Succession with No Surprises: It’s Not About Shareholder Value
When Howard Schultz returned to his role as CEO of Starbucks in January 2008, he admitted things were worse than he expected. To the right the ship, he put a new strategic business plan in place.
This plan was unusual in one significant respect. It was not based on market research, or some extensive SWOT analysis or the recommendations of an expensive strategy consultancy. Instead, the foundation of the turn-around strategy was the organizational values he had worked so diligently to embed in Starbucks.
As Schultz noted,
“…how do we preserve, and hopefully enhance, the integrity of the only asset we have ever had as a company, our values, our culture, and guiding principles, and a reservoir of trust with our people?”
Time and again, Starbucks has lived up to those values. At a Starbucks’ annual meeting, for example, a shareholder complained to Schultz that the company had lost customers because of Starbucks’ support for gay marriage.
Schultz eloquently made a case for values over profitability:
"Not every decision is an economic decision. Despite the fact that you recite statistics that are narrow in time, we did provide a 38% shareholder return over the last year. I don't know how many things you invest in, but I would suspect not many things, companies, products, investments have returned 38% over the last 12 months. Having said that, it is not an economic decision for me. The lens in which we are making that decision is through the lens of our people. We employ over 200,000 people in this company, and we want to embrace diversity. Of all kinds.”
In an interview following that annual meeting, George Stroumboulopoulos of the CBC asked Schultz to justify Starbuck’s decision to a critic who said this choice had come at the expense of shareholder profitably.
Schultz’s response: “He’s dead wrong.”
Kevin O’Leary believed there is no place for a public company to uphold its values when the valuation is at stake. He insisted that Schultz “had lost his way” as a CEO because the first responsibility should be to the shareholders.
Schultz did not try to hide the fact that this was a very personal decision. Because of an early childhood experience, Schultz was passionate about preserving human dignity, at all times. As CEO, his emotionally held belief shaped the culture of Starbucks.
When Schultz’s successor, Kevin Johnson, stepped into the CEO role, those values did not change but continued. Even the infamous Philadelphia crisis, in which a store manager asked two African American customers to leave, generated a company-wide response that reinforced human dignity despite the financial cost. There was no excuses, legalese or evasion. The values defined the correct action to take.
Internal Succession Out Performs New Leadership Selected from Outside
Schultz believes that it is essential to make decisions through the eyes of employees.
When leaders take employee expectations about values into account, significant
decisions are embraced and supported with confidence and conviction. Accordingly, employees feel their organization has integrity and is a safe place to work. They’re more inclined to give all they can to such an organization.
Succession is an ultimate decision that can rock or fortify an organization. As with Schultz’s views on gay marriage or diversity, it is essential to focus on values not share price when making such choices. Shareholder value, after all, is a by-product of a healthy organization in which employees felt secure and committed to giving their all.
When a CEO chooses a successor, their focus should be on leaving a positive legacy that will sustain the business for generations. The most important consideration is that the CEO aligns with behaviours that are consistent with the values of the organisation. The new leader ensures that a business will continue to thrive by keeping those values alive and meaningful. Having the authentic values in place helps the organizations retain employees who give discretionary effort and support the business outperform the competition.
This is why it is better for an organization to select new leadership from internal ranks rather than from external sources. Successful internal candidates who have risen through the ranks have already proven their alignment to organizational values.
Employees are more likely to respond positively. After all, they also desire predictability in how their actions will be perceived and valued, and they wish to work in a community of like-minded individuals who may share a diversity of beliefs while still holding universal values.
Culture is the Job of Top Leadership
For a company culture to be healthy, it cannot be the domain of Human Resources. The CEO and direct reports must take clear accountability for the company’s culture and values.
No leader can thrive in an organization with personal values that are at odds with organizational values. Top leaders must demonstrate and model those values in all circumstances. Their visibility ensures that others will notice if they stray or conflict with the values everyone else holds true.
A culture gets stronger when top leaders not only model values themselves but hold others accountable for living those values, too. In turn, those managers also hold their direct reports responsible for the values, too. People who are unable or unwilling to live the values should not be in the company.
Too often I find the Board of Directors do not understand the power of values because it is not a tangible asset. Consequently, the Directors assume that the only way to improve business performance is to replace the current CEO with another top leader who can bring forth a new strategic plan. So the Board instructs the search team to look for a person who will promise significant changes that meet the Board’s ideals.
Often the search leads to someone who has been successful in an organization with a very different culture. When the new leader takes over, their actions create chaos and cultural confusion. Inevitably failure sets in.
Cultural Consistency is Critical in Times of Change
Leaders must strive to maintain existing values no matter what crisis arises. In the wake of some unforeseen incident or scandal, a company may feel immense pressure to improve practices, alter strategy or operate differently. This does not mean the values change, too. If the values are real, they will guide the organization in its response to challenges.
A healthy organization leverages its values during difficult times. It does not run from those values.
Every corporate culture has behaviours that have made it what it is today. Often, people ask me what the correct values and actions are to create a strong positive corporate culture. The answer is there are no “correct values”. If your organisation is achieving its business objectives already, then you already have the culture you need. Changing your culture is a sure-fire way to stop succeeding.
Lasting success and sustained high performance comes from living, maintaining and celebrating existing values. When transitioning to a new leader, values and associated behaviours should be the critical factor in deciding who moves into the role. This ensures employees feel a sense of pride, engagement, and trust.
I titled my book on leadership and values “Inside the Box.” That is because values define right and wrong for every organization. Thinking outside the box of values leads to violations of business ethics. Acting counter to your values in pursuit of short-term gains will always cause more harm than good. Values are like guardrails that keep an organization on the right road. Violating values is akin to jumping the curb or going the wrong way.
All this to say that Kevin Johnson is an ideal choice for Starbucks to maintain its values and employee engagement. Though the product is java, Starbucks’ strength is in people who align to a set of values deeply rooted in human dignity.