Starbucks Coffee Corporation held their 2017 Annual Meeting of Shareholders on Wednesday, March 22nd at the Marion Oliver McCaw Hall at the Seattle Center in Seattle, Washington. It was significant in that it was their 25th annual meeting as a public company and Howard Schultz’s last as CEO.
As an executive coach who helps leaders and teams to become more effective, I am constantly on the look out for behavioral patterns that other successful leaders use that my clients can incorporate into their own routines. Being based in the Pacific Northwest, half way between Seattle and Silicon Valley, it is especially exciting to see so many incredible leaders in places like Portland, Oregon and Seattle, Washington.
The auditorium for the three hour meeting was at capacity and it was broadcast live on the internet, for those who could not attend in person. There were a handful of interesting take aways and some great learning from the program. It was my first opportunity to observe Mr. Schultz and get a taste of how Starbucks leaders think, act and respond.
Howard Schultz is an exceptionally successful and iconic leader. The tremendous growth and financial performance achieved under his watch is nothing short of remarkable. This meeting provided a increasingly rare glimpse of Mr. Schultz interacting with an audience of shareholders, workers, and members of the board. His persona in front of this large and important group of people is highly confident and quite polished. He appears to be calm and comfortable discussing the direction he is going, and at the same not backing down from the challenges and conflict he faces along the way.
Mr. Schultz is a progressive leader and Starbucks has a progressive agenda and culture. One of my big take aways from the meeting is that Starbucks, on so many levels, is a lot more than just a coffee company. Below, I talk about many of elements from the meeting.
Board Diversification
Starbucks continues to expand the diversity of their board by adding more women and minority members, as well as those of foreign descent. For 2017 they added three new directors including Satya Nadella, the CEO of Microsoft, Rosalind Brewer, a former CEO of Sam’s Club, and Jørgen Vig Knudstorp the executive director of the LEGO Group. It now has four women on it’s 14 member board.
Workers Are Called Partners
Mr. Schultz gives high praise and status to the people they call partners. These are the 330,000 front line workers, who dawn the green or black apron, many of who wake up to smell the coffee before dawn, to get to work making the magic happen for millions of Starbucks customers around the world. The black aprons are worn by certified Coffee Masters who must complete additional coursework and exploration of Starbucks coffees. They must pass both written exams and taste tests to earn this special status.
Armed Service Members
He also is very proud and appreciative of Starbucks partners who are military service members, veterans, military spouses and those with family members in the armed services. Supporting our men and women in uniform both during and after their service is a big deal at Starbucks. Mr. Schultz also thanked the Army color guard who opened the meeting with the national anthem.
Gratitude
Mr. Schultz explained that everything they do, they do for their partners. “What we have tried over the years is really demonstrate the compassion of our company and our shareholders are here to applaud and salute all of you who wear the green apron.” Lastly Mr. Schultz thanked his children and his wife Sheri who was unable to attend due to the birth of a new grandchild.
Magnitude
For 25 years, Starbucks leadership has realized that no one can build a company of this magnitude alone, without the help of many people and their families. They say that every hour, every day, someone is going into a Starbucks location. They have 26,000 stores in 75 countries, where 90 million occasions per week a customer comes into their doors (Q1/FY2017).
Long Term Value
In 1992, Starbucks was a small coffee company with 150 stores and a market cap of $250 million. Today the market cap is $80 billion. If you bought $1000 in Starbucks shares on 06/26/1992 at the initial public offering and held on to them today 03/22/2017, your investment would be worth $183,250.
Why Starbucks Is In Business
Mr. Schultz states, “from the very beginning we said that were in business for a number of reasons. We are also in business to create value for our people. What we are most proud of is the unbelievable commitment and conviction to our partners and their families. We share success with our people and bring our families along with us. We link shareholder value to value for our partners. That has made the Starbucks experience so special after all of these years.”
In 1992, Mr. Schultz realizes that shareholder value is created and increased when the company exceeds the expectations of their people who exceed the expectations of the customer. Two years before the IPO, there was resistance about Starbucks ability to succeed because of the novel idea to provide expensive benefits to their workforce.
