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Czarbucks

05/25/2011 12:10 pm ET

"We're in the people business, but we happen to serve coffee," Jim Donald says. Jim's the CEO of Starbucks, and we had a great talk earlier today. It was the first time we'd spoken although I've followed Sbux for years and wrote a chapter about the company in my book Faith and Fortune. I'm also such a loyal customer that the company sends me a gift every now and then -- a mug, a CD, a half pound of coffee. In fact, I'm writing this blogpost in my local Sbux while enjoying a coffee and a black-and-white cookie.

Jim is a lifelong supermarket guy -- Pathmark, Safeway, Albertson's, Wal-Mart -- who joined Sbux in 2002. But from the passion that he communicated when talking about Sbux's employees, its coffee growers in the developing world and its customers, it's clear that he's been drinking the Kool-Aid, er, coffee. Our conversation was one of a series about corporate social responsibility produced by Net Impact, a terrific organization of business students, newly minted MBAs and a few undereducated hangers-on like me, dedicated to changing the world through business.

Here are some highlights:

On Starbucks "partners": "The foundation of any business is the connection between its employees and the customers," Donald says. He led a turnaround at Pathmark, not by financial engineering, but by fixing what he calls "the frontline." He thinks it's great that Sbux provides health insurance and stock options to full-time workers, as well as part-timers who put in at least 20 hours a week. "You really do develop a partnership that makes a difference in terms of engagement," he says. Sbux'z attrition rate is high, about 80%, but less than the rest of the fast food business, where rates run from 120 to 200% annually. Interestingly, he said about 42% of the people who work at Sbux stores are college students--so attrition is to be expected.

On listening: Recently, Sbux surveyed about 100,000 of its partners, 83,000 responded and said, among other things, that they wanted more coaching and counseling about job opportunities, better communications and more total pay (surprise). Donald says the company responded to all three concerns; he also travels a lot and spends time with store managers and baristas. "I didn't do that in my previous jobs," he says, and now wishes he had.

On coffee growers and Fair Trade pricing: Unlike some other Sbux execs I've interviewed, Donald says the company strongly supports Fair Trade coffee. But there's not enough of it to supply Sbux. (Critics complain that Sbux doesn't promote or showcase Fair Trade coffee in its stores.) A more salient point: Sbux last year paid an average of $1.42 per pound for its coffee, well above the Fair Trade minimum of $1.26. More important, the company's own standards incentivize growers to practice sustainable agriculture. "We're in this for the long term, and we want them to be in it for the long term," he says.

On managing a growth company: "The pace of this organization is mind-boggling," Donald says. Sbux opens five to seven stores a day, hire 300 to 400 people a day, is growing fast in China, opening soon in Russia, looking at the potential for retail stores in Africa and India as well. (Donald is among the U.S. CEOs who have traveled to Rwanda, as I've written.) Sbux has about 16,000 outlets today and plans to get to 40,000, about half outside the U.S. At one point, Donald advised job-hunting MBAs to look for work in growing, global companies where the opportunities are greatest.

I was impressed with Donald. But it's got to be hard, if not scary, to try to grow a company that fast (which is what Wall Street wants) while preserving its culture and values. Its size, for one thing, has made Sbux a target, fairly or unfairly. (Try Googling "I Hate Starbucks.") Size also can lead to inconsistencies in operations, as Donald admits. "I ask for, every day, a list of complaint letters," he says. "Some days it's depressing." He said the company needs to do better. "We have a mandate here about growing big while staying small," he says.

The other interesting question about Starbucks is the degree to which its business model depends on selling a premium product -- not to mention an addictive product-at premium prices. Because that's what allows Sbux to treat its workers and coffee growers better, I don't mind paying $3.38, as I just did, for my coffee and cookies. (I view it as a real estate deal; they are leasing me a chair and table for an hour, not to mention freedom from the phone and email.) But it makes me wonder whether its admirable approach to business can be spread more widely. Maybe someday Donald will return to the supermarket business, and we'll find out.

This article was originally posted here