Recent events highlight the need for a more robust succession planning policy at Starbucks. In April 2022, former CEO Kevin Johnson retired and Howard Schultz returned as Interim CEO while the Board searched for a permanent replacement. In explaining Starbucks’ external search, Schultz told a reporter, “For the future of the company, we need a domain of experience and expertise in a number of disciplines that we don’t have now.”1 While there may be circumstances where an external candidate is the best choice, not having any viable internal candidates is evidence of the Board’s weak succession planning.
Reportedly, the Board was notified of Johnson’s pending retirement at least one year in advance. Poor succession planning resulted in Starbucks losing a critical component of a smooth transition: business continuity. Rather than Johnson playing a large role in the onboarding of a successor, Laxman Narasimhan spent months shadowing Schultz who was retired for five years before his recent return. Adding to the bumpy transition, Schultz launched a “Reinvention Plan” that included changes to Starbucks strategy and leadership structure prior to Narasimhan’s start.2
An effective succession planning process includes the regular evaluation of skills and competencies needed in a successor, identification of promising internal candidates, and a talent development strategy. A dynamic policy would better equip Starbucks for an emergency or planned succession with capable internal candidates and a candidate profile to expedite an external search. Developing a robust leadership pipeline has a myriad of benefits including retained institutional knowledge and increased employee morale and retention. The current policy is lacking, and we fear the Board is overly reliant on Schultz, as this was his second return.
Research suggests that poorly planned successions and external successors negatively impact financial performance. A 2006 study found that delays in hiring a successor and recruiting externally decreased subsequent financial performance.3 Research published in the Harvard Business Review in 2021 suggests that CEOs hired internally could perform better than external hires 61% of the time.4 A 2001 study found that hiring externally following a CEO retirement precipitated a nearly 6% drop in performance.5 Given these risks, Starbucks would benefit from a robust succession planning policy that produces viable internal candidates going forward.