Crisis Identification And Management: Lessons From Starbucks UK Tax Crisis

Types of Crises and Crisis Identification

When is there a crisis? 

The crisis is described as an unpredictable event that has a negative impact on the organization credibility, viability and reputation. People get the awareness of the crisis through the media coverage when a whistle blow takes place or when it reaches the court (Ngugi 2014). The way of delivering the crisis message by the media affects the organization, it can influence the public opinion and in some cases, it affects the global opinion. The expanded model frameworks the dynamic and multi-dimensional relationships that identifies the relationships that take place during the crisis life cycle (Howell & Miller 2006).

There are different types of crises clusters, including the victim crisis, where the organization is the victim. It consists of the natural disaster, where a natural damage takes place, rumors, workplace violence or product tampering, where an external stakeholder damages the organization. Another type is the accident cluster that represents an unintentional damage to the organization that can take the form of technical error. The third type is the preventable cluster, where the organization puts its people at intention risk by taking inappropriate or harmful actions or violates the rules. It takes the form of human error accident or product error (Coombs 2007).

The unethical behavior of an organization in crisis situation forces the corporate crisis manager to offer a public response. The symbolic approach to crisis management assumes that crises threaten organizations’ images and their response strategies are used by the managers to repair their image. According to Coombs (1998), as cited in Huang (2006), each crisis situation has its characteristics that require certain crisis communication strategies (CCSs) to be used to manage the current situation and avoid the others.

CMP is considered as a tool of reference that provides key information on what actions should typically be done by the organization in a crisis. It contains certain forms required in documenting the crisis response. According to Barton (2001) and Coombs (2007), as cited in Institute for PR (2007), CMP enables organizations to respond to the crisis quickly by pre-assignment of some tasks, pre-collection of information that assumes the existence of a designated crisis team that takes the responsibility of doing tasks during the crisis.

Starbucks has faced many crises that affected its global image. It is considered a market leader in coffee production that introduces the finest qualities of roaster coffee and other beverages and snacks. In 1971 Starbucks commenced its business with a small coffee store located in Washington that grew over the years to reach more than twenty thousand locations across the world markets (Latif, Qurat-ul-ain & Gulzar 2014). Starbucks heavily uses social media channels for communication that caused it to face many crises either small or big. An example of the crises that Starbucks faced took place in Argentina in 2012, where the company had to publicly apologize to its customers for supply shortage. It had to tweet saying that it used a non-branded product of Argentina, which caused the tweet to generate across Argentina customers who felt angry. Following this incident, Starbucks took positive actions towards using social media to deal with sensitive issues, like the gun control, through communicating by using social media channels, while other companies avoided dealing with such issues. Starbucks meant to initiate such issues for public discussion through the social media (Jensen 2014).

Insights from Starbucks UK Tax Crisis

Starbucks crisis management plan will be discussed with an application on the UK tax crisis, according to Sisson & Bowen (2017), Gipson (2007) and Gîrboveanu & Pavel (2010) as follows:

Starbucks could gain a high reputation by utilizing the social media channels, which makes the social media crisis a significant case that deserves to be studied. The company has its ‘Emergency Management Council’, ‘Core Crisis Team’ and ‘Local Response Team’.

A public debate arose from the Public Accounts Committee report in 2012, which found Starbucks to be guilty for not paying taxes after earning significant profits or paying a minimal amount in the UK, the issue that lasted for three years.

Starbucks reported that it did not generate any profits that is why it did not pay any income tax despite achieving 1.2 billion pounds sales in the UK.

Media reports revealed that while Starbucks claims it did not generate profits, the investors said that the organization was profitable to them.

Public outrage was initiated and covered by the media, because of the crisis of tax evasion was highly intense in 2012 in the UK.

The crisis management team is responsible for general incident preparedness, including protest preparation and response, boil water activitiesand severe weather. In the case of Starbucks UK tax crisis, the local team was responsible for protest preparation and response.

CFO

Government regulatory bodies

Media

General public

This crisis is a man-made incident that lasted for three years. Starbucks usually conducts annual communication test, annual tabletop exercisesand benchmarking.

The tax crisis of Starbucks was investigated by David Cameron, the British Prime Minister who was newly appointed as the president of the Group of Eight (G-8).  

Public Accounts Committee’s report, obligated Starbucks to pay 10 million pounds as extra tax per year for 2 years, which exceeds the required amount by the law. The Managing Director of Starbucks UK, Kris Engskov, announced taking this corrective action to enhance trust with its customers.

