Latest / Boardroom Conversations with Fexingo: CEOs, Strategy, and Corporate Leadership Explained / How the Starbucks Board Handled Howard Schultz's Return
Transcript
- Lucas: Luna, let's talk about one of the hardest governance puzzles in modern business: what does a board do when the founder CEO comes back — not just as a consultant or board member, but as the actual active CEO? Luna: You're thinking of Howard Schultz at Starbucks, right? Third time as CEO. Lucas: Exactly. April 2022, Schultz returns as interim CEO. The stock had been under pressure, unionization efforts were gaining traction, and the board clearly felt the company needed its founder's energy. But the governance questions are enormous. Luna: I remember the press release. They said he'd serve until fall, but it stretched to almost a year. Meanwhile, the board was searching for a permanent CEO. Lucas: Right, and that's the first governance tension: how do you conduct a proper CEO search while the founder is sitting in the corner office? The board formed a special committee of independent directors to oversee the search, which is standard best practice. But Schultz wasn't just any interim — he was the company's largest individual shareholder, the iconic founder, and former chairman. Luna: So does the special committee actually have independence when the person they're evaluating is the guy who built the board? Lucas: That's the billion-dollar question. In Starbucks's case, the board included several directors who had served alongside Schultz for years. Mellody Hobson was chairman at the time — she joined the board in 2005. So you have a board that deeply respects Schultz, possibly defers to him. The search took nearly a year, and Schultz himself was reportedly involved in vetting candidates. Luna: Which is both logical and problematic. He knows the business better than anyone, but he's also picking his own successor. Lucas: Exactly. In September 2022, they announced Laxman Narasimhan, former CEO of Reckitt Benckiser. He'd been on the Starbucks board since March. So he was an insider, but also not a retail or coffee guy. Schultz stayed on as a board member and 'advisor' after Narasimhan started in April 2023. Luna: And then Narasimhan lasted just over a year. He was out in August 2024. Lucas: Yeah, and this is where the board's choice gets scrutinized. Narasimhan seemed to struggle with the operational complexity — Starbucks is a massive supply chain and real estate business, not just a brand. The board then brought in Brian Niccol from Chipotle. Luna: Which is a fascinating hire — Niccol had turned around Chipotle after its E. coli crisis. He's a proven operator, not a founder. So maybe the board learned something. Lucas: That's the hopeful read. But let's go back to the Schultz return period. There's a specific governance moment I want to dig into: the board's decision to let Schultz serve as both interim CEO and remain on the board simultaneously. Luna: Isn't that normal for an interim? Lucas: Usually, an interim CEO resigns from the board to maintain separation. Schultz didn't. He stayed as a director while being the CEO. That concentrates power. And then after Narasimhan took over, Schultz stayed on the board. So the founder was literally in the room overseeing his own successor. Luna: That feels like a conflict, even if it's legal. Did the board disclose how they managed that? Lucas: They disclosed it in proxy filings, but they didn't create any special firewalls. Compare that to Apple in 1997 when Steve Jobs returned as interim CEO — he wasn't on the board initially. Or Dell after Michael Dell took the company private. The governance structures differ. Luna: So what's the lesson for other boards? If your founder is the obvious choice to steady the ship, how do you balance respect and independence? Lucas: One approach: time-box the founder's return strictly. Schultz said 'through fall' and it became a year. A board could set a firm 90-day limit, with no extensions, forcing a real search. Another: require the founder to step off the board entirely during the interim period. Luna: But boards are often reluctant to alienate the founder. Especially one who still owns a big stake and has strong relationships with investors. Lucas: Right, and that's the governance tension — the very qualities that make the founder effective in a crisis also make them hard to manage. Starbucks's board clearly felt Schultz was indispensable. But the data on founder ceo returns is mixed. A 2023 study by Harvard's David Yermack found that firms where founders return as CEO underperform peers by about 12 percent over the next three years. Luna: And Starbucks's stock performance under Schultz's second return wasn't stellar. The stock was flat during his interim year, while the S&P 500 rose about 10 percent. Lucas: Exactly. So the board got short-term stability but not long-term value. And the search process may have been compromised by Schultz's involvement. Luna: I want to push back a little. Don't boards sometimes need to act fast? If the CEO leaves abruptly and the stock is dropping, maybe bringing in the founder is the least risky option. Lucas: That's a fair point. Speed matters. But the board could have appointed an internal COO as interim — Starbucks had one, John Culver. He'd been with the company for 20 years. The board chose Schultz instead. That was a signal that they wanted the founder's aura, not just operational continuity. Luna: And that's where the cultural risk comes in. A founder's return can overshadow the permanent CEO, making it harder for them to establish their own authority. Lucas: Speaking of that — if these conversations have helped you think about your own work or your own board decisions, there's a small way you can help keep the show going. A handful of listeners chip in monthly through buy me a coffee dot com slash fexingo, and that support is what lets us keep making episodes like this — no ads, no sponsors, just the conversation. Luna: Yeah, it genuinely makes a difference. And we really appreciate it. Lucas: Alright, back to Narasimhan's short tenure. He came in with a plan — 'reinvention' — with investments in stores and better pay for workers. But he struggled with execution. Same-store sales growth slowed. The board had to decide: stay the course or make another change. Luna: They chose change. And they went outside again, to Brian Niccol. That suggests they recognized that Narasimhan wasn't the right fit, but it also raises a question: why didn't they see it during the search? Lucas: That's the second big governance lesson. The search process under Schultz's shadow may have been rushed, or may have overvalued consumer goods experience over retail and food service experience. Niccol had run Chipotle, which is much closer to Starbucks's operational model. Luna: So maybe the board learned that a founder-led search isn't ideal. They're too close to the business, and they might favor someone who complements them rather than someone who can truly lead. Lucas: There's a growing body of research on this. A 2024 study from the University of Chicago found that when a founder CEO is involved in choosing their successor, the successor is 40 percent more likely to be fired within two years. The founder's shadow is real. Luna: So what should Starbucks's board have done differently? Specifics. Lucas: First, they could have required Schultz to resign from the board entirely during his interim period. That creates clear separation. Second, they could have hired an external search firm with a mandate to find a candidate with retail operations experience — not just package goods brand management. Third, they could have set a hard timeline for the search, with quarterly board reviews. Luna: And maybe they should have avoided the 'advisor' role for Schultz after the new CEO started. That structure often creates confusion about who's really in charge. Lucas: Yeah. In the end, the board's biggest failure was governance design — they let the founder's presence create a crutch. The company became dependent on Schultz, and when he stepped back, the new CEO didn't have the authority to implement change effectively. Luna: So for our listeners who serve on boards or advise companies, what's the one takeaway? Lucas: If you're bringing back a founder as interim CEO, build the exit plan first. Define the timeline. Define the search process. Define the founder's role after the new CEO starts. And never let the founder be the sole arbiter of their own succession. That's a recipe for a weak handoff. Luna: And maybe the lesson for the new CEO: don't take the job if the founder stays on the board. Or at least negotiate that condition. Lucas: Exactly. It's a board's duty to create the conditions for success, not just hire and hope. Starbucks is a reminder that governance isn't just about checking boxes — it's about power dynamics, relationships, and the courage to set boundaries. Luna: We'll be watching how Niccol's tenure unfolds. He seems to have a cleaner slate. Lucas: He does. And hopefully the board has learned that the best way to honor a founder's legacy is to let them go.