Starbucks: Mini Case Study CEO Succession

Draw your own conclusions but there are a few takeaways.

The headline didn't mince words: Starbucks CEO’s corporate jet commute spits in the face of sustainability efforts. But in the depths of the article what really caught my attention was another corporate trivia fact, Starbucks has had four CEOs in the past two years! Over the weekend I did some reading to fill in the gaps in the post-Founder CEO era of Howard Schultz.

Lesson 1: Where’s your leadership pipeline?

As would be expected, founder CEO succession should be duly considered and flawlessly executed. In 2017 the Starbucks Board certainly moved cautiously when Kevin Johnson succeeded founder Schultz. Johnson had served on the Starbucks Board of Directors since 2009 and joined the Starbucks leadership team in 2015 as President and Chief Operating Officer. Patience and diligence pays dividends. Johnson proved himself a stellar performer. Nice.

That came to a close in 2022 as Starbucks issued a press release quoting Johnson: “A year ago, I signaled to the Board that as the global pandemic neared an end, I would be considering retirement from Starbucks… we are very fortunate to have a founder who is able to step in on an interim basis, giving the Board time to further explore potential candidates and make the right long-term succession decision for the company,” The fact that a company the size of Starbucks had no real succession strategy in place and was forced to mount a “global search.” Not so nice.?

Lesson 2: Pedigree and track record are not predictive of success.

I’m not sure how fortunate any leader could have been during this time given that Starbucks was under massive duress – rising competition, declining CSAT, soaring costs, declining fortunes abroad, all leading to its stock tanking and gaining the unwanted attention of activist investors. Nonetheless, the Board managed to persuade a veteran global consumer goods executive, Laxman Narasimhan, to take on the role. The Board further redeemed itself by ensuring that Narasimhan “embarked on a unique immersion experience [and] became immersed in the reinvention plans for the company led by Schultz [since] April 4, 2022”. Narasimhan officially joined the company as incoming CEO on October 1, 2022 but was ushered out the door less than two years later.?

Lesson 3: Everything is important but what are the top three priorities?

The news that Narasimhan was stepping down on August 13, 2024 may have been news to some but perhaps not all. What’s intriguing is the lack of runway given the massive to-do list. What is apparent is that, despite all of the immersion, reinvention plans, “improved... Starbucks partner experience… significant innovation in [the] supply chain, and enhanced… store operations,” Starbucks share price teeter-tottered. So while the board extended its perfunctory thanks to Narasimhan for his contributions to Starbucks and acknowledged the “challenging headwinds,” key investors, and perilously, the founder, were impatient to see results, i.e., momentum on the stock price. The reality is that value creation tops everything, especially if you’re leading a public company. After that it’s a couple of other items. Agree on what they are.

Lesson 4: Don’t forget the lessons of the past.

The most recent CEO announcement clearly telegraphed the Board’s priorities and dispensed with any onboarding mentions. The point being driven home to investors was Brian Niccol’s transformation of Chipotle during his five-year tenure as CEO – more specifically growth and value creation. “Revenue has nearly doubled, profits have increased nearly sevenfold, and the stock price has increased by nearly 800% during his leadership.” There appear to be no qualms that Niccol “will be a transformative leader for our company, our people, and everyone we serve around the world.”? Let’s hope that in practice Niccol has an opportunity to make good use of his private jet and is given the time to learn and listen, and win the hearts and minds of partners and more importantly stakeholders. The CEO would also do well to keep major shareholders onside.

Lesson 5 Watch out for Founder Syndrome

In stark contrast to the effusive announcement above, the prior Narasimhan announcement verged on the hagiography of Schwartz, “fueled by a lasting passion to uplift humanity,” “selflessly picking up the leadership mantle.” It also made abundantly clear that Schwartz’s company-wide reinvention strategy was fully enshrined as doctrine and that as Narasimhan “ascended” into the role he would do well to “continue engaging the leadership team, sharing his early learnings and insights and assessing opportunities for the company as they chart a path forward.” Come again!?!

There is a difference between a CEO and COO. Who are you hiring? It’s a careful balance between doing too much and too little in the first year but real CEO’s take time to fine tune strategy which is not beholden to whoever came before them. Shoring up the board to counteract the undue influence of any one or any group of individuals is also prudent.

Good luck Brian Niccol!

LM2 Collective #onboarding #leadership #strategy #succession #transformationalleadership