Starbucks was the first company in America to provide partners stock options and comprehensive health insurance, even to those working 20 hours a week. Mr. Schultz realized that for all of this to work, the partners had to be treated very well so that in turn they would treat the customer well. This became the foundation of the culture of the company. Many thought that this generosity towards employees would dilute the value of the shares.
Management thought leader Tom Peters, co-author of “In Search of Excellence” with Bob Waterman, tells the story of Hal Rosenbluth. Dr. Peters paraphrases, “if the customer comes first, the employee comes more first.” Dr. Peters also states that when customers do business with a company once, they seldom make any money. When customers come in repeatedly and tell all their friends to come too, that is when the company makes money.
Social Impact
Mr. Shultz realized their business “is about creating the balance that we have always believed in, in creating long term value for the shareholder, profit in everything we do, but at the same time recognizing the importance of the fragile balance of social impact, conscience, benevolence and serving the communities and serving our people.”
Important Question
Two years ago, Mr. Schultz framed an important question, “what is the role and responsibility of a for profit company?” He believes that question and the answers to that question are more important than ever before.
Mr. Schultz comments “The answer is pretty simple, not every decision in business is an economic one. Leadership and moral courage is not a passive act. Starbucks has succeeded because of our people, because we recognize what our responsibility is, in addition to making a profit. It is also a reminder that these investments and levels of innovation are not only marketing and customer facing, they are about conscience, and we have for decades been driven by principles, guided by a set of beliefs that are steeped in humanity. That is the role and responsibility of a public company.”
Starbucks has done a variety of things that many organizations would find unconventional. They open stores in places like Ferguson, Missouri, hire opportunity youth between ages 16-24 who are mostly African American and Latino, that are not in school or already working, hire 10,000 vetreans and their spouses, open over 30 family military stores near bases around the country, support marriage equality, provide free 4 year tuition for every single person at Starbucks, host an annual meeting in China for the parents and the families of Chinese partners, elevate the conversation about racism, and announce that they would hire 10,000 refugees globally.
Mr. Schultz likes hiring vetreans because they are extraordinary people who have been through extraordinary things in unsafe places like Afghanistan and Iraq. They come back with skills, leadership, ethics, integrity and not an ounce of entitlement. He believes that Starbucks is a better company because of them. They have set a new goal of hiring 25,000 veterans by 2025. They also set a goal of hiring 10,000 opportunity youth. They have exceeded that goal and have 40,000 now. Their new goal is to hire 100,000 by 2020.
Compassion By The Numbers
Last Year Starbucks served 671,395,000 cups of coffee, 347,394,871 cups of tea, hired 8,000 veterans, sent 6,535 partners to college, 229 others graduated, hired 10,000 young people, donated 22 million trees, made 301,506 farms ethically sourced, extended their pay if forward streak to 1,468.
Moving Forward
Mr. Schultz announced that he will be assuming a new role as executive chairman, spending the majority of his efforts on design and development of the two year old ultra premium Starbucks Reserve brand and retail innovation. His vision for this brand within a brand will taking the elements of Disney and Willy Wonka to create a totally immersive, joyful, lasting, dream like experience, taking customers on a magic carpet ride of coffee.
He reflected on walking the streets of Milan and Verona in 1983. He was captured emotionally by the Italian coffee bar, the sense of community, the third place between home and work. Mr. Schultz is very aware of the idea that excellent businesses are both experiential and emotional.
A New Sheriff In Town
The incoming CEO is Kevin Johnson. He is a former Microsoft executive and was previously the CEO of Juniper Networks. Mr. Johnson has served on the Starbucks board since 2009, and President and COO since 2015. Mr. Schultz describes him as a servant leader, above all else!
In a video introduction of Mr. Johnson as an eight year old child, he remembers watching Neil Armstrong taking his first steps on the moon. He discovered he wanted to be part of something bigger than himself. Growing up he was influenced by legendary UCLA basketball coach John Wooden and the philosophy of success he used to win ten NCAA championships in twelve years. His many books describe how little things matter and that they lead to bigger things. Wooden knew that details create success and how people work together and treat one another makes a tremendous difference in what they achieve.
