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Judging by its most recent quarterly results, Starbucks (Nasdaq: SBUX ) has a ways to go before it can turn things around. What better way to pass the time than by finding a comfy chair, kicking back with a latte, and reading a book on Starbucks? Wrestling With Starbucks: Conscience, Capital, and Cappuccino, by Kim Fellner, takes an insightful and impressively balanced look at the global face of premium coffee.
Caffeinated wrestling match
Fellner comes to the subject from a liberal background, complete with union work. This may not sound like the makings of a relevant book for investors, but I found her tome a compelling read.
When I met Fellner while she was working on the book, I told her right away that I wasn't a fan of unions. I couldn't understand why they often tackle companies like Starbucks and Whole Foods Market (Nasdaq: WFMI ) , which try to do right by their employees. After all, there's always Wal-Mart (NYSE: WMT ) , well-known for its rough treatment of employees and questionable anti-union efforts.
And for all of unions' potential good intentions, their policies can cripple competitiveness. Many observers blame at least some of the woes of companies like General Motors (NYSE: GM ) and Ford (NYSE: F ) on union demands.
I might have irritated a lot of union proponents with my position, but I'm a fan of honesty and discussion. The fact that Fellner and I could have a pleasant chat and share differing points of view (we agreed that companies should be good to employees!) gave me the indication that she would tackle some of the biggest perceptions and misperceptions about Starbucks with an open mind. Happily, I was right.
The giant some love to hate
Many on the left love to bust on Starbucks -- think of the infamous WTO protests in Seattle in 1999, when the coffee chain got more than a few windows smashed. Rather than resort to easy criticism, though, Fellner embarked on an intellectual odyssey to separate hype from reality regarding whether Starbucks is good, bad, or indifferent.
Fellner came up with some interesting findings. While Mom-and-Pop coffee shops are generally held up as wonderful, almost by default, they often simply can't offer their employees the kind of pay or benefits Starbucks can. And as much as many people may scoff at Starbucks' ubiquitous, cookie-cutter presence, it can provide great opportunities for workers to develop management skills, often in areas where such opportunities are sorely lacking.
Fellner also dug deep into the economics of "fair trade coffee." She notes in the book that as much as Starbucks is reviled for hurting struggling coffee farmers, it turns out that many of those farmers do indeed consider Starbucks a fair and helpful company to work with. What's more, other multinational corporations are responsible for exponentially more coffee purchases, and they've often provided far greater reason for criticism in their dealings with farmers. Nestle, Kraft (NYSE: KFT ) , and Procter & Gamble (NYSE: PG ) , and, until recently, Sara Lee are or were all giant coffee buyers, but I guess it's not as much fun to pick on a huge, faceless entity like P&G.
Fellner didn't portray Starbucks as a perfect company; the issues cited above, like many others, have their share of complexities. But she gave it a fair shake as a company that tries pretty darn hard to do the right thing. In this profit-driven world, that's a big deal.
Kicking the tires, and then some
There are several good reasons for Fools to consider reading Wrestling With Starbucks. First, Fellner approached the company with a solid combination of skepticism and open-mindedness, which is very hard to achieve. I believe we investors should be equally clear-eyed when examining our own stocks. While we may still (small-f) fool ourselves sometimes, we should at least try to challenge ourselves intellectually about the good, bad, and stupid aspects of our companies' businesses and managements. Opening ourselves to different points of view is important for investing success.
Second, Fellner really kicked the tires on Starbucks. In addition to talking to management, she hung out with real baristas to spend a day in their shoes and get their opinions. She has attended Starbucks' shareholder meetings and traveled to Central America to visit coffee farms. She also visited the NYBOT commodities exchange and learned how to read a 10-K. In other words, she learned just about all she could about Starbucks and its industry. Investors like us should admire and aspire to that level of research on the companies in which we invest.
I asked Fellner how she felt about an investment in Starbucks, knowing what she knows now. "I think it's a perfect stock for the Obama Administration," she told me, "because it reflects the directions that are likely to gain favor -- good value, plus good values. The current system of deregulation has given a competitive edge to the worst companies, those that put rampant profiteering ahead of decency; corporations like Starbucks that want to do the right thing should get a boost from universal health care coverage and other policies that recalibrate the balance between profit and principle."
My own beliefs don't lean heavily toward government regulation or intervention, but I do try to invest with an eye on corporate ethics. Wrestling With Starbucks echoes one of my core beliefs: Companies that try to maintain principled operations and do the right thing will, over the long term, provide the most sustainable profits. That's one of the reasons I'm still long on Starbucks.
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