Starbucks has named yet another CEO—this time it’s Brian Niccol, the Chipotle turnaround technician and former Taco Bell wunderkind known for his marketing savvy and menu innovations.
Unlike other orderly CEO transitions however, which often involve years of careful succession planning, this one took only two months, according to reporting from the Wall Street Journal. Niccol will be the third CEO named by the company in less than three years, taking over from Laxman Narasimhan, who has been in the job for 17 months. .
The board clearly felt it had to act fast. Under Narasimhan, Starbucks struggled with falling sales and a sinking share price, identity questions, a unionization drive, a potential doom spiral in China, and recent interest from not one but two activist investors.
But while the board is now being praised for poaching Niccol—“If there's such a thing as a messiah in the fast food world, he's it,” says Yale School of Management professor Jeffrey Sonnenfeld—it also has to now prevent yet another succession crisis, corporate governance experts say. And to do that, they say it must confront the major personality who has loomed large over leadership at the company for decades: former CEO Howard Schultz.
The Schultz factor
Schultz isn’t technically a Starbucks founder, though he has every reason to behave like one. He bought the company in 1987, turning it into the bespoke coffee behemoth we know today and winning shareholders a 21,000% return on investment between the company’s IPO in 1992 and 2018.
But Schultz has famously had trouble quitting the company. He initially stepped down as CEO in 2000, then returned to take over in 2008. He stepped down again in 2017, when the company installed Kevin Johnson as CEO, but boomeranged back for a third time as interim CEO in 2022. In the middle of all this, in 2018, the board signed off on a retirement package that made him chairman emeritus for life and allowed him the option to attend board meetings.
Such perks are a rarity in the corporate world, and there was no reason for the board to grant them to Schultz, says Charles Elson, founding director of the Weinberg Center for Corporate Governance at the University of Delaware and a retired professor.
Schultz’s retirement package made people question the board’s effectiveness, says Elson. And Schultz’s influence over the board— when he was still executive chair or after he had given up his board seat—has complicated succession planning. For instance, Schultz’s disapproval was a problem for former CEO Jim Donald, who came onboard in 2005 and saw the need for Starbucks to speed up its operations and stop trying to be the “third place” for social connection, between work and home, that Schultz envisioned, says Sonnenfeld. But Schultz disagreed and Donald was gone after less than three years on the job. Schultz’s hot takes also had a “chilling effect” on Narasimhan, who possibly needed more time to roll out his turnaround strategy, Sonnenfeld argues. For example, Schultz posted a long note on LinkedIn in May after an earnings miss, calling for “contrition and renewed focus and discipline on the core.”
Having a former chief who is always close by is a liability for many companies, whose official leadership is often unable to gain a foothold as the old guard clings to power. And that makes it difficult for new CEOs to pursue a transformative strategy. It also means good talent is sometimes pushed out the door in service to a founder’s ego, says Elson, which a board shouldn’t allow.
With Niccol, says Sonnenfeld, the board has to make sure the new CEO is given space to evolve and work his magic; the expectations for him are high, but he’s also taking over a company facing complicated problems and much larger international operations than Chipotle. “The board has to make sure that they set reasonable expectations and don't let Howard get impatient after six or eight months that it's not working,” he says.
“A CEO comes, a CEO goes, Schultz is back, then he's not back,” says Elson. “That's not the way to run a large company.” Sure, sometimes a board chooses the wrong CEO, he adds. “But if it begins to happen a number of times, that's when you have to start questioning the acumen of the board.”
The voice from outside
To be fair, it’s hard to know what the board could do to minimize Schultz’s impact.
Consider Schultz’s May LinkedIn post, or what Jason Schloetzer, an associate professor at Georgetown University’s McDonough School of Business, calls an “assault.” It wasn’t Schultz’s first comment from the sidelines, but it was particularly pointed, and came at a vulnerable time.
“[T]he company’s fix needs to begin at home: U.S. operations are the primary reason for the company’s fall from grace,” Schultz wrote. “The stores require a maniacal focus on the customer experience, through the eyes of a merchant.”
Such behavior doesn’t only impede management’s work. It also makes attracting future executives difficult, and points to a board that has lost control, says Schloetzer.
Sonnenfeld suggests an unorthodox fix: Invite Schultz to rejoin the board. “It's actually a really strong board, with incredible representation, but the largest shareholder is not on the board, and maybe he ought to just be there,” he says. If Schultz became a director again, he adds, he would be duty-bound not to openly undermine leadership.
Even now, when Schultz is without an official leadership role or board seat, the board seems to still be consulting with him. Starbucks’s outgoing chair Mellody Hobson reportedly spoke with Schultz before the decision to name Niccol as CEO, though only a week before the final call was made. She said he described the decision as a “home run.”
For her part, governance expert Nell Minow, vice chair of ValueEdge Advisors, says she’s giving the Starbucks board a B+ for its recent work. “The best thing you can say about Starbucks is that they acted very quickly,” she says.
In her mind, the most encouraging news about Niccol is that he has a good record of dealing with employees. Worker unrest has been “a real drag on the stock for Starbucks for a while,” says Minow.
“Clearly they failed on the CEO succession. Clearly, they recognized it promptly,” she says of the Starbucks board. But Minow is holding back any additional praise until the company shares details about Narasimhan’s exit deal. Sometimes boards are overly generous in these scenarios out of a sense of obligation or a fear of offending a CEO they’ve replaced. “Before I decide how I feel about it, I'm going to wait and see what the departure package looks like.”
