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September 21, 2023
Was Howard Schultz a ‘Distraction’ for Starbucks’ Board?
Howard Schultz, who built Starbucks’ coffee empire, stepped down from the company’s board of directors last week. Insiders told the New York Post that the longtime CEO had become a “distraction” for the business.
“The business has changed a ton since Howard’s heyday,” one source said. “It doesn’t make sense for him to be part of it anymore.”
Schultz, who bought Starbucks in 1987 for $3.8 million, is credited with transforming Starbucks from a regional coffee and equipment seller to a global coffee chain, with more than 37,000 stores in 86 markets. He was CEO from 1987 to 2000 and then again from 2008 to 2018, before his recent stint as interim CEO. Now that he is officially retired, the company honored him with the title of “lifelong chairman emeritus.”
The Wall Street Journal wrote in a 2016 profile, “Schultz changed the way Americans drink coffee and even socialize, creating what he called a ‘third place’ where people could gather outside home and work. Starbucks showed Americans that coffee could be more ambitious than home-brewed Folgers.”
However, the outspoken Schultz returned as interim CEO in April 2022 after baristas in Buffalo formed the first unionized Starbucks location, and he quickly became the face of Starbucks’ anti-union stance.
Taking on a more aggressive stance than predecessor Kevin Johnson, Schultz charged that unions only cause division. This past March, he appeared before a U.S. Senate committee in a widely followed, contentious session. Senator Bernie Sanders stated that Starbucks was engaged in the “most aggressive and illegal union busting campaign in the modern history of our country.”
By early June, Starbucks had lost 16 of 17 cases decided by National Labor Relations Board administrative law judges involving worker intimidation, discriminatory rules, and unlawful discipline and termination of union organizers, according to Bloomberg Law. Less than 4% of Starbucks’ U.S. locations have unionized.
During his third stint that ended this past April, Schultz also introduced a $450 million “reinvention plan” running through 2025 that includes equipment upgrades, enhanced training, and employment benefits, along with adding another 2,000 U.S. locations.
The plan appeared to show progress, with North American operations delivering 7% same-store sales growth in the third quarter that ended June 30, leading to the highest average weekly sales in history.
However, the “third place” experience Schultz envisioned has become somewhat antiquated as over two-thirds of Starbucks sales are now made through drive-thrus, mobile orders, and delivery. The java giant plans to devote 90% of new store growth to units with drive-throughs.
A continued digital-first emphasis will be spearheaded by Laxman Narasimhan, its new CEO, although he has continued to highlight the importance of “human connections.” Narasimhan said on a recent quarterly call, “We will measure our success on our business performance through the lens of humanity, just as we always have.”
Discussion Questions
Do you see unionization fights, the digital shift, or another factor being the primary reason Howard Schultz stepped down from Starbucks’ board? What do you make of his legacy?
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Shelley E. Kohan
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Howard Schultz is an enormously talented individual and turning Starbucks into an internationally recognized name is his legacy. It was right for him to return to the company to see it through various problems and leadership transitions, following the departure of Kevin Johnson. However, Starbucks now has a new CEO in Laxman Narasimhan and it has new sets of opportunities and challenges. It is right for Schultz to take a step back and allow a new generation of leaders to take the reins. That said, as a large shareholder and as chairman emeritus, I suspect he will remain on hand to advise and provide his views. And never say never to a future return … if he feels the circumstances warrant it, Schultz will step once more unto the breach.
I’ve got mixed emotions about this. At the end of the day, Schultz changed the way the world thinks about coffee. Now, with the somewhat insane reach and scale of the Starbucks brand, he has become “in the way.”
Now, the dirty little secret is that for many of us, Starbucks coffee isn’t all that. It has been called “Charbucks” for years because the regular coffee is just too bitter. Attempts to create a “blond version” weren’t terribly successful.
I think Starbucks has to decide how big is “too big” and none of that has anything to do with Howard Schultz. You know, workers don’t unionize for the fun of it. They unionize because working conditions are unacceptable. So the NY Post (really?) reporting may be sort of accurate but doesn’t get near the root cause. The root cause will continue.
My personal opinion is it has returned to the commodity that coffee always was. Re-retiring Schultz doesn’t change that. And Starbucks may be bigger, but I’ll stick to Dunkin. Tastes better.
I think it has more to do with the way Americans live. Outside of cities, it has more to do with the fact that people drive to pick up their coffee at Starbucks and mostly through the drive up window. Howard Schultz’s original idea was not so original except that he took the coffee culture of how Italians socialize around their coffee habit and mad it somewhat American. It will be unfortunate if they end up closing most of the stores in favor of drive ups. With social media making us become less of a face-to-face society, it is yet another factor to the way we interact on a human level with each other.
