Starbucks Management Change

Yesterday, there was an article in Fortune concerning a new C.E.O. at the coffee giant, Starbucks. The current C.E.O., Laxman Narasimhan, has been in his job less than two years but the stock has suffered recently. As a result, upon the announcement that the new Chairman of the Board and C.E.O. of Starbucks would be Brion Niccol, the current C.E.O. at Chipotle, effective September 9, 2024, the price of Starbucks stock jumped 24.5% to $95.90, and the market capitalization of Starbucks increased approximately $20 billion to $106 billion.

Niccol has been in his position at Chipotle for the past 6 years. In that time, the stock of Chipotle has increased 800 percent. Obviously, Starbucks Board of Directors expects similar results, as they have given him a financial package worth over $113 million to start. Although his annual salary will only be $1.6 million, he has a bonus arrangement that could pay between $3.6 to $7.2 annually. In addition, he receives a signing bonus of $10 million, plus an equity grant (stock options ) worth $75 million . He will also be able to earn an additional $23 million in annual equity grants. When he is in Seattle he will be given a car with driver.

Additional benefits, include working out of a small office that is to be set up in the Newport Beach, California area, his current residence. It should be noted that Starbucks headquarters are in Seattle, Washington. He will also be using the company jet to commute, when required, between Newport Beach and Seattle. Additionally, he can receive up to $250,000. annually, in personal travel costs on the Starbucks corporate jet. It is said that this total package is to compensate him for what he is giving up by leaving Chipotle.

If you look at the immediate increase in market value of Starbucks stock, one can make the case that this seems to be a small price to pay. At least that is what the shareholders would say.

What about the employees of Starbucks, and especially the senior management and leadership team that makes things run.

In Business School, you are taught that the objective of running a business is to increase stockholder value. That is a great concept, but how do you do that? One person does not a business make. It takes a team to be successful! That includes everyone from the lowest employee to the highest. In Starbucks Board of Directors eyes, this hire has already paid for itself.

However, today more than ever, if others in the management/leadership ranks feel slighted, then the organization has problems. The concept of “it takes a village to raise a child” can also be applied to a company. The entire workforce must interact positively with each other for the organization to be successful.

During the Covid Pandemic, Starbucks allowed their senior people to work remotely, but after, they required them to be in the office at least 3 days a week.

It doesn’t make sense to me that you would not have your entire corporate management team in one location. The former Chairman and C.E.O. of Starbucks, Howard Schultz, once said, “remote work had unintended consequences, and a company could lose out of collaboration and a connection to its shared mission.”

How true that is!

Boeing is a prime example of an organization that lost sight of that when they moved their corporate office away from their main operation, and then later, allowed their senior management to work remotely.

I have found that for an organization to be successful, long term, you need financial awareness coupled with a mission/objective, and a workforce willing and able to do everything possible, to achieve those goals. One, without the other, doesn’t work. In the short term, everything might seem fine, but is it?

I wish Starbucks well but I believe that time will tell whether this approach will be satisfactory to the shareholders as well as the employees.

Jess Sweely

Madison, Va.

August 14, 2024.