Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

General Electric Company (GE), Starbucks Corporation (SBUX): Do Shareholders Suffer When Management Gets Political?

General Electric Company (GE)Regardless of where they stand, management takes big risks with shareholders’ money when it wades into politics. You’re bound to alienate one customer base or the other, so the best thing to do, usually, is to shut up.

But CEOs are people too. People have opinions, and the right to voice them. So they do. The question is how should shareholders react, not just to the opinions, but to the alienation that can result from them.

GE Shareholders Get Lucky

It doesn’t matter if your political involvement is on behalf of your business. Cozying up to politicians offends people.

When General Electric Company (NYSE:GE) chairman Jeffrey Immelt joined an advisory council organized by President Obama, the lifelong Republican was excoriated by members of his own party, despite the fact that he was pushing his own manufacturing business and the group’s aim was to push for American jobs.

Immelt was fortunate that the group’s charter wasn’t extended and he was able to start making nice with his fellow Republicans again.

Still, while he was involved with the President General Electric Company (NYSE:GE)’s stock price and its dividend nearly doubled.

Immelt was lucky. It doesn’t usually work out that way.

Darden Learns a Lesson

Clarence Otis and his Darden Restaurants, Inc. (NYSE:DRI) shareholders were not so fortunate.

Otis was a fierce critic of health reform, and decided to limit workers hours last year to avoid having to offer workers health insurance. A lot of other service-oriented businesses were doing the same thing. Otis’ mistake was to talk about it, during a political campaign.

The result was a 37% reduction in quarterly earnings which Otis attributed to publicity over his stand.

What investors should recognize, however, is that by just keeping quiet, the damage was contained. Stories relating to the company’s latest earnings release focused on a single troubled property, Red Lobster. Since the start of 2013 the stock is actually up 10% and investors may be attracted by its 4% yield.

Lessons for Starbucks Corporation (NASDAQ:SBUX)

Now it’s Starbucks Corporation (NASDAQ:SBUX) CEO Howard Schultz who has stepped into the spotlight, on the other side this time. In response to a question at his shareholders’ meeting attacking the company’s endorsement of marriage equality, Schultz basically told the shareholder that if he didn’t like the company’s stand, sell.

After the company announced its stand in May, the conservative National Organization for Marriage decided to boycott the company, and the stock is currently no higher than it was then.

Is the stock problem politics? Or could it be, instead, be due to hiccups in introducing Square, the payment system it bought into last year?

It’s probably a little of both. The company’s sales gained only 10% over the last year, when last year’s fourth quarter is measuring against the same quarter a year ago. Margins have remained steady, and operating cash flow actually fell in the fourth quarter, compared with the third.

This spells opportunity for those who want to invest in Starbucks Corporation (NASDAQ:SBUX), it seems to me. Controversy is a downdraft for the stock, but the impact of that downdraft may be limited in time. Any weakness in the stock is a buying opportunity.

The article Do Shareholders Suffer When Management Gets Political? originally appeared on Fool.com and is written by Dana Blankenhorn.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Biotech Insider Alert - $5 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading Comments...
X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 102% in 3 years!! Wondering How?

Download a complete edition of our newsletter for free!