Shinsegae Group on the 26th issued a public apology over the controversy surrounding Starbucks Korea's May 18 Gwangju Democratization Movement commemoration "Tank Day" marketing and released the findings of its fact-finding probe. It explained the planning and approval process for the controversial marketing, whether there was intent, issues in the internal approval system, and whether there was communication with Starbucks headquarters in the United States. It added, "We will develop programs so the entire group can have a proper sense of history."
Shinsegae Group held a press briefing at the Chosun Palace hotel in Gangnam-gu, Seoul, that day and announced the results of its internal fact-finding into the Starbucks Korea "May 18 Tank Day" marketing controversy and the direction of follow-up measures. The probe was conducted over the past week.
Four group officials attended the briefing: Executive Vice President Jeon Sang-jin, Executive Vice President Kim Su-wan, Managing Director Lee Gyu-bong, and Senior Managing Director Yang Jong-hwan, head of the audit team.
They explained questions and issues raised so far, including whether employees colluded in advance, whether the "Tank Day" naming targeted May 18, why three key employees refused to submit their phones, poor verification in the internal approval process, links to marketing on Apr. 16, known as the date of the Sewol ferry disaster, prepaid card refund issues, and the reaction of Starbucks headquarters in the United States. The following is a Q&A.
-What specifically did you investigate over the past week?
(Yang Jong-hwan, audit team head) "The subjects were 15 in total: five executives, five working-level staff involved in the task, and five along the approval and concurrence line. We conducted forensics on work tools used inside the company, including internal email, work laptops, and internal messengers. Through this, we digitally checked whether there had been prior collusion and whether there was evidence to support it. We then directly interviewed more than 10 people to cross-check the consistency and credibility of their statements."
-Groups related to May 18 and Gwangju citizens suffered deep hurt from this incident. Is Chairman Chung Yong-jin willing to go to Gwangju in person to apologize?
(Jeon Sang-jin, head of operations) "We may consider visiting at an appropriate time going forward. However, we determined that clarifying the facts should come first. We conducted the probe according to internal procedures, and there are parts we have yet to reveal. When the time is right, I believe the group can make a public statement of intent, including an on-site visit to Gwangju."
-What did Chairman Chung Yong-jin mean in the public apology by saying "All responsibility lies with me"?
(Jeon Sang-jin, head of operations) "Events by the Starbucks Korea e-commerce team are finalized by the decision of the affiliate's CEO. Still, Chairman Chung Yong-jin saying he would take full responsibility means that, as group chairman, he has no intention of avoiding responsibility for this incident. Regardless of the probe results, he will be responsible until the situation is fully concluded and personally oversee recurrence-prevention measures and raising the historical awareness level of all group employees. Understand it to mean he will take responsibility for everything, including the results of the police investigation."
-You said three people who proposed the "Tank Day" naming refused to submit their phones. Why? And can you not determine whether there was intent behind this marketing?
(Yang Jong-hwan, audit team head) "A total of five employees planned the event. Of these, two expressed a desire to prove they were not involved in this incident and submitted their phones. The other three refused, citing privacy. The company sought to cross-check, via forensics on all five phones, whether there had been prior collusion or planning in private conversations, but we were only able to conduct forensics on two. Because of this, there were limits to fully determining overall prior intent."
(Lee Gyu-bong, head of management support) "There was a chat room on the internal messenger in which the five employees exchanged messages. Analysis of the chat showed they appeared flustered after the incident, allowing for the inference that this may not have been premeditated. However, we cannot be definitive because we have not yet confirmed the private conversation areas accessible via phone forensics."
-It has also become an issue that two years ago Starbucks released a "Siren Mug" on Apr. 16, the day marking 10 years since the Sewol ferry disaster. Did you investigate that matter as well?
(Yang Jong-hwan, audit team head) The siren is Starbucks' corporate CI. More than 500 products carry the siren logo. As individual product events are planned for individual dates, some were set for Apr. 16. We need to look further into the details. For reference, there were siren-related events on Apr. 16 in 2010 and 2013 as well.
-There is criticism that such incidents occur unusually often at Starbucks. How do you assess the organizational culture?