After a health scare, Mr. Johnson had an epiphany that he wants to focus on living life and only do things that bring him joy, with people he loves. He left the technology world to come to Starbucks. Mr. Schultz believes that he is leaving and putting the company in extraordinary hands.
Mr. Johnson opened with the Starbucks mission statement “To inspire and nurture the human spirit – one person, one cup, and one neighborhood at a time.” He talks about how optimistic he is about the company’s future for three reasons and how they will increase shareholder value through: 1. Human Connection 2. Relevant Innovation and 3. China, Starbucks fastest growing market.
With respect to human connection, Starbucks believes that they can help to solve that problem. Mr. Johnson was reading a copy of Fortune Magazine from June 2016 and something caught his eye. An interview with John Cacioppo, Ph.D. from the University of Chicago. Dr. Cacioppo talks about how loneliness is a modern day epidemic, saying that humans were not designed to be solitary creatures. People evolved to survive in tribes and our needing to interact is deeply ingrained in our genetic code. The absence of social connections triggers the same primal alarm bells as hunger, thirst and physical pain. By using electronic devices we humans tend to reduce, and not increase, our human connection.
Starbucks is driving relevant innovation in a variety of categories to create more joyful customer experiences. These will include new food and beverage offerings, improved store design, new equipment and digital refinements. They are enhancing coffee flavors through barrel aging, much like a fine whisky or wine. New Teavana teas will be introduced with less sugar and they will increase their menu of gluten free food offerings. Mercato lunch selections will be mediterranean sandwiches and salads made fresh daily. What is not consumed will be donated to feed the hungry through the Starbucks food share program, another socially responsible initiative.
Digital technology is being implemented internally, so store managers can better communicate with each other through the Workplace by Facebook platform. Mobile and pay technologies will be used so customers can order food and beverages before they arrive at the store. The goal is to improve the customer experience and to reduce store congestion.
Mr. Johnson believes that the success of Starbucks will continue because of the power of our partners. They have taught him about the power of one! One store, one partner, one customer connection at a time. Partners have also taught Kevin about the power of family. Partners tell him that their coworkers “are my Starbucks family and I love them.” Lastly, they taught him about the power of purpose. The reason for our being is about human connection and doing good in the world. It has purpose that can change people’s lives! It’s about being part of something that is bigger than any one of us and is a mission he chooses to pursue. In closing, he thanked and gave recognition to the 330,000 partners who proudly wear the green and black aprons around the world.
He is passionate and proud to be a Starbucks partner. He is at Starbucks to serve the partners and shareholders and feels a great sense of responsibility. Mr. Johnson realizes that following in the footsteps of Howard Schultz leaves Venti shoes to fill. Taking over from a legendary leader can be a very daunting task. This happened in 2006 at another Pacific Northwest company, Nike, where Phil Knight passed the baton to current CEO Mark Parker, leaving very big Nike shoes to fill. It also seems comprable to Tim Cook succeeding Steve Jobs at Apple, before he passed away in 2011.
At times Mr. Johnson feels intimidated in taking over what Mr. Schultz and the Starbucks partners have built. He experiences great comfort knowing that Mr. Schultz will be sitting in the office next door, in the event that he might have a few questions along the way.
Open Forums
For over 30 years, Starbucks has had quarterly open forums for partners in order to elevate the internal conversation. These are town hall meetings held both domestically, and worldwide. It is an opportunity to give top leaders a chance to listen and hear what their partners have to say and to share their stories. It also allows partners to have direct facetime with decision makers and get answers to questions and concerns that they may have. They presented a short video snippet from a Starbucks Partner Open Forum in San Antonio, Texas from March 8, 2017, attended by 400 Starbucks partners working in the South Texas area.