Starbucks communicates crises through, announcement, meetings, payroll information and communication hotline for emergencies.

Starbucks aimed to start a social media campaign in the holiday time in December 2012 that coincided with the tax crisis. The campaign took place outside of the London Museum, where it used a large screen to display live tweets through the hashtag “#spreadthecheer” in order to encourage the public to share their cheer.

This campaign gave Starbucks the prominence in the British newspapers, but the angry opinions negatively tweeted about Starbucks tax practices with bad words that families and children could see live on the screen.

Crisis Communication Strategies and Reputation Management

John Kelly, is the senior vice president of Global Public Affairs & Social Impact and Vivek Varma, is the executive vice president, Public Affairs at Starbucks. The company does not have a crisis manager, although it used the apology strategy forreputation repair.

Starbucks had to apologize for the “filtration system malfunction”. In a review of media content, Starbucks UK’s tax crisis was indicated as a big crisis that could be classified as a smoldering crisis. Starbucks could not prevent the crisis from the begging and caused it to be prolonged with the media focus on the UK tax policies.

This crisis is considered a financial scandal that generally captured the attention of the media.

Mendelow’s matrix aims to analyze the impact of various stakeholder groups through mapping them. Starbucks stakeholders could be categorized on (2-by-2) box diagram according to their level of influence to the company decisions. The four quadrants of the matrix suggest requirements for different support levels (Nicklin 2015). Starbucks stakeholders include employees, customers, shareholders, business partners, suppliers, community members, governments and others.

• The primary stakeholders include customers, investors, suppliers and employees.
• Secondary stakeholders include media, activists, corporate relationships, NGOs, local communities and Government.

Figure (1): Starbucks Mendelow’s matrix

Power	High	Government Media	Customers Investors Suppliers Employees
Low	local communities Corporate relationships	Activists NGOs
Low	High
Interest

 Figure (1) shows that most of the stakeholders have high power and high interest.

Both of the government and media have high power but lower interest. The customers, investors, suppliers and employees have both high interest and power.  Subjects represented by activists and NGO’s represent the high interest, but low power. Finally, the local communities and corporate relationships represent low interest and low power (Slabá 2014).

Starbucks crisis communication plan simulates the expected situation based on this plan. Starbucks crisis communication team uses social media in crisis communication more than other companies. The crisis communication manual of Starbucks deals with two categories of media channels; first: the most popular channels, like Facebook, Twitter and YouTube and second, blogs and website and email. Starbucks crisis communication manual indicates two categories; internal and external key publics. The internal key publics include executives and employees and suppliers. The external key publics, include news media outlets, government agencies and competing companies (Kim 2013).

A public debate arose from the Public Accounts Committee report in 2012,

which found Starbucks to be guilty for not paying taxes after earning significant profits or paying a minimal amount in the UK, the issue that lasted for three years.

Developing a sound CMP is the best approach to achieving a favorable outcome in a crisis (Gîrboveanu & Pavel 2010). Based on the type of crises and its degree of severity, the crisis communication plans can be prepared and implemented. According to the Situational crisis communication theory (SCCT), there should be a systematic method for threats evaluation of the organization’s reputation in a pre-crisis stage and as a response to the crisis. The responsibility of the crisis, its history and relational reputation should be included in the risk assessment. The power and interest of the stakeholders should also be considered in assessing the crisis depending on two factors of its history and the relational reputation before the crisis that indicate how stakeholders perceived the previous similar cases (Kim 2013).

The Importance of A Sound Crisis Management Plan (CMP) in Crisis Management

Starbucks tax crisis in the UK required focusing on the external communication and following a reactive damaging control. The strong reliance on the CMP was the major way of crisis management. Although the company failed to communicate it to the public in an appropriate way, when it did not filter the messages tweeted live for the families and their children that contained harmful expressions. The failure to manage the crisis through social media negatively affected the company reputation and prolonged its time (Heide & Simonsson 2014).

• Government bodies
• New media channels
• Media traditional
• Customers
• The general public in the UK and outside the UK
• Employees

Starbucks #spreadthecheer” in 2012 December holidays, showed a quick response from the company spokesman who apologized for the inappropriate tweet. He said “The tweet filtering system for its feed display was not operating. Being a family-friendly, company responsible for its commitments for the public and abuse filters are in continual operation”.

