0:36)

Thank Pushkin, you may have heard of the unionization push going on at Starbucks' across the country, but there's a fight that you might not know about in Starbucks' boardroom. And it's being caused by a really wonky change to corporate governance rules that could have huge implications for corporate America.

This is Unhedged, the markets and finance show from the Financial Times and Pushkin. I'm reporter Ethan Wu here in New York, joined from the New York studio by single issue activist advancing a social agenda, Ortenca Aliaj.

Ortenca Aliaj (1:10)

Hi, yes, I'm here to address human capital mismanagement issues by Ethan Wu.

Ethan Wu (1:17)

I'm afraid I've horribly mismanaged the human capital in the Unhedged podcast.

Ortenca Aliaj (1:21)

I've had enough complaints from Rob.

Ethan Wu (1:22)

I'm sure you have.

We are not pulling this out of thin air. Listeners, both of these quotes come from Ortenza's recent big read in the Financial Times, which you should absolutely read and will have in the show notes about the fight in the Starbucks boardroom. It's super interesting. Gets at big issues about labor, about corporate governance. But before we get into some of the details, we got to start Big Picture Ortenza. What's a corporate board?

Ortenca Aliaj (1:45)

Corporate board is seven or eight people who sort of are paid to turn up and think about things.

Ethan Wu (1:54)

Sounds like a good job.

Ortenca Aliaj (1:55)

It's the best job in America. And they effectively should represent the interests of a company's shareholders.

Ethan Wu (2:04)

Yes, in America, the board is supposed to be the way by which shareholder interests are represented in corporate management. They're kind of the liaison. And it's not every country that has that system. Some countries like Germany have like co-determination where you actually have workers that sit on the board, but in the US, it's a shareholder system.

So traditionally, if people don't like how the company's being run, you have activist investors. Ortenca, you've been on the show previously to talk about Nelson Peltz's campaign at Disney, where he doesn't like the way that that company is being run.

And they buy a certain economic stake and they lobby for changes and they get shareholders to vote on changes and blah, blah, blah. But in your story recently, you talk about a traditional campaign waged by a very non-traditional activist.

Ortenca Aliaj (2:49)

That's right. So instead of a brash, aggressive boardroom raider that we're used to, we get a group of labor unions called the Strategic Organizing Center.

And they are threatening to put three new board members onto Starbucks' board. And the campaign is really a push for Starbucks to take more seriously the labor issues or what they refer to as severe human capital mismanagement, with which Ethan, you are very familiar.

Ethan Wu (3:23)

Yes.

Ortenca Aliaj (3:24)

And this is a really, really interesting novel campaign. We have never really seen a union utilize activism or proxy battles in this way.

Ethan Wu (3:35)

And it's all being enabled, Ortenca, by a pretty wonky change to the way that voting is done in the corporate boardroom. The type of thing that would be tucked away on page 12 of the Financial Times and only people that are really into financial regulation and corporate governance would know about it. But this is a change that the Securities and Exchange Commission made in 2021 and it could have big implications for corporate governance.

Ortenca Aliaj (4:00)

Yes, this all sort of started in the dingy SEC offices in 2015 where there was this big discussion about how shareholders could have more representation at companies. And this had really been pushed by big pension funds like CalPERS.

They felt that it was too difficult for shareholders to nominate company directors or to vote for company directors. So there was a discussion about a new rule change that would effectively allow companies to have all of the candidates on one sheet of paper so that any of the shareholders would have a so-called a la carte option where they could pick and choose which candidates they wanted to nominate to the board. And prior to this, what you would have to do is you would have to get on this Greyhound bus and you'd have to like traipse around America and vote for the candidates that you wanted. Or you could send in your proxy card, but you'd only be able to use the proxy card by the company, which had the company's directors and nominees, or the proxy card by the distant shareholder, which had its own again, its own nominees.