Opinion
Howard Schultz should give Starbucks' CEO the time and space he needs to deliver
Summary
- The founder has a record of criticizing new leaders of Starbucks. The shadow he casts has made the coffee chain difficult to run. Time for him to let go.
Like legions of disgruntled former employees who preceded him, Howard Schultz took to LinkedIn last week to complain about what had gone wrong at his old company. Without naming names, the former Starbucks CEO—who all but founded the coffee chain—slagged his successor, writing that after such a significant quarterly earnings miss, “there must be contrition" and that the company should “own the shortcoming without the slightest semblance of an excuse."
Schultz has a point. The quarter was a disaster: Sales fell for the first time since 2020 and earnings came in well below expectations, with William Blair analyst Sharon Zackfia calling the results a “stunning across-the-board miss on all key metrics." The company’s earnings call did not leave investors with a lot of confidence that it had the situation under control; shares plummeted as much as 16% the day after the company reported, the most since the early days of the pandemic.
But if Schultz really wants to see Starbucks turn around, the best thing for him to do at this point is butt out. The LinkedIn post was just the latest example in Schultz’s long history of meddling and backseat CEO-ing—tendencies that may very well have kept Starbucks from finding a stronger candidate to replace him.
Any advice Schultz has to offer should come alongside a bit of that contrition he’s talking about. He conveniently omitted an important piece of context in his LinkedIn post—that he has only been off the Starbucks board since September and out of the CEO chair for just more than a year. It really is not possible for things to have gone this far sideways so quickly.
Some of the company’s problems began on Schultz’s watch, chief among them setting expectations too high on his way out the door. Between the time Starbucks announced Laxman Narasimhan as the next CEO and when he started the job, Schultz introduced an aggressive growth plan during the company’s biennial investor day. Since then, Narasimhan has had to lower guidance several times.
Even if Schultz does think the new regime is fully at fault, he has only himself to blame for bringing Narasimhan on as his hand-picked successor. In an unusual arrangement, Narasimhan joined Starbucks as ‘incoming CEO’ in the fall of 2022 and was supposed to work closely alongside Schultz until he fully took over in March 2023.
The move was meant to give Narasimhan, who was previously the CEO of British consumer goods company Reckitt, more retail experience. It is highly possible that Narasimhan, a relative unknown in the US market, was not the board’s first choice to replace Schultz.
Running Starbucks looks great on paper, but a CEO or rising star at another company may have said no to the job because it’s not particularly fun or easy to step into the shoes of an iconic leader like Schultz. A 2019 study from PricewaterhouseCoopers found that executives who followed longstanding CEOs had annualized total shareholder returns that were four percentage points lower than their predecessors. And the longer the predecessor was CEO, the worse the replacement performed. The successors were also much more likely to be ousted.
Schultz has made the job look even less desirable, twice boomeranging back into the CEO spot to displace the company’s latest leader. He returned to Starbucks for the first time in 2008, replacing Jim Donald, and the second time in 2022, replacing Kevin Johnson. His returns have sent a message to CEO candidates that when times get tough, the board’s knee-jerk reaction is to bring back Schultz. One research firm has already said that it expects Schultz to be back as Starbucks CEO during the 2025 fiscal year.
Schultz has a history of undermining new leaders. He famously wrote in a Valentine’s Day memo leaked while Donald was running the show that the company’s stores “no longer have the soul of the past." And once he replaced Johnson, he had no problem throwing him under the bus. Schultz took employees’ attempts at unionization as a personal affront and cited it as one of the biggest reasons he returned as CEO yet again, saying that organizers showed up because the company “lost its way." We can also assume that Schultz’s relationship with Narasimhan and the board has soured—otherwise he would have privately shared his advice rather than posting it publicly.
With a financial quarter like the one he just had, Narasimhan could soon become a statistic: yet another ousted successor who followed a longtime CEO.
If that happens and Schultz wants a strong replacement who can turn things around, the best thing he can do is delete his LinkedIn account. ©bloomberg