1.What is your justification for the media claims about using your offshore licensing that routes profits away from the UK?

We have to be good taxpayers and act as a role model through the payment of our fair share of taxes. We are obligated to comply with the tax code that we did not write (The Guardian 2012).

2.Is there any speculation the tax avoidance was an inside job – is this the case?

Our legal team and the board of executives are investigating the company financial processes during the last three years with a special focus on the UK operations. We do have homegrown coffee shops operating in the UK market. The offshore entities have to pay their taxes, the headquarter of the company is not responsible for paying taxes on their behalf, they have to pay in full on what they earn in the UK (The Guardian 2012).

3.Do you think that the industry heavily affects your financial operations? 

Coffee beans represent the major input in the industry value chain, the volatile prices of coffee beans determines the cost and profitability making. We do not pretend to have zero profits, but the industry conditions directly affect our operations, prices, demand and profits (Geereddy 2012)

4.To what extent shall the UK tax avoidance incident will affect your customer relationship management (CRM)?

Our CRM policy will not change, we have one of the most successful CRM represented in the mobile app.  Customers could pay at Starbucks through the app and the company could successfully handle 20 million transactions within a year. Also, social media is a vital part of our CRM and we will continue to strengthen this presence (Haskova 2015).

5.Why have you risked your reputation through unfiltered tweets?

We are committed to providing our customers with the appropriate content that suites the family members and can be published publicly. Our information filtration system was accidentally stopped, but we work for maintaining it to work properly (Starbucks Corporation 2017).

References

Coombs, T 2007, ‘Protecting organization reputations during a crisis: The development and application of situational crisis communication theory, 10, 1-14.’, Corporate Reputation Review, vol 10, pp. 1-14.

Geereddy, N 2012, Strategic analysis of Starbucks Corporation, viewed 03 Nov. 2018, <https://scholar.harvard.edu/files/nithingeereddy/files/starbucks_case_analysis.pdf>.

Gipson, R 2007, ‘Emergency response in multi-unit retail stores’, Starbucks Coffee Company, USA.

Gîrboveanu, S & Pavel, S 2010, ‘How to manage a public relations crisis’, University of Craiova, Romania.

Haskova, K 2015, ‘Starbucks marketing analysis’, CRIS Bulletin, vol 10, pp. 11-29.

Heide, M & Simonsson, C 2014, ‘Developing internal crisis communication: New roles and practices of communication professionals’, Corporate Communications: An International Journal, vol 19, no. 2, pp. 128-146.

Howell, G & Miller, R 2006, ‘How the relationship between the crisis lifecycle and mass media content can better inform crisis communication’, PRism, vol 4, no. 1, pp. 1-14.

Huang, Y 2006, ‘Crisis communication strategies and media coverage: A multicase study revisiting the communicative response model’, Communication Research, vol 33, pp. 180-205.

Institute for PR 2007, Crisis management and communications, viewed 3 Nov. 2018, <https://instituteforpr.org/crisis-management-and-communications/>.

Jensen, K 2014, ‘Crisis communication on social media’, Aalborg University, Denmark.

Kim, E 2013, ‘The role of social media in crisis communication – A case study of Starbucks’, Texas State University, USA.

Latif, M, Qurat-ul-ain, H & Gulzar, H 2014, ‘Starbucks sustained during economic crisis’, International Journal of Accounting and Financial Reporting, vol 4, no. 1, pp. 307-321.

Ngugi, P 2014, ‘Trends in corporate crisis communication management’, Journal of Mass Communicat Journalism, vol 5, no. 1, pp. 1-7.

Nicklin, T 2015, ‘Cambridge marketing handbook: Stakeholder marketing’, Cambridge Marketing Press, UK.

Sisson, D & Bowen, S 2017, ‘Reputation management and authenticity: A case study of Starbucks’ UK tax crisis and “#SpreadTheCheer” campaign’, Journal of Communication Management, vol 21, no. 3, pp. 287-302.

Slabá, M 2014, ‘Stakeholder power-interest matrix and stakeholder-responsibility matrix in corporate social responsibility’, The 8th International Days of Statistics and Economics, Prague.

Starbucks Corporation 2017, ‘Annual report’, Starbucks Corporation, Washington.

The Guardian 2012, Starbucks avoiding tax has a knock-on effect on homegrown business, viewed 4 Nov. 2018, <https://www.theguardian.com/commentisfree/2012/oct/16/starbucks-tax-british-business>.