Tuesday, October 13, 2009

Cleaning Up (Your Own) Leadership Mess

In another class we have discussed several times the decline of Starbucks and what they are doing now to try to turn it around. It has lead my mind to the question of the company’s leadership – because what I didn’t know before studying the company is that former CEO Howard Schultz, who saw the company through its massive and in the short term successful growth during the 1990’s and early 2000’s, returned to the helm in 2007 after a seven year absence during which he served as chairman and focused on global operations.

Upon Schultz’ return, he sent a memo to top management criticizing and taking personal blame for some of the profit-boosting decisions that lead to the dilution and commoditization of the branded “coffeehouse experience” that carried Starbucks to its heights. A few examples of these decisions include stream-lining store designs, sales of non-coffee products, hasty openings of neighboring stores, installing automated brewing machines to shave seconds from drink-making time, and other cost-cutting measures. Schultz has pledged to get back to the “experience” in order to turn the company around.

In order to do that, hundreds of stores are being closed and thousands of jobs being cut. Without getting into whether his methods will be able to make the company profitable again, what characteristics of leadership will Schultz most need to demonstrate in order to be an effective leader, to improve the reputation of the brand, and to gain/keep effective followership while closing stores and cutting jobs – a solution to a problem that developed on his watch?

Immediately Geneen comes to mind. He states that “One of the essential attributes of a good leader is enough self-confidence to be able to admit his own mistakes and know that they won’t ruin him.” (Geneen 1998) It appears that Schultz has this one covered by taking blame for much of the demise of the company. Geneen also says that firing is one of the true tests of leadership abilities: “the alert leader will recognize the clues and will move forcefully as soon as he learns the facts. And when he does, he will earn the respect of all the others who are hardworking imaginative and productive.” (Geneen 1998) How does a leader recover when he was, himself, the individual an effective leader should have fired?

Another thing to note: The memo to top management was leaked to the public. Was the “leak” a strategic move by Schultz to ingratiate him to the public? If it was purposeful, was it a good idea?


  1. Great questions. The concept of Schultz's ability to take accountability for the faulty actions of Starbucks is what we expect from any good leader. Whether or not the momo "leaked" to the public intentionally or unintentionally is a good question and the answer is important to many of us because people, in general, are quick to question the motives of others' actions when such actions are likely to bring that person credit or favor.
    As in the Coca-Cola India case, some of us tend to ask whether a person/leader (i.e. CEO) takes accountability and makes a positive change in the product because the leader is truly ethical and really cares, or because he recognizes that failure to do so might lead to decreased sales, or because he simply wants the increased sales and pat on the back from the people that comes with admitting to his mistakes and making beneficial changes. Who cares? Do we care if this memo from the CEO came from "the bottom of his heart" or do we realize that we'll never really know the true reason behind this accountability and just take it face-value?
    It was Milton Friedman's (1970) article that brought up the concept of a business' social responsibility, where its all comes down to making a profit. Transactional leadership and the utilitarian theory are both applicable here because Shultz and Gupta both weighed the costs and benefits of their decision to take ownership for their company's 'mistakes.'
    Some people truly care to know why a company/CEOs make the decision to take accountability for their mistakes and want to know that the confession/ownership was a genuine ethical decision. Others just care that the company takes accountability, period. Which type of person are you?

  2. Thanks for the comment, Alana. I personally think Schultz is guilty of some serious opportunism and focus on short-term goals as discussed in the most recent Selznick article we read and what I thought people might connect it for our class discussion.

    However, whether or not he's truly "from the bottom of the heart" sorry may not, as you imply, really matter. If he learns from his mistakes and turns the company into more than just a profit machine. However, I don't think many leaders get this kind of second chance. If I were an investor or employee, I'd be watching closely.

  3. AnnCandler, thanks for the great topic. Who among us has not gone to Starbucks to catch up with a friend, or have an "out of the office" business meeting or just for a latte? Now when I do, I will consider the issues you've raised.

    Khurana (2002) comes to mind in his writings about the "destructive impulse" (usually from outsiders) that many CEOs have when trying to transform a company. Time will tell if Schultz will destabilize the organization enough to bring about positive change or if it will be disastrous.

    Selfishly, I hope it works because one colleague and I have a history at a certain Starbucks for getting our creative juices flowing (no pun intended) for joint projects. If Starbucks fails, we will have to find another "office away from the office" and that will be a pain--but nothing like losing a job!

  4. Good post AnnCandler! I thought this situation could be applied to last weeks reading of Selznick on responsible leadership. In Selznick's view, a responsible leader should avoid opportunism which is the pursuit of immediate, short run advantages (Selznick 143). It seems that Schultz definitely did not think through his vision and goals for Starbucks as thoroughly as he should have. However, Schultz could have faced many outside pressures such as decreasing wait time for drinks (hence the automated brewing machine). Yet, a responsible leader should not fall prey to unnecessary changes under the guise of innovation. It'll be interesting to see how Starbucks does in the future.


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