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Why I Appreciate Starbucks

November 24, 2011

Howard Schultz, the CEO of Starbucks, is not an empty suit.

It’s not just that Schultz doesn’t favor suits (at the talk I heard him give last week, he was wearing a cardigan sweater) but also that he has a heart, which he is willing to wear on his sleeve, and a mission in life that’s not limited to profit.

What makes Schultz a different kind of leader is his recognition that any company today must see itself as part of a larger community, serving a universe of stakeholders far beyond its immediate shareholders.

Specifically, Schultz is out to prove the power of a different kind of business model — one that, in his words, “balances profit with social responsibility.”

In his new book Onward: How Starbucks Fought for Its Life without Losing Its Soul. Schultz talks about his mission in a way that’s very different from most CEOs. “Everything we’ve tried to do,” he writes, “is steeped in humanity.”

At Starbucks, that has meant contributing both money and time to meet local needs in the communities it serves, promoting sustainable farming communities and ethically sourcing coffee, and packaging and transporting its products with sensitivity to their environmental impact.

It’s also meant creating what Schultz calls a “third place” between home and office, where people can connect with each other or spend time alone, comfortably and relatively inexpensively.

As Schultz sets across the country to promote his book, I’m hoping he’ll help to launch a national conversation about a different kind of leadership, and a different kind of business model. He’s now proved, for a second time, that his approach can work.

The first one began in 1986 when Schultz purchased a small group of Seattle-based coffee stores and built the company into a household name over the next two decades. In 2000, he stepped down as CEO of Starbucks. In 2007, as the company expanded at a blinding rate, its business went into something of a freefall.

In 2008, Schultz returned as CEO and engineered a transformation that had its bumps along the way, but ultimately led Starbucks back to its best financial performance ever in the last quarter.

There are a slew of fascinating details in Onward about the business moves Schultz made to reposition the company, including his harrowing decision to lay off hundreds of nonperforming stores along the way and lay off thousands of employees.

“Slimming down the company [was] brutal,” he writes. “Absolutely brutal. And even as we did so as compassionately as possible, our actions still seemed unfair. But the tragedy of not doing so would have been far worse.”

Most interesting for me was what Schultz did to reignite the passion of Starbucks employees, and reconnect the company to its customers.

Two powerful examples:

In the mad rush to expand, Schultz concluded that the quality of its signature product had been sacrificed. With that in mind, Schultz decided to close every one of its stores in order to retrain its 135,000 “baristas” in how to brew the perfect espresso. And that’s what he did, beginning at 5 pm on a Tuesday in February, 2008.

“If the Barista does not care and produces an inferior espresso that is too weak or too bitter,” Schultz writes, “then Starbucks has lost the essence of what we set out to do 40 years ago … Starbucks has always been about so much more than coffee. But without great coffee, we have no reason to exist.”

Closing the stores cost Starbucks $6 million in lost revenues, a slew of media sniping, and the possibility of antagonizing its loyal customer base. Instead, Schultz is convinced — and I believe him — that the closings proved to be a turning point, reinstilling a spirit of excellence among employees, and ultimately providing a better product to customers.

The second event was a leadership conference for 10,000 employees that Starbucks held one month after the crash of the stock market in September 2008 — in flood-damaged New Orleans. Many at Starbucks favored postponing the biennial event in order to save the $30 million it would cost to put it on. Schultz felt it was critical to go forward and especially liked investing in New Orleans.

The first day of the conference was devoted to volunteering. All told, Starbucks employees invested 50,000 hours — painting, planting grass, laying mulch, cleaning storm drains and even constructing playgrounds. The rest of the conference focused on reenergizing the gathered employees.

“Somewhere along our journey the love our people had for Starbucks had blurred,” Schultz writes. “New Orleans brought it back into focus.”

Schultz deeply understands two connected keys to the success of companies in the decade ahead. First, employees — especially in Gen Y — feel far more committed to companies whose values and mission they find inspiring. Second, customers and clients increasingly prefer to support companies whose values are consistent with our own.

I admire Howard Schultz, which is why I want to suggest another leadership challenge to consider.

Starbucks already offers one of the better compensation packages to its employees, including full health benefits, the right to buy Starbucks stock at a discounted rate and modest matching company contributions to employee 401(k) plans. Why not continue to lead the way in fairness by finding ways to create more equity in pay for employees, and less disparity between the highest and the lowest?

Tony Schwartz

Tony Schwartz is the president and CEO of The Energy Project and the author of Be Excellent at Anything. Become a fan of The Energy Project on Facebook and connect with Tony at Twitter.com/TonySchwartz and Twitter.com/Energy_Project.

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