Many partner comments gave leadership positive recognition and they shared appreciation for the hard work they do. One partner said thank you to Mr. Schultz for being an advocate for social awareness, specifically for individuals who have made mistakes in the past and are looking for an employer to give them a new opportunity in life. Another partner commented on how well Starbucks handles LGBTQ issues for both him an his family. Mr. Schultz commented that “the secret sauce in all of the things we have been able to do, is in this room. “It is you, It’s always been you.”
Mr. Schultz talked more about the open forum idea. “We learned over the years that most people who come to work for a company, had a previous job experience, and that job experience, more often than not, disappointed them, for whatever reason. The currency to the culture, values and guiding principles at Starbucks has to be trust. And the question is how do you build trust?”
“After 30 plus years of having these kinds of meetings, we have created an environment where people feel very safe, very vulnerable. If they have a complaint or concern they know there is no retribution. This has really created, domestically and around the world, the opportunity for us to really understand with great sensibility how our people are feeling about the company, each other, what we are trying to do. And most importantly how we get better, and how we can serve them even more.”
For the first time at an annual meeting, Mr. Schultz and Mr. Johnson modeled a transparent, unscripted 20 -30 minute open forum live for the shareholders. The stories and questions were very similar to those in the video clip from Texas.
Two Empty Seats
Mr. Schultz was asked if he might share with the audience some of the “words of wisdom” that he gave Mr. Johnson at the time he was passing the torch. He responded, in efforts to do the right thing and make the right decision, he does something pretty simple and has done so for many years. When he is attending a leadership team or board meeting, he tries to metaphorically think about two seats in the room that are empty. One is occupied by a partner and one is occupied by a customer. He tries to be mindful of whatever we are discussing and ultimately what ever we are going to decide. He asks himself “is that decision he is about to make going to make our partners and customers proud?”
He continues “It is through that principle and purpose that has guided me and also Mr. Johnson in the last few years. There is no doubt in his mind that we are not perfect, we make some mistakes along the way, but the conscience and the heartfelt commitment we have, is trying to honor our customers and our partners and make them proud of the decisions we make. It is a pretty simple thing. Business can be very complicated, but when you reduce it down to the lowest common denominator, and that is, our collective responsibility as managers and leaders is to make our people better and proud, and the same thing with our customers. That is all we have to do. The rest is M O T”, a phrase used by the jewish faith, member of the tribe.
Pike Place Market
Cora Carter, the present store manager of the original Pike Place Market store spoke. She especially believes at her iconic store, that Starbucks creates an environment where everybody feels safe, everybody feels welcome, everybody feels like they belong. Starbucks has kept the appearance of this store pretty much the same since the founding of the company. It is a landmark store and an important artifact in the history of the company. The lines at this store often extend well down the street!
Another partner commented that there are 57 million Americans with disabilities in our communities today, but sadly only 20% are in the workforce compared to 68% of their non-disabled neighbors. She asked if Starbucks could create a new initiative to hire 10,000 Americans with disabilities? Mr. Johnson responded “that we have many opportunities to help so many people in need, clearly this is a community of people we can probably do more for. I know we’ve have done a lot to welcome them into our stores and make their Starbucks experience easier, but perhaps there is much more we can do to bring them here as partners.”
Asking and Listening
Mr. Schultz has, for many years, had a reputation for being in touch with his partners, suppliers and customers. He is very receptive to being in front of his key stakeholders and has open two-way dialogues with them. He realizes that these people are his eyes and ears on the front lines of the business, and they know a lot about how to assist him in improving the Starbucks experience.
Managing By Wandering Around
MBWA is an activity that former Hewlett-Packard (HP) CEO, John Young used to do and was made popular by the previously mentioned book “In Search of Excellence” by Peters and Waterman. It is an excellent strategy to get leaders out from behind their desks and cubicles to personally see and hear what is going on out the front lines of their enterprises.
For many years, Mr. Schultz has had a reputation for getting out of the office to talk with partners and customers in 25 stores per week. An article published in Bloomberg Businessweek, from August, 08. 2009, reported that Mr. Schultz continues this practice. I don’t know if he still does that in 2017. Nevertheless, it is an ambitious task and is certainly something all C-Level executives and below should aspire to do on a regular basis!
