Latest / The CEO Diary with Fexingo: Leadership Lessons, Executive Decisions, and Corner Office Stories / How Howard Schultz Returned to Starbucks and Changed the Playbook
Transcript
- Lucas: Howard Schultz had already built Starbucks into a global icon once. He’d already come back in 2008 to save it from itself. So when he returned for a third time in 2022, the obvious question was — why? And the answer tells you something about how a founder sees his own company. Luna: Especially since he wasn't even the CEO on paper initially. He came back as interim CEO after Kevin Johnson stepped down. But it didn't take long to see he was running the show. Lucas: Right. And I want to focus on one specific move he made early in that return, because I think it's the clearest window into his leadership style. In April 2022, Schultz announced that Starbucks would close over 8,000 company-owned stores for an afternoon — for mandatory anti-bias training. But that wasn't the first time he'd done that. Luna: You're talking about the Philadelphia incident in 2018, where two Black men were arrested at a Starbucks while waiting for a business meeting. That video went viral. It was a massive reputational crisis. Lucas: Exactly. Under Kevin Johnson, Starbucks closed 8,000 stores for training in May 2018. That cost the company an estimated $12 million in lost sales for that single afternoon. But Schultz, who was chairman at the time, was deeply involved in the response. Fast-forward to 2022 — he's back as CEO, the labor movement is gaining steam, and there's another racial incident at a store in Philadelphia. Different year, same city, same pattern. Luna: So he closes stores again for training? Or does he do something different? Lucas: He closes stores again. But this time it's not just the 8,000 company-owned US stores. He also closed 16 specific stores — locations that had been flagged for persistent safety and conduct issues, including some where union organizing was particularly active. That was the new twist. The training was the headline, but the store closures were the real signal. Luna: That's a pretty aggressive move. Closing stores for safety reasons is one thing, but tying it to union activity? That gets legally complicated. Lucas: It did. The National Labor Relations Board later issued complaints alleging some of those closures were retaliatory. Schultz and Starbucks have denied that, but the timing was conspicuous. And that's the thing about Schultz — he's willing to absorb legal and PR risk if he believes it protects the brand's culture. Luna: Let's talk about that culture piece. Because Schultz has always framed Starbucks as a 'third place' — a space between home and work. But by 2022, that narrative was fraying. Baristas were saying the third place had become a drive-through. Lucas: That's a great point. The pandemic accelerated Starbucks' shift to mobile orders and drive-through lanes. Same-store sales were fine, but the experience was different. Schultz came back and basically said: we've lost our soul. And he started making operational changes that seemed almost anti-efficiency. He slowed down new store openings, reinvested in store design, increased labor hours. All of which hurt margins in the short term. Luna: Wall Street didn't love that. In fact, I remember the stock dropped something like 15 percent in the months after his return. Investors wanted efficiency, not nostalgia. Lucas: Right, and Schultz's response was essentially — I'm not managing for next quarter's earnings. I'm managing for the next decade. He's always had that long-term founder mentality. But the question is whether that works when you're a public company with a $100 billion market cap. Luna: It worked in 2008. But that was a different moment. The company was genuinely struggling. In 2022, Starbucks was still profitable, still growing. The crisis was more about identity than survival. Lucas: That's exactly why his 2022 return is such an interesting case study. He wasn't putting out a fire like in 2008. He was trying to course-correct a ship that was still moving. And he used a reputational crisis — the Philadelphia incident redux — as the vehicle for that correction. Luna: That's a risky play. You're essentially saying: 'We have a racism problem, and the fix is more training and store closures.' If the training doesn't produce measurable change, you've just made a big spectacle for nothing. Lucas: And the evidence on that training is mixed. Studies on mandatory diversity training often show little to no long-term change in behavior. Some even show backlash. But Schultz argued that the training wasn't about changing minds in one afternoon — it was about signaling. To employees, to customers, to the public. The message was: we see this, we take it seriously, and we're