Editor’s Note: Philip M. Nichols is a professor of Legal Studies & Business Ethics at The Wharton School at the University of Pennsylvania. The opinions expressed in this commentary are his own.
When Howard Schultz ran Starbucks, he sent an unrelentingly positive message about the impact he hoped the coffee company would have on the broader community. But when asked during a CNN town hall whether he would divest his shares of Starbucks if he ran for president, Schultz had no clear message at all. While Schultz seems to have navigated the tricky waters of corporate dominance and social responsibility, it does not seem likely that as candidate — and then president — he could avoid the conflict between what is good for this country and what is good for Starbucks. To truly do so, he needs to commit to selling all his shares in the company.
Schultz vaguely promised during the town hall not to put himself in a position in which conflict exists. But his wealth is almost entirely in the form of shares of Starbucks; he owns more than 30 million shares and has options on 5 million more. Policy issues that affect Starbucks will affect Schultz’s wealth, and most policy issues will affect Starbucks. Policies on infrastructure will affect how Starbucks’ suppliers and customers reach their stores. Policies on minimum wages, internet commerce and immigration will all affect Starbucks. Starbucks wants to open a new store in China every 15 hours — foreign relations definitely affects Starbucks.
Schultz did claim in the town hall meeting that setting up a blind trust would remove any conflict of interest. His claim cannot be true. A “blind” trust would be blind in name only; almost all of Schultz’s wealth is in the form of Starbucks shares, and putting those shares in a trust will not blind Schultz to that fact. And studies show that awareness of conflicting interests bias the way that people make decisions.
Even if, through superhuman effort, Schultz were to will himself into a state of mind that was not conflicted, he could not remove the appearance of conflict. Every time a President Schultz, or even candidate Schultz, meets with Chinese President Xi or French President Macron, or the leader of almost any country in the world, newspapers will run articles citing the number of Starbucks already slinging coffee in that country and asking what the leaders drank at their meeting. Trust in leaders and institutions is already shockingly low in this country, and the appearance of a conflict will only drive trust further down.
Businesspersons, in particular, would have reason to question decisions that might affect Starbucks’ competitors or even other industries. The president often makes decisions that balance the interests of one industry against another. Ordering the release of oil reserves might, for example, help industries that consume oil but take a bit of profit from oil producers. If President Schultz were to issue an order that, hypothetically benefitted sellers of tea but hurt soft drink producers, would he be acting to promote the health of Americans or the health of Starbucks?
And of course, there is the law. A lawsuit filed by the attorneys general of D.C. and Maryland claims that President Trump, through the businesses he owns or controls, has violated the Constitution’s emoluments clause, which bans the president from accepting gifts, favors or any other advantages by foreign and domestic governments. Efforts by the Department of Justice to stop the suit have so far failed. Trump’s lawyers have argued he has not violated the emoluments clause.
Unless he sells his shares, Schultz could also face emoluments clause accusations every time a foreign representative visits Starbucks. But the law might present an even more arcane dilemma for a future President Schultz. Schultz has been named chair emeritus of Starbucks. Emeritus is usually an honorary title, with no real responsibilities, but if Schultz takes an active role, he may be considered an officer of Starbucks. He owns more than 3% of its shares, and as such, he might be considered a controlling shareholder. As either an officer or a controlling shareholder, Schultz would be legally required to prioritize the interests of Starbucks ahead of all others — even if those interests conflicted with other interests.
More Perspectives on Management & Leadership
Whether an active emeritus would be considered an officer or whether shares in a “blind” trust that is not really blind would be considered controlling are questions even less explored than the emoluments clause, and Schultz could be walking into even more lawsuits than President Trump. The only way to avoid these conflicts would be for Schultz to sell his shares and to sever ties with Starbucks.
Rules and norms against conflicts of interest exist for a reason. This country deserves leaders who choose to make decisions with only the best interests of the country in mind.
And it is a choice. Public service is not mandatory. If Schultz volunteers to serve this country as its president, he must accept the ethical rules that accompany that decision. And it wouldn’t be a burden for him. If Schultz sold every share of stock that he owns and never earned another dime, he and his family would still have more money than all but a fraction of a percent of people in this country. If he spends a hundred thousand dollars a day for the rest of his life, he would still die with more money than almost anyone else in this country. Schultz does not need to hang on to his shares. It would be a choice. And that choice sends a message.