In recent weeks, the media in the US and Asia has seized upon a case of citizen journalism onboard a full United Airlines flight where a paid passenger was forcibly snatched from his seat. Looking past the emotive details (he was a doctor, father of five, of Asian ethnicity and left bloodied from the struggle) and the self-serving reason behind the fiasco (to make room for other “must-fly” United employees), the fundamental issue is arguably one of company culture.

United’s staff were following procedures, but had no regard for its customer’s experience. It is clear the crew did not feel comfortable breaking from protocol, nor did they feel empowered by management to do the right thing in the given circumstances. United did not have a well engrained guiding principle on how to make difficult decisions when things get messy; it lacked a client-centric culture.

There is no better illustration of this point than the about-face by CEO Oscar Munoz, who initially commended the crew in an internal email for following procedures. But Munoz caved in as the public outcry grew. News of the incident had spread like wild fire on social media, reaching hundreds of millions the world over. In a subsequent apologetic press release Munoz was quoted as saying: “Our values – not just systems – will guide everything we do”.

This is a sound ethos, but how does a company nurture such attitude?

At around the same time another US company was also making a public statement. Starbucks, which sees China as its second home market, committed to offer critical illness insurance to the 10,000 elderly parents of its China-based staff. The firm believes it is setting a precedent for listed companies in the country by addressing one of the most deep-rooted, but often unspoken concerns. That is, how to support elderly parents if one of them becomes seriously sick or injured – a problem exacerbated by the infamous one-child policy.

We attended the recent Starbucks AGM in Seattle. It was evident that the company’s leaders understand how the 60 million weekly customer interactions impacts on the success of the business. While exceeding customer expectation is the ultimate goal, it sees looking after its employees (which the company refers to as ‘partners’) as key, presumably because happy staff leads to happy customers.

What does this mean for investing? Can Starbucks continue to charge premium prices for mediocre coffee (certainly by NZ standards), just because it is that kind of company? Will people stop flying United? History has shown (see chart below) that Starbucks has significantly outperformed its consumer discretionary sector over time. It appears the advantage that comes from a strong client-centric culture is relevant for long term investors. United, and airlines in general, have done well recently on a better economy. Travellers simply can’t jettison the carrier completely as it has a near monopoly in certain US hubs. But given two otherwise comparable options of United and another airline, I know which I will go for.

Felix Fok

Portfolio Manager

Disclosure of interest: Milford Funds Ltd. holds shares in Starbucks on behalf of clients.

Disclaimer: This is intended to provide general information only. It does not take into account your investment needs or personal circumstances and so is not intended to be viewed as investment or financial advice. Should you require financial advice you should always speak to an Authorised Financial Adviser.