The Key to The Company
Mr. Schultz had kept a company artifact that is very dear to him, in his pocket for almost 35 years. A key to the original Pike Place Market store. In a gesture of great symbolism and a special moment that he wanted the partners to see, Mr. Schultz passed the key to Mr. Johnson. Mr. Schultz stated that there would be no Starbucks without the Pike Place Market store. Mr. Johnson was humbled by the gesture and promised not to let the Starbucks people down.
New Market South Africa
In April of 2016, Starbucks opened it’s first two stores in Johannesburg, South Africa. Mr. Schultz witnessed unusually long, two hour lines of customers waiting in the warm outside temperatures. To Mr. Schultz this opening was personally and emotionally so much more than just an opening of a market. He spent time meeting and listening to the new partners who staff the stores. The partners talked about living in the townships, the poverty, a lack of opportunity and the hopelessness of so many young people. To his surprise all 50 partners hired to staff the two stores have never had a job before, this was their first job. Having this opportunity brought joy to their faces, as well as the face of Howard Schultz.
I Am Because of You
In South Africa, Mr. Schultz kept hearing a word that he had never heard before. The word Ubuntu. It’s a word Nelson Mandela and Desmond Tuto often used. It means “I am because of you”. It is an African cultural philosophy or belief in a universal bond of sharing that connects all humanity.
The story of Ubuntu made him realize, more than ever before, that we do not operate in isolation. He stated “We live in a time that feels so fragile and so uncertain. We live in a time of increasing divisiveness and vitriol. We live in a time of rising nationalism and isolation of fixed rhetoric.” Mr. Schultz continued, “Unfortunately, we live in a time when hate and violence, both at home and abroad threaten our shared values. And I think we all know that none of us are immune to this danger. And we long for ways in which we can help our families, our communities, and yes our country.
Mr. Schultz “thinks we should be asking ourselves two important questions, what is the core purpose and our reason for being and what will it take to build a great and enduring America?” When he looks back on the last 25 years, two truths are self evident. “Starbucks coffee company’s success is rooted in the compassion and the empathy our partners show to one another and to our customers every day and you just saw it, unscripted. That humanity and generosity lifts all boats and both have contributed to the creation of a company far-far greater than anyone’s expectations, not simply because of the quality of our coffee or the design of our stores, but literally because of the power of the human spirit, and the power of Ubuntu.”
He continues “What we have achieved as a company in the past quarter century has not been an accident. We have been guided by a set of strong core beliefs, we believe living our values is where it all starts. We believe that access to learning is access to a better life. We believe first jobs are how youth opt in to the American dream and the promise of America. We believe hiring veterans bring extraordinary talent into the business. We believe doing good in the community is critical to doing business the right way. We believe in opportunity, innovation and the entrepreneural spirit. But the belief that transcends all, is our belief in our shared humanity.”
“What we’ve learned over these years at Starbucks, is that it’s always been about walking in each other’s shoes, demonstrating compassion, empathy and yes at times, love. Despite the anger and political dysfunction that dominates the news and our politics every day, we know there’s a better America, because we see it every day in our stores with our partners and with our customers. The student studying to become the first in their family to graduate from college. The entrepreneur writing a business plan inside our stores, the police officer sharing a cup of coffee with community leaders. The volunteers readying for a day of service. And people of different faith, races, sexual orientations and political beliefs coming together in a respectful and civil dialogue.”
“That’s what makes me so optimistic about the future of Starbucks and more importantly about the country we all love. To our customers and shareholders, I thank you for your trust and support throughout all these years. To the millions of partners who have proudly worn the green apron at Starbucks since 1971. I humbly say thank you. I am, I am because of you. Thank you. Thank you. Thank you. I am because of you. Starbucks is because of you. And we are because of each other. Thank you and god bless you all. Thank you. Thank you. Thank you. Okay, thank you very much.”
