* Shareholder proposal would ban contributions, company PAC
* Starbucks made no contributions, but reserves right to do so
* Contributions can "look like bribery," says governance expert
By Lisa Baertlein and Ronald Grover
LOS ANGELES, March 14 (Reuters) - Starbucks Chief Executive Howard Schultz jumped into the political arena two years ago, organizing a hundred of his fellow CEOs in a pledge to forswear campaign contributions till Washington came up with a plan to fix the nation's debt.
Now, a Starbucks investor wants Schultz to go one better by prohibiting the world's biggest coffee chain from making any political contributions, or forming a political action committee.
Shareholders of the Seattle-based company will vote at its March 20 annual meeting on a proposal by John Harrington, who owns 800 shares, to "adopt a policy prohibiting the use of corporate funds for any political election or campaign."
"It compromises your fiduciary responsibility because you don't know how people are going to vote once they are elected," Harrington, chief executive of Napa, California-based Harrington Investments, said in an interview with Reuters.
Starbucks is one of 125 companies that have faced shareholder proposals over the last two years related to political spending, according to a March 7 report by the Sustainable Investments Institute, which tracks political spending and corporate governance issues.
In votes held this year, 37 percent of VISA's voting shareholders and 31 percent of those of Accenture supported proposals to disclose contributions for lobbying, according to filings from both companies.
"The problem is that the closer your contributions get to someone who can help your company, the closer they look like bribery," said University of Delaware professor Charles Elson, director of its John L. Weinberg Center for Corporate Governance. "It's probably best for companies to just get out of it altogether.
Over the last three years, Starbucks made no direct political contributions, or operated a political action committee, according to the annual report to shareholders on its activity, though it paid dues to trade organizations that lobbied, it said.
Its corporate policy, however, allows contributions to state or local candidates, political action committees or state ballot measures.
"We rarely make contributions and when we do we're committed to doing so transparently," said Starbucks spokesman Zack Hutson. "We believe that we have a responsibility to advocate for public policies that support our business, our partners and the communities we serve."
Starbucks' board recommended its shareholders vote against the ban, saying it would impact the company's ability to educate elected officials about its business, promote public policies "critical to delivering long-term value for our shareholders," and "potentially put us at a marked disadvantage relative to our competitors who are able to participate in the political process."
The coffee chain made contributions in the past, the board added, and "may consider doing so in the future if it is in the best interests of the company, our shareholders, our partners and the communities we serve."
Delaware professor Elson agrees with the Starbucks approach. "Let's say someone decides to outlaw caffeine," he said. "Starbucks' shareholders would expect the company to represent their interests."