Proactivism

The CEO of Starbucks Just Passed His Biggest Leadership Test Yet

He's been proactive about controversy, suggesting he can handle other challenges too.
Photographer: Stephen Brashear
STARBUCKS CORP
-0.04
At Closing, May 18th
57.16 USD

Starbucks Corp. has had its share of challenges since CEO Kevin Johnson took the helm a year ago. Its annual same-store sales growth in 2017 was its weakest since 2009, and traffic largely has been sluggish at its North American restaurants.

But in recent days, Johnson has faced his biggest leadership test yet, in the controversy over the arrest of two black patrons in one of the chain’s Philadelphia stores. So far, his handling of the matter suggests he has what it takes to steer the Starbucks empire.

For one, Johnson has demonstrated he takes this episode seriously. He issued an apology video. He traveled to Philadelphia to meet with the arrested men, as well as the city’s mayor and police commissioner. And most notably, the company announced Tuesday afternoon that it would close more than 8,000 of its stores for part of a day next month so employees can attend racial-bias training.

The store closure should only cost Starbucks about $16.7 million in lost sales, Bloomberg News estimates -- hardly a venti-sized dent in the balance sheet of a company with $22 billion in annual revenue. But it’s still a sweeping and unusual action -- which is precisely what Starbucks needed in this moment.

Undoubtedly, this kind of incident would be tough for any consumer business to navigate. But it’s especially nightmarish for Starbucks, which has spent years making inclusivity a core part of its brand. Just weeks ago, it issued a press release touting its "100 percent pay equity" for workers of all races and genders performing similar work in the U.S.

This is a company that once urged baristas to write "race together" on coffee cups to spark conversations about racial issues. That was a clunky idea, but you get the point: Starbucks fancies itself a leader on this stuff, so it's especially glaring when it comes up short.

But faced with a bad situation, Johnson had the right instincts. He didn’t try to pass this off as a regrettable but forgettable mistake by someone far down the Starbucks corporate food chain. He said in his video, "I own it. This is a management issue, and I am accountable." He struck a similar tone in an interview with Robin Roberts on "Good Morning America." He likely earned some goodwill with Starbucks’s massive employee base by shouldering responsibility.

And consider how often any sprawling, global retail empire such as Starbucks walks into some social or political issue. Last year it got some blowback for announcing plans to hire 10,000 refugees. It has been repeatedly dragged into inane dustups about its holiday coffee-cup designs.

 But Johnson knew right away this was a different scale of controversy, and he acted accordingly.

Riding It Out

Starbucks shares are up a bit from a week ago, suggesting controversy hasn't much worried investors

Source: Bloomberg

It’s critically important for corporate leadership to be proactive about showing commitment to its core values. This is why I wrote earlier this year that Lululemon Athletica Inc. was right to part ways with CEO Laurent Potdevin when it found he engaged in behavior that didn’t meet the company’s standards. It’s why I think Nike Inc. made the right call by pushing out two senior executives when it became aware of inappropriate workplace behavior at the company. If you don’t show your employees you take these values seriously, then they won’t take them seriously either.

And in a more general sense, it's rarely a bad idea for a company to stand up for what it believes in. Remember last year when a bunch of high-profile CEOs jumped ship from an advisory council to President Donald Trump after he refused to condemn white supremacists whose rally in Charlottesville, Virginia, turned violent? At the time, it seemed these CEOs might be going out on a limb by critiquing a president with a fervent, loyal base. But a look at how those companies’ shares have fared since then shows no sign of any widespread, lasting backlash.

What Presidential Advisory Council?

The CEOs of each of these major companies waded into a social issues debate when they quit Trump's manufacturing council in August in the days after the violence in Charlottesville. That move doeesn't appear to have weighed on their shares, which have been on widely varying trajectories since then.

Source: Bloomberg

Starbucks won’t put out this fire overnight. But leadership is taking the right approach to make sure it isn’t consumed by the flames. That's a hopeful sign it can handle its more prosaic business challenges, too. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Sarah Halzack in Washington at shalzack@bloomberg.net

    To contact the editor responsible for this story:
    Mark Gongloff at mgongloff1@bloomberg.net

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