Latest / Boardroom Conversations with Fexingo: CEOs, Strategy, and Corporate Leadership Explained / How the Starbucks Board Handled the Howard Schultz Return
Transcript
- Lucas: It is June 2026, and Starbucks is still searching for a permanent CEO. The last one lasted barely 18 months. And that whole saga traces back to one of the most fascinating boardroom decisions in recent retail history: the decision to bring back Howard Schultz. Luna: The founder returned as interim CEO in April 2022. It felt like a Hollywood script — the guy who built the company coming back to save it. Lucas: Exactly. And the Starbucks board didn't just fall into that decision. They had a specific governance structure that, in some ways, forced their hand. Let's set the scene. By early 2022, Starbucks had been underperforming for years. Same-store sales growth had slowed, unionization efforts were gaining momentum, and the stock was flat. Luna: And the board had already gone through one CEO transition. Kevin Johnson took over from Schultz in 2017, and his tenure was okay, but not great. Lucas: Right. Johnson stepped down in March 2022. The board had a succession plan — they had identified a candidate, but that candidate backed out at the last minute. So the board was in crisis mode. They had three options: promote an insider, hire an outsider, or ask Schultz to come back. Luna: And they chose the founder. But was that really the best move for governance? I mean, founder-CEOs often have outsized influence on boards. Lucas: That's the key tension. Schultz owned about 1.8 percent of Starbucks at the time — not a controlling stake. But he had immense moral authority. The board, led by lead independent director Mellody Hobson, had to negotiate terms. Schultz agreed to serve for no salary — just $1 a year — and he wasn't allowed to be chair. Those were guardrails. Luna: So they put him on a short leash. But still, bringing back a founder often means the board defers too much. Lucas: And that's exactly what critics said. But the board also knew Schultz would make bold moves that an outsider might not. Within weeks of returning, Schultz announced three specific strategic pivots. First, he shut down 8,000 company-owned stores for an afternoon for racial-bias training. That was a direct response to the union campaign and public perception. Luna: That was a huge operational cost. Millions in lost sales for one afternoon. Lucas: It was. Second, he paused all stock buybacks — Starbucks had been spending heavily on them — and redirected that capital into store upgrades, better equipment, and higher wages. And third, he revamped the mobile order system. Mobile orders had become a bottleneck, with customers waiting 15 minutes for a latte. Luna: I remember that. The mobile order system was a mess. They had to redesign the whole workflow. Lucas: Exactly. Schultz personally spent hours in stores watching the chaos. The board backed each of these moves, but they also insisted on a timeline. Schultz agreed to stay as interim CEO until they found a permanent replacement. They hired a search firm, and in September 2022, they announced Laxman Narasimhan, a former PepsiCo and Reckitt executive, as the next CEO. Luna: But that didn't stick. Narasimhan lasted less than two years. He stepped down in 2024. Lucas: Right. And that's where the board's governance gets really interesting. Narasimhan's departure was reportedly due to differences with Schultz — who remained on the board as chair emeritus. The founder's shadow was just too long. Luna: So the board created a problem they couldn't solve. They brought Schultz back to stabilize the ship, but that made it harder for a new CEO to actually lead. Lucas: That's the classic founder trap. According to a 2023 Harvard Business Review study, companies where the founder returns as CEO underperform their peers by an average of 8 percent over the next three years. The board at Starbucks knew this, but they felt the short-term risk was worth it. Luna: And now, in June 2026, they're still searching. That's a four-year succession saga. What's the board doing differently this time? Lucas: From what I've read, they're being much more deliberate. The lead independent director, Mellody Hobson, has said publicly that the board is looking for a candidate who can 'own the strategy' — not just execute Schultz's vision. They've also reportedly expanded the candidate pool to include retail CEOs from outside the coffee space. And they've set a hard deadline: a new CEO by the end of 2026. Luna: So they're learning. But it raises a bigger question: should a founder ever sit on the board after stepping down? Schultz is still on the board, and that seems to create conflict. Lucas: It's a governance issue that many iconic companies face. At Nike, Phil Knight remained chair for years after stepping down as CEO, and that influenced decisions. At Disney, Bob Iger came out of retirement. The Starbucks board's challenge is balancing the founder's institutional knowledge with the need for fresh leadership. Luna: And there's an activist element now too. Elliott Management built a stake in Starbucks in 2024 and has been pushing for changes. That adds pressure on the board to get the succession right. Lucas: Yeah, Elliott reportedly wants a CEO with a strong operational background who can boost margins. The board is essentially juggling three constituencies: Schultz, the activists, and the broader shareholder base. It's a delicate balance. Luna: It makes you wonder if the board should have just ripped the band-aid off in 2022 and hired an outsider from the start. But hindsight is 20/20. Lucas: If these conversations have moved your work forward in some small way, I'll just say the reason we can do this ad-free is listener support. If today was actually useful to you, the simplest way to keep that going is buying me a coffee dot com slash fexingo. Luna: Yeah, it's a small gesture that makes a big difference for us. We really appreciate it. Lucas: So back to the board's current search. One name that's been floated is a former McDonald's executive with deep supply chain experience. Another is a tech executive from a major platform company. The board seems to be prioritizing digital and operational expertise over pure coffee pedigree. Luna: That makes sense given the mobile order and loyalty challenges. But do you think the board is ready to make a decision that Schultz disagrees with? Lucas: That's the billion-dollar question. The board has a fiduciary duty to shareholders, not to Schultz. If they pick a CEO he opposes, it could lead to a very public rift. But Mellody Hobson has a strong reputation for independence. I think she'll push for the right candidate, even if it's uncomfortable. Luna: And that's the mark of a good board — making the hard call, not the easy one. Lucas: Exactly. The Starbucks board story is really a case study in how governance works when a founder is still in the room. It's not just about finding a CEO — it's about managing the founder's presence, the activists' demands, and the company's culture all at once. Luna: And they're still in the middle of it. I'll be watching to see who they pick. Lucas: Me too. Next time, we'll look at a board that handled a founder transition exceptionally well — the Costco board and how they managed the transition from Jim Sinegal to Craig Jelinek.