Starbucks’ Slippery Slope: Cutting The BIG Heads
Headline: Starbucks Announces Executive Changes “The company said [Launi Skinner, president of U.S. Operations] stepped down to spend more time with her family.”
Does her family know about this? 
But seriously, folks - I’ve worked in mega companies so I know how incredibly difficult it is to change the course of the aircraft carrier…and you can’t (usually) expect the people that created the problem to fix the problem. However, why is the standard “go to” always to fire people? It shouldn’t be long now until the grande “reducing headcount by x thousand for greater cost effectiveness” announcement. They’ve already cut a few hundred heads.
Here’s what’s really driving Starbucks: “According Starbucks Chairman Howard Schultz, who returned as CEO in January, has been shaking up the company in an effort to shore up its U.S. operations and stock price.”
Another example of a CEO paying more attention to Wall Street than Main Street.
Funny thing about head chopping - once it starts it’s hard to stop it - as many leaders have found out.
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March 5th, 2008 at 11:20 am
Mary, while I understand the sentiment (”CEO paying more attention to Wall Street than Main Street”) THAT’S THEIR JOB. They are hired specifically for, and charged with, raising the stock price of the company. This is not a secret, but common business practice.
But what I will fault companies for is that it’s not really “raising the stock price,” it’s really supposed to be “maximizing the value of the company for shareholders.” Shoring up the stock price is a short-term solution that certainly maximizes the value of the company (for now), but may not lead to long-term growth, which in the end will add even more value to the company. The real problem I think is that US businesses think short term. It’s this quarterly thinking mentality, gotta make the numbers NOW that’s a problem. Look at Japan. Most of their companies have 2 year budget cycles, and 5, 10, and 20 year business plans. So sure, they’re not happy if the stock tanks this year–but maybe it’s part of the plan for greater growth in five years. Etc.
So I would characterize “paying attention to Main Street” as a long-term strategy for maximizing shareholder value, and layoffs (expense cuts) as a short-term tactic. Me, I prefer the long view–but then, I’m not a CEO, either, answering to a Board that’s serving at the direction of shareholders. Impatient, short-term thinking shareholders…
March 5th, 2008 at 11:36 am
Having worked in and with Japanese companies - I can tell you that the “long-term” view doesn’t work well in many cases either.
And, as for “their job” - while yes, they are supposed to protect and increase shareholder value - that should be more than CEO speak and knee-jerk, short-sighted (and yes, stupid) things like wholesale cutting of heads.
“Raising the stock price” is much more than cost reductions. It’s about value.
As for those boards - that’d be a whole ‘nother post (and people far smarter than me have written reams about it already.)
I find it heartening that the CEO of Costco is still CEO - and he’s actually been dissed by WS analysts because he doesn’t try to gouge suppliers for every last concession or treat his employees like disposable cogs.
March 6th, 2008 at 1:30 pm
Thanks for the thoughtful comments back, Mary. I’ve not worked with Japanese companies, I’ve only read about this, so I definitely bow to your superior experience on that…
I definitely agree that it’s about value, not stock price. And I see now what you’re saying (correct me if I’m misinterpreting): that CEOs are focusing too much on the price itself, and not on the things that add real value, like paying attention to customers. Creating real value eventually does raise the stock price–just not as fast, perhaps, as cutting heads or gouging suppliers. And I think those short-term bumps in stock price actually lead to long-term drops in value.
Thanks again.
March 6th, 2008 at 1:40 pm
Rick,
There ya go!
Here’s what Jim Sinegal, CEO of Costco, said in response to WS analysts who complained it’s better to be an employee or customer of Costco than a shareholder. “On Wall Street, they’re in the business of making money between now and next Thursday. I don’t say that with any bitterness, but we can’t take that view. We want to build a company that will still be here fifty and sixty years from now. This is not altrustic. This is good business.” (NYT, July 2005)