Kris Engskov, head of Starbucks Corp.’s fledgling lobbying effort, won his first real victory last
October: a tax break worth millions of dollars to the company. His boss had mixed emotions.
Starbucks Chairman Howard Schultz was glad to win the tax break, but he was disturbed by a wave of editorials
and news reports labeling his hip and fast-growing company a money-grubbing special interest and referring to the provision
in the 2004 tax bill as the “Starbucks footnote.”
Schultz recalls promptly tracking down Engskov at the company’s headquarters and, waving some of the
articles, pressing him for an explanation.
“Tell me about this,” he said.
Schultz’s discomfort offers a glimpse at the uneasy transition a group of cutting-edge entrepreneurs
of the 1990s face as they take their first steps into Capitol Hill lobbying. They saw explosive growth in recent years but
now realize the road to future prosperity runs through Washington. Red Hat Inc., a software company; Monster.com, a job-search
Web company; and Google Inc., the search-engine giant, all hired their first lobbyists within the past few years.
These newcomers to Washington are caught in a bind: They have the same desires as every other company –
tax breaks and trade deals. But they find the horse-trading aspects of lobbying, including political donations and asking
for favors, often conflict with their public image as idealists changing the way business is done.
Starbucks shuns most advertising, believing superior blends of coffee and customer loyalty are the keys
to success. It prides itself on a lean corporate structure that allows maximum amounts of money to be plowed back into employee
health benefits and rapid growth.
Employees are called “partners,” the warehouse-style headquarters includes special rooms for
nursing mothers, and Chief Executive Officer Jim Donald spends hours each week calling store managers to applaud good work.
The company issues a “corporate responsibility” report annually and requires its stores to donate
to local causes and charities. It holds regular “town hall” meetings with corporate executives in the headquarters
cafeteria and has launched an international program that offers better pay to farmers who treat their workers and the environment
Now Starbucks is at a challenging point in its history.
It boasts 9,100 stores – up from 676 a decade ago – and its stock price has risen more than
4,000 percent since its initial offering in 1992, even after adjusting for stock splits. In 2004, Starbucks took in $5.3 billion
in revenue. It opens an average of four stores and hires 200 employees each day.
But it’s clear that much of the company’s future growth will come from overseas.
That makes lowering trade barriers with Central America and even farflung places like Thailand critical
issues for the coffee retailer. Double-digit spikes in health-care costs threaten the company’s ability to offer medical
coverage – a signature employee benefit it extends to even part-time workers. And as the company dips its toe into more
sensitive areas, such as coffee-flavored liquor sales, it faces greater regulation...
Engskov also realized that many politicians from Starbucks’s home state hadn’t set foot in company
headquarters. He set about flying lawmakers and Capitol Hill staff to Seattle to teach them about the complexities of the
company – from coffee to ice cream to music – and its deep roots in the coffee industry, including the international
program encouraging farmers to grow its high-end arabica beans.
Sessions also covered the company’s health care and stock-option programs and ended with a coffee
tasting in the headquarters’ glass-enclosed kitchen.
In early 2004, Engskov began planning Schultz’s Washington debut. He immediately faced an obstacle.
The price of access to meet lawmakers is often campaign contributions. Schultz has given money almost exclusively to Democrats,
a big disadvantage in a city now run by Republicans.
Starbucks had just hired its first lobbying firm, Preston Gates Ellis & Rouvelas Meeds LLP, which was
founded by Bill Gates Sr., father of the Microsoft chairman. One of the firm’s principals, former Sen. Slade Gorton,
a Republican, made some calls to old friends on Capitol Hill. That paved the way for meetings with Bill Frist, the Senate
majority leader, Chuck Grassley, chairman of the Senate Finance Committee, and Rick Santorum, chairman of
the Republican conference.
For his formal introduction to Washington, Schultz cringed at the prospect of talking or acting like a CEO
on a lobbying mission. He decided his first conversation should be about something of national importance, which would be
“more comfortable for me than talking about trade and taxes and something that is more specifically and narrowly skewed
to business and profitability,” he says.
He and Engskov decided he would chat with lawmakers about the benefits of expanding health insurance coverage
to more workers, an issue that didn’t involve “an ask.” The soft-sell approach, without a specific bill
to tout or request for help, was disconcerting to some lawmakers more accustomed to direct appeals and others so over-scheduled
there is little time to philosophize about the big picture.
In his meeting with Frist, the Starbucks chairman quickly began explaining his company’s commitment
to create “shareholder value” by “valuing employees” and providing decent health care to all its workers.
That same philosophy should extend to the nation, he said. The Tennessee senator cut him off, quickly peppering him with questions:
How many plans did Starbucks offer? How much does it cost?...
Other lawmakers gave Schultz the rookie treatment. A 20-something aide to a senator who had stood up Schultz
brusquely asked why the Starbucks chairman was there. “Just to talk,” Schultz said. “So talk,”
she shot back, according to Engskov.
“That hasn’t happened to me very often in the last 10 years,” says the 51-year-old Schultz,
arching an eyebrow.
Schultz also spoke before the Democratic caucus’s regular policy luncheon. When he finished explaining
his health care program, senators were buzzing about having a successful corporate model they could use to showcase their
None of the Republican lawmakers directly raised the issue of Schultz’s Democratic giving. Still,
the issue of campaign contributions is a nagging subject to Engskov. Two years after establishing its lobbying operation,
Starbucks still doesn’t have a political action committee, the kitty used by businesses to make political donations
and curry favor with lawmakers. Even smaller operations, such as Outback Steakhouse, long ago set up such funds.
But when the issue is raised with Schultz during an interview in his office, it’s clear he is still
squeamish about asking his “partners” to give to what could seem a political slush fund the company could call
upon when it faces its next big legislative battle.
“I don’t think we’re forming a PAC in the near term,” said Schultz, glancing at
Engskov for confirmation.
“I think we will employ that as a tool at some point,” Engskov added diplomatically.