Five years ago, during an emotional annual shareholder meeting, Howard Schultz handed incoming Starbucks CEO Kevin Johnson a key to the company's original Pike Place Market store he said he’d kept “in my pocket for 35 years,” symbolically marking the second time Schultz had stepped down and handed over the keys to the company.
Now—at least temporarily—he’s getting them back.
Early Wednesday, just hours before Starbucks’ 2022 annual shareholder meeting, the company announced Johnson would retire April 4, staying on as an employee and “special consultant” until September. Howard Schultz, who retired from the board in 2018, will return as CEO—on an interim basis—for a third time.
The move was cheered by investors, who sent the stock price, which had roughly doubled under Johnson’s tenure but fallen over the past year, up more than 5% by Wednesday’s close. But it left some governance experts scratching their heads about the call to give Schultz, No. 212 on Forbes’ Billionaires list, a temporary three-peat turn in the job.
Returning “twice is quite unusual,” says Charles Elson, founding director of a corporate governance center at the University of Delaware. “Cats have nine lives. CEOs don’t.”
Trying to read between the lines of CEO departure statements is a longstanding parlor game for investors, journalists and academics who study succession, and this time is no different. But some suggested it raised more questions than usual, pointing to the company’s announcement that Johnson first “signaled” his interest in retiring a year ago.
“If he signaled a year ago he was going to do this,” says Jeffrey Sonnenfeld, a senior associate dean at Yale University’s business school and founder of the Chief Executive Leadership Institute, “why didn’t the board have a year’s time [to do something] other than bring somebody back from retirement?” Sonnenfeld noted that Johnson had been recently scheduled to present an award at one of his institute’s events on Monday.
Schultz, who took over Starbucks’ stores in the 1980s and built them into a global coffee powerhouse, is not just “somebody,” of course. The outspoken, heart-on-his-sleeve CEO oversaw a more than 500% rise in Starbucks’ stock between 2008 and 2017 and a major global expansion of the brand. While explaining the decision in a CNBC interview Wednesday, independent board chair Mellody Hobson called him a “MVP,” saying the board asked Schultz to help them and noting he is “the perfect culture carrier” for the transition.
She said the move was not a surprise to the board, and that Johnson told them over a year ago the pandemic’s “waning days” might be a good time for him to retire. “That time has come, the day is now here and the board wants to respect that decision,” she told CNBC, saying the company had engaged a search firm and that amid a pandemic, “we’re not going to hire a CEO over Zoom. … We’ve been very deliberate, thoughtful and considered all of our options in this process.”
As interim CEO, Schultz will be paid $1 and employee benefits, but receive no other compensation, the company said in a filing. (The company pointed to the press release and executive statements in response to questions.)
Still, corporate governance experts say the move includes some potential succession pitfalls. Bringing back a CEO a second time—or a third—can impact future CEO recruitment, says Jason Schloetzer, a professor at Georgetown University’s business school who studies CEO succession.
“When you have a culture among the management team where the founder is still around and still actually pretty heavily involved, it can be difficult to recruit somebody who wants to do their own thing,” he says.
Meanwhile, CEOs who return to a job—especially those as successful as Schultz was in his second tour of duty—may try to do things that brought them success before, even as employees’ mindsets and public expectations may have changed.
Such CEOs can “essentially operate in a repeat methodology,” says Steve Mader, a strategic partner with executive search firm ON Partners who formerly ran the board practice for Korn Ferry. “But things change. [The] solutions five years ago are not necessarily good solutions now.”
One challenge that won’t be new for Schultz—but has taken on new life—is the broadening unionization effort at Starbucks. On Tuesday, the National Labor Relations Board issued a complaint against the company; union organizers responded to Schultz’s appointment by calling on him to “embrace Starbucks’ unionized future.” Also on Tuesday, a group of shareholders sent a letter to the company asking it to commit to neutrality in its response to organizers. (In a statement, Starbucks said it “will continue enforcing our policies consistently for all partners and we will follow the NLRB's process to resolve this complaint.” An email about the shareholder letter was not immediately returned.)
Schultz has not exactly cheered on unions in the past, saying in his memoir that he was convinced if employees “had faith in me and my motives, they wouldn’t need a union." When considering a run for president in 2019, he said on MSNBC that “unions have a role to play. But unions are not the answer.” And late last year, following a visit to Buffalo, N.Y. in advance of unionizing votes there, Schultz wrote that “no partner has ever needed to have a representative seek to obtain things we all have as partners at Starbucks.” (The company calls its employees “partners.”)
According to a CNBC transcript, Hobson mentioned the role Schultz could play with employees. “We want a constructive relationship,” she said of the union. “And Howard, of course will be about that. But really, when you think about again why we’re leaning on Howard in this moment, it’s that connection … where we think he is singularly capable of engaging with our people in a way that I think will make a difference.”
How much impact Schultz can make by the fall, when the company says they expect to name a permanent CEO, is unclear. Governance experts say putting an interim in place can also raise questions from managers and outsiders about long-term strategy.
It's possible the company already has a candidate in mind, says Timothy Quigley, who studies CEO succession at the University of Georgia’s business school, and couldn’t get them to move quickly enough to fit Johnson’s timing or announce the change before Wednesday’s shareholder meeting. Hobson’s comment on CNBC to “trust me” that Schultz will only stay until the fall—“full stop”—could suggest that, he says.
Still, Quigley says, “the more I’ve looked at it … it just doesn’t seem like an ordinary succession.”