investing in it. Luna: So it's as much a PR move as an HR move. But that's not necessarily cynical. A good CEO understands that perception is part of reality. Lucas: Exactly. And Schultz has always been a master of that. He wrote a book called 'Pour Your Heart Into It.' He's a storyteller. The training closures were a story — a costly, visible story about accountability. And he knew that story would dominate the news cycle, which it did. Luna: Let's talk about the dollar cost, because you mentioned $12 million in 2018. What was the 2022 tab? Lucas: Hard to isolate exactly, because the 2022 training closure affected more stores — but the financial press estimated somewhere around $15 to $20 million in lost revenue for that afternoon. Plus the ongoing costs of the 16 closed stores, which had to be relocated or renovated. Starbucks also committed to expanding its paid sick leave and mental health benefits around the same time. Luna: That's a lot of money for a signal. But if you believe that the brand is your biggest asset, it's an investment, not an expense. Lucas: That's exactly how Schultz framed it. And I think that's the leadership lesson here. He was willing to take a short-term financial hit to reinforce a long-term cultural value. That's easy to say in a keynote speech. It's much harder to do when you're staring at the quarterly numbers with analysts on the phone. Luna: I want to push back slightly. Schultz was also using this moment to send a message to the labor movement. The 16 closed stores included several that had voted to unionize. Critics said he was using the anti-bias training as cover for anti-union activity. Lucas: That's a fair critique, and it's one that the NLRB has pursued. In fact, in early 2024, an administrative law judge ruled that Starbucks had violated labor law in some of those closures. The company is appealing. But it does complicate the moral clarity of the story. Luna: So the lesson isn't simply 'do the right thing.' It's 'do the right thing in a way that also serves your strategic interests.' And that's more realistic, but also more cynical. Lucas: I think that's the honest read. Leaders rarely have purely altruistic motives. Schultz genuinely cares about Starbucks' culture — he's said so for decades. But he also cares about control. And the union movement was a direct challenge to that control. The training closures were both a genuine response to a racial incident and a tactical move in a labor battle. Luna: If today's episode was useful to you and you want to keep it ad-free, buy me a coffee dot com slash fexingo helps. Lucas: Yeah, we don't run ads — that's a deliberate choice. If you want to support that, buy me a coffee dot com slash fexingo is the place. Even a couple of dollars a month means we can keep producing these. Luna: And now back to the playbook. So Schultz steps down again in 2023, handing the CEO role to Laxman Narasimhan. What's the lasting impact of that third act? Lucas: I think the biggest impact is that he re-centered the conversation around store experience and labor relations. Narasimhan inherited a company where the barista was once again a priority in the narrative. Whether that translates into better financial performance long-term remains to be seen, but culturally, Schultz shifted the trajectory. Luna: And the anti-bias training? Is it still happening? Lucas: Starbucks has maintained the training as an ongoing program, not just a one-day event. They've also added a 'Third Place Policy' that clarifies what behavior is acceptable in stores. So the legacy is that the incident led to a permanent operational change, not just a one-off response. Luna: Which is more than many companies do after a reputational crisis. A lot of them just issue a statement and wait for the next news cycle. Lucas: Right. And that's the final lesson from Schultz: when you respond to a crisis, make sure your response outlasts the news. Because the news will move on, but your employees and customers won't forget. Luna: So if you're a CEO listening to this, what's the actionable takeaway? Lucas: Two things. First, when you make a symbolic gesture, make sure it costs you something real. Schultz could have put out a statement. He chose to close thousands of stores for an afternoon. The cost made it credible. Second, be honest about your mixed motives. You might be doing the right thing and also protecting your interests. That's okay as long as the action itself is genuine. Luna: I'd add a third: don't wait for a crisis to build the culture you want. Schultz had to come back twice to fix problems that might have been prevented with better foresight. Lucas: Fair point. The best leaders don't need to return for a third act. But when they do, they'd better know what they're fighting for. Schultz clearly did.