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New Starbucks CEO inherits Schultz-drafted future and labor worries

By Renata Geraldo, The Seattle Times (TNS)
Published: April 2, 2023, 2:43pm
2 Photos
New Starbucks CEO Laxman Narasimhan faces a unique challenge as he steps into the shoes of founder Howard Schultz, who is widely credited for establishing Starbucks as a coffee market leader.
New Starbucks CEO Laxman Narasimhan faces a unique challenge as he steps into the shoes of founder Howard Schultz, who is widely credited for establishing Starbucks as a coffee market leader. (Dreamstime/TNS) Photo Gallery

When Howard Schultz returned to be Starbucks CEO for the third time last year, he made it clear he wasn’t staying. Last week, he stepped down, handing over the role to Laxman Narasimhan.

Narasimhan, a former PepsiCo executive and chief executive of U.K.-based Lysol-maker Reckitt, was picked for the job last September. He spent the transition period mostly in the background. Starbucks said he was immersed in the coffee giant’s culture and operations, and getting certified as a barista.

His first week on the job embodied much of what is in store for him — from union strikes across the nation to introducing himself to investors. It also presented his intention to reach out to front-line workers as he said he plans to work once a month in a cafe.

Narasimhan faces a unique challenge as he steps into the shoes of once-presidential candidate Schultz, who is widely credited for being a founder of Starbucks as a coffee market leader. Schultz bought Starbucks from original founders Jerry Baldwin, Zev Siegl and Gordon Bowker in 1987, and turned it into a global brand.

Schultz’s multiple leadership stints with the company made his name synonymous with Starbucks. He left for the first time in 2000, returned as CEO in 2008 after realizing the company was straying from the original Starbucks brand, and left again nine years later. His most recent one-year run as interim CEO that ended last week saw some of Starbucks’ most critical challenges with labor issues and post-pandemic market changes.

“Starbucks truly has been my life’s work,” Schultz wrote to Starbucks leadership on the eve of his departure. “But more than that, it’s always been about the lives of the millions of partners over the years who have proudly worn the green apron.”

While Schultz will remain on the coffee giant’s board, the company is at the threshold of new leadership. Morningstar analyst Sean Dunlop describes the change ahead as a transition from “a founder-run brand” to “a founder-inspired brand.”

Reinvention by Schultz

At the core of the job, Narasimhan inherits a three-year plan from his predecessor.

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Shortly after he was picked in September, Schultz detailed the company’s $450 million “reinvention” plan and continued to shepherd its implementation. The plan runs until 2025.

Shareholders in Thursday’s meeting said the reinvention plan is part of a shaky CEO succession plan and leadership pipeline.

“It is under Mr. Schultz, the ‘old guard,’ that Starbucks launched its ‘reinvention plan;’ not under incoming CEO Narasimhan, who is presumably the ‘different type of leader’ Starbucks needs,” read a letter by shareholder group SOC Investment Group.

Narasimhan said Thursday the plan is the most critical step toward unlocking Starbucks’ full potential.

Challenges ahead

In addition to taking Starbucks’ reinvention reins, Narasimhan faces a critical moment at Starbucks, from unionization efforts to low morale among white-collar employees.

“The big question becomes how easy is that transition and how seamless is that for him?” Dunlop said.

Narasimhan has been in the background getting adjusted to Starbucks, according to the company.

“These past six months have enabled me to listen, to learn and to think about what the future of Starbucks looks like and what we need to do to get there,” Narasimhan said.

When Schultz became interim CEO last April, he made changes to top jobs in the company. Several executives left and others were removed. Starbucks, with Narasimhan in the top job, will have to navigate fresh faces, and work with remaining veterans such as Chief Financial Officer Rachel Ruggeri, who can provide continuity, Dunlop said.

The six-month transition period is considered the norm when there is a change in CEOs, said University of Washington Foster School of Business professor Suresh Kotha. And while Narasimhan might not be considered a leader in the same industry as Starbucks, he has the experience with multinational corporations, Kotha said.

“You need to bring a person that knows how to manage a global corporation,” Kotha said about Narasimhan. “The thing that he didn’t have was he didn’t know what the culture of Starbucks was.”

Narasimhan visited farms, stores, roasting plants and distribution centers to get to know the company, Starbucks said.

Culture and labor relations

Narasimhan got a taste of the union movement a few days into the job. On Wednesday, striking baristas in more than 40 cities in the U.S., including outside Starbucks’ Sodo headquarters, protested against the company’s alleged union busting.

Starbucks describes its culture as inclusive, where “diversity, equity and accessibility are valued and respected. Your entire experience — starting with your application — is designed to be the beginning of an inspirational journey, where you are treated warmly and with transparency, dignity and respect,” it says.

The coffee giant’s workers have challenged that idea since November 2021. At least 295 stores in the U.S. have unionized, with workers claiming the company was not addressing issues such as staffing and safety.

