Starbucks faces shareholder demands on GM food, expensing options at meeting

Shareholders opposing genetically-modified (GM) foods used Starbucks Corp's annual meeting on Tuesday to push the coffee chain to label GM products, putting forward a resolution that received less than 6 percent of shareholder votes. Starbucks faced a second shareholder proposal asking the company to expense stock options during the meeting at its Seattle, Washington headquarters and that resolution received 42.34 percent of shares voted.

Activists demonstrating outside the meeting called for a boycott of Starbucks over the GM labeling issues and for using milk containing growth hormones.

For the second consecutive year, San Francisco-based shareholder advocacy group As You Sow filed a shareholder resolution asking Starbucks to label genetically engineered (GE) food products, citing health concerns and a consumer's right to know. Towards the end of the meeting, Starbucks said the GM proposal received 5.81 percent of shares voted compared to 7 percent of shareholder votes at the company's annual meeting last year.

The same proposal filed two years in a row must receive 6 percent of the shareholder votes to be refiled a third time. "GE involves splicing in genes from other species thus making new products that may result in unforeseen allergic reactions. Without labeling, consumers will have no way of protecting themselves from hidden allergens," the shareholder proposal filed with the US Securities and Exchange Commission (SEC) said. "Labeling will also inform consumers with religious or ethical concerns about eating GE products," the proposal reads.

The proposal notes that many of Starbucks international markets including Japan, European Union, Mexico and South Korea, are among dozens of countries that have passed or are considering labeling legislation. Seattle-based Starbucks recommended in its proxy that shareholders vote against the genetically modified labeling proposal, saying it has confirmed its coffee and teas are not genetically engineered and offers GM-free alternatives to some supplementary products that may contain GM ingredients. Starbucks said it has made certified organic milk available in all its US stores. "We have also verified that the soymilk offered in our stores is organic and not sourced from GE soybeans," Starbucks said in its proxy.

"Despite repeated pledges, Starbucks is still loading up its coffee drinks with rBGH (recombinant Bovine Growth Hormone)-tainted milk, and buying coffee and chocolate produced under exploitative labor conditions and in the case of cocoa plantations in Africa, workers who are actually slaves," Ronnie Cummins, national director of the Organic Consumers Association, said in a statement last week.

Opponents of rBGH milk products cite studies that have shown that human consumption of the growth hormone manufactured by Monsanto may cause cancer and that the hormone causes illnesses in cows, resulting in the increased use of antibiotics that contaminate the milk produced from rBGH-injected cows. The genetically engineered hormone is injected into cows to increase milk production.

Starbucks said during the meeting it would be impossible to make a complete conversion right now to rBGH-free milk because it is very difficult to get and it would increase the price of each drink by 50 cents. "The reason we re-filed the resolution is that Starbucks is lying about their actions," As You Sow spokesman Michael Passoff said Tuesday. "They [Starbucks] did not have organic or non-gmo milk at my local Starbucks and I live in Berkeley! The real issue here is that management is not being honest with its investors or its customers and that will eventually get the company and its shareholders in trouble," Passoff said.

The Minnesota-based Organic Consumers Association, with about 400,000 members nationwide, called for a boycott of Starbucks in a demonstration outside the company headquarters during the annual meeting. San Francisco-based research and activist group Global Exchange added its own demands of Starbucks at a news conference ahead of the meeting. The group is asking for an expanded international pressure campaign to press for legislation in dozens of cities requiring that cafes offer the option of fair-trade, organic and shade grown coffee.

Starbucks advised shareholders to vote against expensing stock options, saying it would rather wait for a decision on the matter by the US Financial Accounting Standards Board (FASB) an industry-funded organization that sets US Generally Accepted Accounting Principles (GAAP). Institutional Shareholder Services (ISS), a Washington DC-based advisor to institutional investors on proxy voting, has recommended its clients vote for the options expensing proposal; but against the GM proposal.

"In the wake of financial reporting problems and excessive executive compensation at companies like Enron Corp, Worldcom Inc, and Tyco International Ltd , we agree with the growing investor consensus that companies should expense the costs associated with stock options in order to increase the accuracy of their financial statements," ISS wrote in its Starbucks proxy analysis. ISS, which issues vote recommendations for more than 10,000 US shareholder meetings and 12,000 outside the US each year, looks at GM proposals on a case-by-case basis.

The ISS said it generally supports proposals seeking greater disclosure, but said labeling every product that may contain GM ingredients would be a "formidable" task. "Given the widespread existence of these products, and the complexity of the supply chain at a large food service operation, we believe that it would be difficult and expensive for the company to develop a comprehensive program for labeling its entire product line," the ISS said. ISS, along with Starbucks, acknowledged that the company has voluntarily adopted labeling policies in some international markets.

US law currently does not require food companies to label the GM ingredients in their products. Since the US first commercialized GM crops in 1996, the government has maintained that GM foods are no different in nutritional content and safety level from other foods and require no special labels. Environmental and consumer groups that oppose GM foods say they have not been adequately tested for their long-term health effects and potential impact on the environment.

The stock options shareholder proposal was filed by The United Brotherhood of Carpenters Pensions Fund, which owns about 600 shares of Starbucks common stock. The proposal asks Starbucks to establish a policy and practice of expensing in the company's annual income statement the costs of all future stock options issued by the company. The increasing use of stock options during a time when investors are questioning the accuracy of corporate financial reporting has prompted a debate on the appropriate accounting treatment for stock options, the union said.

Last week, FASB voted to add the issue of expensing options to its agenda, a move that could eventually lead to mandatory expensing. Over the past year, about 200 US companies have agreed to expense options. But in a concerted effort to keep up the pressure, a coalition of union pension funds filed resolutions at about 75 large US companies asking them to start expensing. About a dozen US companies have decided to expense stock options this year after receiving union-backed shareholder resolutions.