We wrote yesterday about the Starbucks CEO search, based in part on an interview Interim CEO Howard Schultz did with the Wall Street Journal. Yet we frankly remain perplexed by the whole thing.
Let’s take a look at why:
Kevin Johnson said in March that he was retiring, after having told the board a year earlier that he would leave once the pandemic was largely over, even though a potential successor was allowed to leave for Walgreen’s in Roz Brewer. And Johnson was replaced on an interim basis by his predecessor, Howard Schultz. In other words, one year after apparently saying he’d retire, Johnson was replaced by the former CEO parachuting in to be an interim.
Starbucks hardly seemed like a chain in need of a parachuting interim. Revenues and profits had recovered from the pandemic and then some. The company’s same-store sales were strong and Schultz himself boasted about the level of “demand” there was for the chain’s beverages. That said, the stock was down 30% year-to-date when Johnson left, which was not all that unusual given the bear stock market but did not quite equal other big companies like McDonald’s. The performance should have earned Johnson the ability to leave the job to the next permanent CEO, at the very least.
Schultz insists he is not a candidate for the permanent position. But he is taking a major role in picking the next CEO. He will then spend months training this CEO on Starbucks. And then he will remain on the board. He was not on the board before becoming interim CEO.
During his interview with the Wall Street Journal, Schultz admitted that he asked to attend a board meeting after saying he didn’t like what he was seeing in the chain’s locations and didn’t like what he was hearing from some within the company. So, Schultz has apparently been making noise for two years.
Starbucks asked three executives at the company to leave to “make room for new blood,” according to the Journal.
Add it all together, and we can only come to this conclusion: Schultz did not like what Starbucks was becoming and views the unionization drive (now apparently at more than 100 locations) as an outgrowth of that; he came back and is pushing major changes and will take steps to make sure they’re implemented.
Think about this for a moment: Imagine you’re a world-class CEO, or potential CEO. You see the Starbucks job as a potential gem, a highly lucrative position atop one of the country’s most recognizable and innovative brands. And yet the company’s founder is not only a major part of the business but he likely ousted the previous CEO despite a strong recovery from the pandemic. Would you take the job?
So much about this is just odd and we cannot recall another CEO switch quite like this one. The one that might come closest is the Steve Ells-Brian Niccol handoff at Chipotle, where Ells remained chairman as Niccol took over. But Ells had been damaged by the 2016 food safety crisis and its poor recovery and Niccol had a big backer in the investor Bill Ackman.
Howard Schultz is technically not the founder of Starbucks, though he built it into the massive international business it is today. He can be excused for an emotional connection to the brand he built. He is hardly the first one to make noise about problems at his former brand, but we can’t recall one actually succeeding without having an ownership stake much larger than Schultz’s 1.89%. He didn’t even have a board seat.
Schultz isn’t necessarily wrong about what ails Starbucks and his first earnings call in early May was impressive. There are clearly some problems associated with the way the brand operates today, so much that it’s driving its employees to approve unionization at a surprisingly brisk pace. The company will need to learn to deal with a large number of customized drink orders coming from several new ordering channels more effectively than it has. Operations are an underappreciated element of the restaurant industry, but they are vital for long-term success.
At the same time, it’s dangerous to allow a founder, one who allegedly left, to come back after he senses a problem. It’s equally dangerous to let that founder steer the hiring, training and changeover to a new CEO and then watch over them as a director. The next person will not have the level of control that a chief executive is going to want or need.
Maybe Starbucks gets a good chief executive who learns from Schultz, operates well under his tutelage and steers the company into a new age enough that Schultz feels free to head off into retirement. And we’d certainly expect the company to attract its fair share of talent—it’s a high-paying, high-profile gig, after all.
But we also wish that person good luck. You’re going to need it.