Podcast Summary
Starbucks CEO departure: Unexpected changes, including CEO departure, can occur when a company faces customer complaints, falling earnings, and shareholder agitation.
The pressure to perform, whether behind the counter at Starbucks or in the corporate world, can lead to unexpected changes. Starbucks, once a successful company, faced customer complaints, falling earnings, and shareholder agitation, resulting in the sudden departure of its CEO. Lauren Thomas, our colleague who once worked at Starbucks, can relate to the pressure of keeping up with the demands of the job. She shares her experience of working at a Starbucks in North Carolina and how she learned the importance of efficiency in the fast-paced environment. Starbucks' performance this year was described as "copy, underwhelming, and flat," reflecting the unrest that was brewing within the company. The sudden departure of the CEO was a shock to many, but sometimes, major changes are necessary to revitalize a struggling business.
Starbucks new CEO: New CEO Laxman Narasimhan, with experience in leading global consumer product companies, was chosen for his ability to navigate change and turnaround large-scale businesses. He aims to reduce wait times, regain market share in China, and innovate drinks.
Howard Schultz, the former CEO of Starbucks who expanded it into a global chain, passed the baton to Laxman Narasimhan in March 2023. Narasimhan, who lacked experience in the food industry but had a background in leading global consumer product companies, was chosen for his ability to navigate change and turnaround large-scale businesses. As CEO, Narasimhan presented an ambitious plan to reduce wait times, regain market share in China, and innovate drinks. Investors were excited about the new leadership, and Schultz remained involved, acting as a mentor and advisor.
Starbucks CEO conflict: Despite close relationship with board, poor performance and public criticism led to a public rift between Howard Schultz and current CEO Laxman, marked by a significant drop in sales, traffic, and loyalty program membership, and criticism of Laxman's handling of media scrutiny.
The close relationship between Howard Schultz and the Starbucks board, particularly Melody Hobson, did not prevent poor performance and public criticism from leading to a public rift between Schultz and the current CEO, Laxman. The poor earnings report from Starbucks, which was the worst in the S&P 500, marked a significant drop in sales, traffic, and active membership in their loyalty program. Laxman's handling of the subsequent media scrutiny was criticized, and when Schultz publicly expressed his concerns on LinkedIn, the tension between the two became apparent. This public display of criticism marked a significant shift in the dynamic between the former and current CEOs.
Activist investors and underperforming companies: Activist investors, like Elliot Management, can pressure underperforming companies for improvements, potentially leading to board changes or even a sale, while the risk of a proxy fight brings significant costs, distraction, and uncertainty.
When a company underperforms, there's a need for contrition and renewed focus on the core business. The arrival of an activist investor, like Elliot Management, with a large stake can create tension and potential changes. Activist investors, such as Elliot, aim to push for improvements and may seek board seats or even a sale of the company. The risk of a proxy fight, an election-like process, is a significant concern due to the costs, distraction, and uncertainty it brings. Therefore, companies typically try to negotiate resolutions with activist investors to avoid this outcome. In the case of Starbucks, the board was actively considering major changes in response to Elliot's presence.
CEO succession planning: During times of uncertainty, a focused and clear plan for CEO succession can help a company secure a highly regarded leader with a proven track record, even amidst pressure from activist investors.
During a time of uncertainty for Starbucks' CEO position, a small group led by board chair Melody Hobson, had a clear and specific plan to recruit Brian Nickel from Chipotle to take over. This was not a haphazard search, but a focused effort to bring in a highly regarded CEO with a proven track record of success. Additionally, Starbucks was facing pressure from multiple activist investors, making the situation even more complex and urgent for the company. The stakes were high, and the group was determined to secure their top choice, Nickel, to lead Starbucks through potential challenges.
CEO change at Starbucks: An impressive CEO pay package and perks led Brian Nickel from Chipotle to Starbucks, resulting in a significant boost to Starbucks' stock value
Starbucks made a surprise CEO switch, hiring Brian Nickel away from Chipotle with an impressive multi-million dollar pay package and perks. Nickel was seen as the ultimate solution to placate shareholders, and the move paid off with a significant boost to Starbucks' stock value on the day of the announcement. Despite his success at Chipotle, the allure of money, perks, and a new title proved irresistible for Nickel, who did not relocate to Seattle but continued to commute via the company jet. The unexpected CEO change brought about one of Starbucks' best days ever in terms of stock performance.
Activist investors impact on CEOs: Activist investors can force CEO replacements even if changes were already underway, adding pressure and uncertainty to corporate leadership.
Activist investors can significantly impact major companies and their leadership, even if those companies were already considering changes. In the case of Starbucks, the arrival of an activist investor accelerated the process of finding a new CEO, who was announced unexpectedly to the public. The former CEO, Kevin Johnson, was dealt a tough hand and made progress in certain areas, but ultimately, the pressure from the activist investor led to his replacement. The new CEO, Howard Schultz, will inherit the same challenges that Starbucks has been grappling with, and it will be interesting to see how he addresses them and brings learnings from his previous experience at Chipotle. Overall, the involvement of activist investors adds an extra layer of pressure and uncertainty to corporate leadership.
Starbucks Innovation: Starbucks, under Howard Schultz's leadership, is known for continuous innovation, shaping the company as a leader in the industry with introductions of new products and global expansion. Schultz's influence continues to shape the brand despite his reduced role in day-to-day operations.
Starbucks, under the leadership of Howard Schultz, is known for experimenting with new products and innovation. Customers can expect changes over time, which may eventually be visible to them. Schultz is content with his role as a guiding force behind the brand, even if he's no longer actively involved in day-to-day operations. The Wall Street Journal's podcast reported on Schultz's visit to Starbucks and discussed the company's history of innovation, from introducing cooler drinks to expanding globally. While Schultz may no longer be the face of the company, his influence continues to shape Starbucks as a leader in the industry. The podcast also mentioned that listeners can expect more changes from Starbucks in the future. Overall, the discussion emphasized Starbucks' commitment to innovation and the ongoing impact of its founder.