(Kim Su-wan, head of external relations) "We reviewed what events took place on Apr. 16 and May 18 over the past 10 years. Starbucks events usually run on a two-week cycle, and promotions occur weekly, so it appears the significance of specific dates was not given much consideration. We believe this incident calls for deeper thought about historical awareness.
Among the marketing staff, two are in their early 20s and three are in their late 30s. It seems their sense of history in some respects diverges from what the company or society feels. After the incident, their conversations also included remarks that failed to properly recognize the seriousness of the matter. We are considering how to create a historical awareness program that can encompass people from their 20s to their 60s. We will develop programs so the entire group can have a proper sense of history."
-There is criticism that to get a refund of Starbucks prepaid card balances, customers must have used at least 60%. Do you have plans to improve this?
(Jeon Sang-jin, head of operations) "We understand there are strong demands for refunds and membership withdrawals after this incident. We are working to improve the system in the direction customers want. However, for prepaid gift certificates, there is a rule under the Korea Fair Trade Commission's standard terms for new types of gift certificates that a certain portion must be used to receive a refund. We are consulting with the relevant ministries on this. Adjustments to on-site refund systems are also necessary. We are reviewing swift action and will provide an update in a future announcement."
-What issues were there in the internal approval process related to this incident?
(Jeon Sang-jin, head of operations) "Event planning goes through four stages before approval reaches the CEO. Normally, departments such as CSR, which handles corporate social responsibility, and legal can be included in the review process, but this time those parts were excluded.
The e-commerce team runs many events on a weekly basis. In the marketing process, the focus on sales appears to have prevented sufficient consideration of the meanings attached to dates and expressions.
It was also confirmed that those involved routinely approved electronic approvals as a matter of habit. We are discussing how to improve this systemically."
-Is there no separate measure for the CSR team?
(Jeon Sang-jin, head of operations) "We believe further investigation is needed. We are also preparing measures to improve the process. We will make a separate announcement once it is finalized."
-Some say this is "cutting off the tail," shifting blame onto a few employees. What is the group's position?
(Kim Su-wan, head of external relations) "On the evening the incident occurred, we dismissed CEO Son Jeong-hyun, the top responsible official, and the executive in charge of the e-commerce team. Recognizing the gravity of the matter, we took the necessary steps. We are preparing to hold those responsible to account based on the probe results."
-The marketing controversy is spilling into partisan political strife. Some are interpreting it in connection with Chairman Chung Yong-jin's past remarks. What is the group's position?
(Kim Su-wan, head of external relations) "We reiterate that the chairman's past remarks are unrelated to this inappropriate Starbucks promotion."
-Was there any feedback from Starbucks U.S. headquarters regarding this incident?
(Jeon Sang-jin, head of operations) "Global headquarters also recognizes the seriousness of this incident. Starbucks operates in many countries, and its brand value stems from respecting the sentiments and cultures of each region. The matter is being widely reported by local media as well. From right after the incident, we have shared everything about personnel actions and the status of the probe. Today's briefing was also conducted in coordination with headquarters."
-Was there any separate communication with the government?
(Jeon Sang-jin, head of operations) "We have not communicated separately with the government since the incident occurred. We are learning through news coverage and the president's messages. Regardless, this marketing should never have happened, and we believe the company must take responsibility."
-Is there a possibility of an investigation or call option exercise by U.S. headquarters?
(Jeon Sang-jin, head of operations) "We are closely sharing progress on this incident with U.S. headquarters. U.S. headquarters also regards the matter as serious. We plan to consult with U.S. headquarters on internal risk management, internal control processes, and procedural improvements. My understanding is that we will hold an official consultation with U.S. headquarters within a few days.
Regarding whether a call option will be exercised, there is nothing we can say at this time. It is true that the contract specifies a call option can be exercised in the event of nonperformance due to attributable cause. However, our assessment is that this incident does not fall under that at present. U.S. headquarters has not raised an issue or discussed this yet."
-How much has the incident affected Starbucks Korea's sales?
(Jeon Sang-jin, head of operations) "There is a very large decline in sales. However, more than that, we believe healing for everyone who suffered emotional harm from this incident must come first."