The COVID-19 pandemic became a pressure point to existing issues. Starbucks baristas were considered essential and were vulnerable to illness while working. But the company provided little support to its front-line workers, said Seattle-based Starbucks worker and union organizer Sarah Pappin.

“There’s always been an underlying inability to really understand what its workers need and how to deliver it despite having every stated intention to do so,” Pappin said.

Schultz’s response to the nationwide unionization campaign has been to claim that it will divide the company and its workers.

The former CEO will testify before a Senate committee on Wednesday about alleged labor law violations while he was in the top job. Starbucks said Schultz was not directly involved in labor decisions, and instead delegated a team of three executives to work on the issues.

But according to a National Labor Relations Board administrative law judge, Schultz could have had a hand in labor issues even before he returned to the CEO job. When several stores in Buffalo, New York, were organizing petitions for union elections, Schultz had a meeting with store workers from across the city, according to the NLRB. During the meeting, Schultz talked about how his upbringing shaped his business conduct, detailed Starbucks’ growth in the past 50 years and listed how Starbucks pioneered employee benefits such as company stock options and disbursements for emergencies.

White-collar discontent

Besides front-line workers’ ongoing union campaign, Narasimhan is also facing a challenge with white-collar workers, whose discontent boiled over with the company’s return-to-office mandate. An open letter by corporate employees said they also were impacted by Starbucks’ behavior of not listening to workers.

“An unforeseen and poorly planned ‘return to office’ mandate is making our lives more difficult, prioritizing corporate control over productivity, diversity & inclusion and individual job satisfaction, effectively reducing our ability to positively impact store partner experience,” read the letter.

The corporate employees asked for a reversal of the return-to-office mandate and called on Starbucks “to commit to a policy of neutrality and respect federal labor laws.”

Starbucks in January asked all its employees living within 60 miles or 90 minutes of the office to work in person at least three times a week. The previous return-to-office plan had been, for many, to work from the office at least once a week, but there was little adherence, according to some employees.

The return-to-office memo included one line with Narasimhan’s name: that he agreed with Schultz.

During Starbucks’ annual shareholders meeting — Narasimhan’s first time leading a major event as the coffee giant’s CEO — he said that as a company “rooted in human connection,” it’s important to have informal conversations in the workplace.

“Our workplace experience reflects the input of many of our partners and includes more choice for common days in the office, as well as additional tools, resources and support,” Narasimhan said.

Some corporate and store workers at Starbucks told The Seattle Times they have had little to no communication with Narasimhan during the transition. Schultz was usually the one signing the companywide emails, said the workers who asked to remain anonymous to protect their jobs.

The annual shareholders meeting projected a different side of Narasimhan’s interaction with workers. Videos showed the new CEO becoming a certified barista and traveling to stores to meet front-line workers worldwide.

Investors take notice

The topic of labor rights at Starbucks reached shareholders, and the company acted on it. After investors requested an assessment of the company’s commitment to freedom of association in February, Starbucks said an independent third party would conduct an assessment of Starbucks’ labor rights practices that would arguably be more complete than what the shareholders had suggested. Investors said the plan was “unilateral.”

Similarly, during Schultz’s third stint, Starbucks introduced a $1 billion investment in benefits for workers, such as pay raises — although only workers in nonunionized stores would have access to the additional benefits. Unionized stores would get access to the benefits through collective bargaining, the company said.

Some investors question whether such a costly commitment will yield enough returns. The company said it will increase worker retention.

“There are certain things that Howard does that it’s difficult to decide if it’s really investing in the long-term health of the brand or if it’s more of his own perception of how businesses should be run,” Morningstar’s Dunlop said, referring to the $1 billion commitment.

Schultz’s exit may provide Starbucks a clean slate. Starbucks Workers United’s Pappin said the choice of someone from outside of Starbucks is interesting because of the company’s culture of hiring from within. Pappin added that the union is cautiously optimistic about Narasimhan, as he’s had experience working with unions. About a quarter of Reckitt employees are represented by a union.

“This is an olive branch for Starbucks to say, ‘Here’s a fresh start. Let’s negotiate a contract. Let’s put the union-busting behind workers and the company. Let’s do better together,’” said Casey Moore, a former Starbucks worker and union organizer from Buffalo.

So far Narasimhan hasn’t made public comments on the labor issues that are gripping the coffee giant. In his first major event as barista-in-charge, he focused on human connection and improving the health of the company.

For long-term, sustainable growth, Narasimhan said Starbucks will have to further elevate the brand, scale digital experiences, increase the global presence, become less wasteful and faster, “and, critically, we will reinvigorate our culture around what it means to be a partner at Starbucks.” Starbucks refers to workers as partners.

“We have limitless potential, but we need to address what limits us,” said Narasimhan. “Our performance is strong, but our health needs to be stronger. We strive to be a different kind of company, and that is unchanged. But we now operate in a different kind of world.”