To be fair, nobody is talking about shutting down in-person locations – they are as crowded as they used to be in the Before Times & there is only more need for “third spaces” as the workday environment has permanently changed. Digital and drive-through are important for growth, and not every location will look the same going forward.
Scaling and massive growth require different leadership skills, especially for brands that have an international presence. At the core of every great brand are the employees that ultimately deliver the brand promise. Happy employees=happy customers. You can renovate stores, add new products, and upgrade equipment but at the end of the day, it is the human connections that bring it home. Laxman Narasimhan is a global leader who fosters an environment focused on the humanities side of the business. Customers today care how companies treat their workers and Narasimhan will bring a different view to the business with his culturally diverse experience. Schultz’s legacy can never be replaced and he continues to be a strong voice of influence, however, Narasimhan will elevate the brand to service the next-gen workers and customers.
Howard Schultz helped revolutionize the way people consume coffee – that’s his legacy. However, his third stint back as CEO has not been the capstone that he may have imagined. His strong anti-unionization stance, which was on display at a Senate labor committee hearing last March, made him appear too hard edged and uncaring. And their anti-unionization legal battles were substantial failures. Despite the challenges Starbucks is facing, it remains a remarkably successful enterprise, and I expect that it will continue for years to come.
I suspect that Schultz knew his most recent stint had to be his last — that the new executives must sort out a way forward without him involved at all. That’s the only way Starbucks survives going forward.
unfortunately, barista dissatisfaction is likely to continue because traditional management training leads executives to do exactly the things which have led Starbucks away from its previously superb relationship with baristas. These new executives need to undo a great deal which has been done to damage how Starbucks is run. The reports of dissatisfaction clearly point to a problem with invasive corporate micromanagement in their stores.
Our country has such stark income inequality that union-building is practically a necessity. It was unseemly for someone as fabulously wealthy as Mr. Schultz to oppose workers’ search for a living wage.
Howard Schultz deserves accolades for the coffee empire he built at Starbucks. But times change. The transition to digital sales and the massive growth in drive-through sales reflect different times and different needs for senior leadership. While Mr. Shultz is still very relevant and certainly has much more to contribute to Starbucks soon, the time is right for new leadership. It’s often hard for senior leaders who have invested their all to create and execute a vision, to know when it’s the right time to step away and turn the reigns of their “baby” over to someone else. This feels like the time for Mr. Schultz. And, if it’s not, or if the company feels they need his advice or insight, he’s not very far away.
You can’t forget who brought you to the dance. Howard Schultz is brilliant. He took Starbucks to where it is today. Any and every business needs to adapt. Mr. Schultz knows that, and has embraced it. Stepping down from the board was not an easy decision for anyone to make, whether it was Mr. Schultz’s decision or others on the board. The board may not be in alignment with the anti-union decisions, but that doesn’t mean you can’t celebrate Mr. Schultz’s contributions and take advantage of the way he thinks in other ways. And he could be back – he’s already done that!
I am a big fan of Howard, incredibly talented, but he came and went too many times. I think the labor issues that he couldn’t calm down were basically the last straw for him this time around.
We will see if crisis erupts and he returns again…
I am sure Mr. Schultz’s animosity toward the minor union movement (just over 1% of the stores in the U.S. voted to be unionized) for Starbucks has to do with his original desire to have a special company with a special relationship with employees. Starbucks has led the way for benefits for less than full-time workers, including health insurance, college tuition, and stock participation. It is like you just bought your kid a fantastic present, and the kid wasn’t grateful. And, maybe spitefully, SBX has increased some financial benefits only for workers in non-union stores.
As far as Schultz being a distraction…I could not think of a poorer source than the New York Post. They got the quote they wanted and ran with it.
Schultz is in some ways was a “larger than life” figure. There are always tensions at board levels of big companies (unless you have a complacent board) and maybe the feeling was simply that it was time. In fighting the unionization efforts, he stood for shareholder value. Shareholder value are not two words that would be printed anywhere near Senator Bernie Sanders.
Regarding Starbucks as “the third place” it is a rare sight when I walk in to pick up my mobile order and the majority of the chairs are not taken. Not sure why that initiative is possibly seen as a negative. The main challenge I see with their “hang out” reputation is I see a fair number of homeless people in there. And to go into a Starbucks bathroom and see Syringe dispensers in many of them leads me to believe perhaps it got too inviting!
Maybe this is why you need a passcode to get into some of the bathrooms now…
I don’t think either of these things had much to do with his leaving (if, in fact, he’s actually left…haven’t we heard this before ??) Even Henry Ford learned that an iconic founder may have a “best by” date. When does that point come?? It’s impossible to say exactly, but if a person attracts more attention than the company itself, it’s a warning sign.