Music
Mr. Schultz talked about Starbucks long history with music, and structured in a similar fashion to an Apple product roll out, invited musician Leon Bridges to play. Mr. Schultz described his joy of meeting people with extraordinary talent and heart, that really just needed an opportunity to shine, a deep belief of Mr. Schultz and the Starbucks culture.
Dealing with Conflict
Mr. Todd Paglia was introduced to present a shareholder proposal on behalf of Mr. James McRitchie regarding an amendment to the Starbucks proxy access bylaw. Mr Paglia did so then began to speak about a non-agenda item regarding recyclable cups. Mr. Paglia stated that non recyclable coffee cups harvest one million trees per year. He reports that Starbucks has failed to come through on a promise to bring recycled cups into their stores by 2015, as two years had already passed. Lucy Helm, the Executive Vice President, General Counsel and Secretary stated that the recyclable cup was not part of, nor related to, the proposal and would be taken up during the question and answer period.
Mr. Paglia’s question was first in line for the question and answer session. Mr. Johnson believes that no other coffee chain is doing more that Starbucks to make their cups greener. Mr. Paglia reports that Costa Coffee, based in the United Kingdom, is piloting a recycled cup made by Smart Planet Technologies. Mr. Johnson believes that Starbucks can do more and that Starbucks is constantly improving. He said that sustainability is a big part of the Starbucks mission and agenda. He promised to keep working on the issue. Mr. Johnson handled the situation respectfully and inclusively by inviting Mr. Paglia to sit down with him and his team in order to learn more about his ideas and thoughts.
Other questions from the audience included one that challenged Starbucks leadership to consider an initiative to hire 10,000 people who are homeless. Another challenged Mr. Schultz about how much it might cost Starbucks investors to properly vet the 10,000 refugees that the U.S. government can’t afford to vet and about the Starbucks brand reputation taking a beating by favoring or not favoring policy set forth by either Presidents Obama or Trump.
Mr. Schultz calmly avoided any escalation and offered to answer the questions by first removing the rhetoric. He answered that “if there is one message that I think, I hope you came away today, is that none of the things that we have tried to do as a company, which is based on humanity and compassion, is based on politics, but is based on principle and our core beliefs.”
On the issue of brand dilution from the hiring of 10,000 refugees globally, Mr. Schultz reports that there is no evidence whatsoever, of any dilution in the integrity of the Starbucks brand, reputation or our core business as a result of being compassionate. With respect to politics, either from Mr. Obama or Mr. Trump, he claims this is not about politics and there is no additional cost to Starbucks for vetting. When you have people who have defended the nation and saved lives in unsafe areas as interpreters helping american soldiers, Starbucks feels it has a strong moral obligation to help them transition back into the United States.
A shareholder/customer from nearby Tacoma, Washington had an update about a simple request she had made at the annual meeting one year ago. She wondered about the possibility of updating the furniture at her local Starbucks store somewhere just south of Seattle. Last year Mr. Schults stunned her by asking her to give him a month. He listened and followed through with her request by making the furniture changes at the store. She was very impressed that Mr. Schultz does things, both big and small. I call that responsive!
This three hour meeting was a great opportunity to see the leadership styles of Mr. Schultz, Mr. Johnson and others on the Starbucks leadership team. It provided great clarity and insight about the mission, vision and culture that drives the Starbucks brand.
The meeting video clips can be found at:
http://starbucksasm.evia.events/Library/KEY001
A special thank you to Starbucks investor relations for making these resources available!
http://investor.starbucks.com/investor-relations/default.aspx
Matthew Jensen, M.A., is the founder of ExecuFeed, a boutique executive coaching and leadership development firm based in the beautiful high desert city of Bend, Oregon. He holds a master’s degree in organizational behavior and is certified in the Marshall Goldsmith Stakeholder Centered Coaching process. His company assists leaders and organizations in their quest to achieve excellence by finding their competitive advantage, develop their internal culture and helping their people to enjoy working effectively together. He is passionate about implementing and blending strategies from a host of amazing management thought leaders, present and past, including Peter Drucker, Warren Bennis, Tom Peters, Edgar Schein and Patrick Lencioni.