Why Schultz Might Not be Right for Starbucks

Jack Flack is underwhelmed by Joe Nocera’s column on Saturday, in which the veteran NYT columnist has a bearish take on Starbucks. I’m more impressed, partly because it came out on the same day as a similar column from equally-veteran WSJ columnist Herb Greenberg.

Greenberg took an empirical approach to judging the prodigal return of ex-CEOs, looking at a paper by Rudi Fahlenbrach, an assistant finance professor at Ohio State University, which concludes that "the stocks of companies run by CEOs on a second tour of duty outperform the market by 6% annually during their comebacks". He then quotes Yale School of Management professor Jeffrey Sonnenfeld:

Mr. Sonnenfeld says those who succeed in coming back have three qualities. The first is they came back with great reluctance; they weren’t trying to undermine their successor. Second is they aren’t coming back for some unmet ego need. Many had better things to do with their time, and came back "because they were being drafted by all of their key constituencies — because of relationships, knowledge and a cultural aura they can do things nobody else can do to fix the problem." Third, and perhaps most important, he said, is "they recognize what they had built isn’t a religion. At Corning, Mr. Houghton had to revisit all kinds of decisions he may have been part of making."

Based on his own comments, including a concession that he may have had a hand in events leading up to what has happened at Starbucks, Mr. Schultz seems to be doing the same.

This all sounds perfectly reasonable – until you read Nocera’s column. (And until you stop and think about, say, Steve Jobs, who flagrantly violates all three of Sonnenfeld’s prescripts.)

Shultz, it turns out, was a very hands-on chairman, who was intimately involved in all the major decisions made by his successor as CEO, Jim Donald. Says Nocera to Schultz:

You never really left, did you? Even after stepping down as chief executive in 2000, you never stopped acting like the guy who was running Starbucks. That door that separated your office from Mr. Donald’s — how often did you swing through it each day? Five times? Six? You were the one who went on CNBC to promote Starbucks’s latest quarter. You were making the big strategic decisions. And you most decidedly were pushing for growth at all costs.

I hear that after Nike’s founder Phil Knight fired his newly installed chief executive, William Perez, a few years ago, Mr. Daniel started asking you practically every day whether he was doing a good job. That is hardly the sign of a chief executive confident of his ability to set the strategic direction.

Thus the inevitable question: Are you really the right guy to bring Starbucks back? I have my doubts.

Greenberg notes that Starbucks is "in need of a quick turnaround". Given that Shultz was instrumental in getting Starbucks to where it is today, I’m far from convinced that he’s the right man to orchestrate the U-turn.

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