A $12 Million Ethics Lesson

(Authored by Reid Blackman, Ph.D. and Derrick Darby, Ph.D. Originally published June 20, 2018)

Woke consumers armed with smartphones have made it bad business to distinguish between making money and doing the right thing. It cost Starbucks millions to figure this out. Other companies stand to lose big too if they ignore this ethics lesson.

One cannot build successful multinational powerhouses like Starbucks, Facebook, or Amazon—all of which generate billions in revenue—without a good plan to make lots of money off of coffee, connecting friends, and connecting consumers to retailers. Members of the old school will say that a company that is not all about the bottom line is one that will not be in business long. Did this new breed of ethically conscious consumers not get the memo?

In fact, they got it, shredded it, and said “not anymore!” Companies can keep doing business as usual, putting profit above everything including matters of ethics, but woke consumers, mostly but not exclusively young, tech savvy, millennials and post-millennials may make them pay a hefty price.

Much has happened since April when police escorted two black men out of one of Starbucks’s Philadelphia stores in handcuffs. Most recently, the coffee chain closed 8,000 stores for anti-bias training, which by some estimates cost Starbucks more than $12 million in lost revenue that day—not to mention having to pay employees wages for watching videos about racial injustice instead of serving up $5 Lattes and Frappuccinos to thirsty customers.

When the store employee called the cops, and the video of the arrest went viral, the social media universe quickly filled with moral condemnation. #BoycottStarbucks, which was bad for the bottom line and the brand, was the ethically conscious consumers way of saying that businesses must not draw a sharp line between making money and doing the right thing. They must think about the double bottom line—the social impact of their goods and services. They must identify their corporate values and ask whether they are aligned with corporate practice.

Kevin Johnson, Starbucks CEO, did not waste time after the incident. He accepted responsibility, declared that a wrong was done, and apologized to the two black men. He also set the company on a path of system change to make sure such things did not happen again. Companies with a lesser commitment to righting ethical wrongs may have paid an even greater price for an ethical lapse.

In this new environment, where ethical risk is a real and potentially very expensive problem—to the tune of $134B for Facebook—companies can ill-afford not to have an ethical risk audit. This begins with finding out where the ethical mines are before they very publicly explode. For Starbucks, it was two things: the bathroom policy, which gave employees the discretion to let nonpaying whites use restrooms but not blacks, and the loitering policy, which also created room for ethical mischief. The ethical risk audit ends with solutions that mitigate the risk, create positive impact, and put companies back in the ethical black.

Ethically conscious consumers care about values and have tremendous power to spread news of unethical business practices and products faster than ever. The Starbucks incident is not an isolated case, and racial bias is not the only object of ethical concern for these consumers. They also care about gender (#MeToo), about privacy (#DeleteFacebook), and about dignity (#BoycottUnited). Millennial tweets, hashtags, and snapchats have put ethics and social impact on the corporate agenda. Before our eyes, ethically conscious consumers are changing the future of business.

Starbucks paid a steep price to learn this ethics lesson. But they also have a jumpstart on bringing about the kind of system change that the new breed of ethically conscious consumers demand. Companies may be able to stay in business by ignoring their voices—putting profit above all else—but this will not be a formula for success moving forward. These consumers are growing more skeptical about business’ commitments to do the right thing. According to a recent Deloitte survey, in less than a year (48 percent in 2018 vs 65 percent in 2017) there has been nearly a 20 point drop in millennials perception that businesses act ethically.

Companies that ignore the double bottom line do so at their peril in a world of ethically conscious consumers who hold businesses responsible for doing the right thing. The viral social media posting that sinks a business today may be a racial bias incident or a MeToo moment or a privacy breach. Who knows what ethical risk woke consumers will expose next? It’s hard to say, but one thing seems clear: the future of business is a new reality where ethical risk cannot be ignored.