Starbucks likely to tap board director to fill top job as Schultz exit looms

Starbucks’s hunt for a new chief executive officer has no shortage of complications: The coffee giant’s crucial China business is sputtering and its U.S. stores are grappling with unionization efforts, potential turnoffs for plum candidates.

The company lacks natural internal successors after the departure last year of two C-suite leaders.

And the leader will face the delicate matter of managing a seamless transition with Howard Schultz, the charismatic Starbucks honcho who is now serving a third stint as CEO and plans to stick around for a bit to help the new boss get settled.

“They’re just walking into a lot of economic, supply-chain and labor headwinds; it’s a tough job,” said Craig Buffkin, managing partner at recruiter Buffkin Baker.

Referring to the executive-search firm involved in Starbucks’s process, Buffkin said, “I don’t envy Russell Reynolds in this search.”

The complex demands suggest the company is likely to tap a director as its next CEO, Buffkin said.

Former CEO Kevin Johnson, whose retirement in April kicked off this search, found a path to the top job from the board, where he had served since 2009 before becoming chief operating officer in 2015 and CEO in 2017.

“We have viable candidates that give us confidence” to announce a new CEO in the fall, a spokesperson for the Seattle-based company said in an email.

Mary Dillon, a Starbucks director since 2016, is a natural fit to run the restaurant chain, said Kevin McCarthy, senior vice president at Neuberger Berman, which owned 1.25 million shares of the coffee company as of March.

Dillon, the former chairwoman of Ulta Beauty who also ran the company for eight years, is a Chicago native with decades of experience working for and running consumer companies.

While at Ulta, she helped the brand become a go-to shopping destination for teens.

She also led global marketing for fast-food behemoth McDonald’s for more than four years.

Dillon stepped down this month as executive chairwoman of Ulta, a transition that had been announced last year.

She posted a retirement letter online with the signoff “#notdoneyet!”

Another director, Ritch Allison, has been under consideration for the Starbucks CEO role for some time, according to a person familiar with discussions held with external candidates.

Allison, 55, who joined the board of Starbucks in 2019 and stepped down as CEO of Domino’s Pizza in April, has several attributes that make him appealing, the person said, particularly his experience in food retail operations at a company that emphasized technology.

Domino’s has led the industry in adopting innovations like mobile ordering and AI-powered voice ordering.

Allison is slated to serve as an adviser for Domino’s until he retires on July 15, the company has said.

During 2020, a record share of CEO appointments were “known outsiders,” meaning someone who came from the board of directors, according to corporate recruiter SpencerStuart.

It’s a strategy that puts an experienced leader at the helm, often to give internal candidates a few more years to develop.

If Starbucks looks beyond the board, it could try to court its alumni.

Two key executives, Chief Operating Officer Roz Brewer and Chief Financial Officer Patrick Grismer, left the company in 2021.

Brewer, a former Walmart executive who is now CEO of Walgreens Boots Alliance, would be a welcome choice, said McCarthy, potentially providing a jolt to Starbucks’s shares.

“Having someone who does have some obvious intimacy with the business is important,” McCarthy said. “Having someone like Mary Dillon, who is like a plug and play, or Roz Brewer, I think that would be comforting.”

Starbucks has been viewed as a talent incubator, saying it’s OK when employees leave to use their skills elsewhere.

Top leaders have left the company and returned in the past, including Chief Financial Officer Rachel Ruggeri.

Even if the new leader isn’t a familiar presence at Starbucks, McCarthy said he would like to see a woman in the role.

Albertsons Chief Financial Officer and President Sharon McCollam, who has experience at consumer brands Best Buy and Williams-Sonoma, would be a “good candidate,” he said. “She screens pretty well.”

Dillon, Allison and Brewer couldn’t be reached for comment. A spokesperson for Albertsons declined to comment about McCollam.

Wherever Starbucks’s CEO search ends, the company’s process so far has alarmed some investors.

Schultz, who joined the coffee company in the 1980s and spent decades turning it into a restaurant juggernaut, was named as only a short-term steward when Johnson’s retirement was announced.

“The fact that they had to go back to Howard Schultz a third time, and do it in the way that they did it, suggests that the CEO succession planning is not where it needs to be,” said Jonas Kron, chief advocacy officer at Trillium Asset Management, which owned 519,000 Starbucks shares as of March. “It’s not robust, it’s not fully in place. And that’s concerning.”

Those worries come as shareholders grow impatient for a turnround in China and for definitive action regarding organizing workers.

Unionization efforts have prevailed in votes at more than 100 of the coffee chain’s 9,000 company stores since an initial victory in Buffalo, New York, late last year.

Starbucks has been accused of union busting and for threatening to take away certain benefits.

While the company has denied wrongdoing, the union push has brought a new layer of uncertainty.

The stock plunged 38% this year through Tuesday’s close, a steeper decline than that of the S&P 500 Index.

“It’s not like you’re coming into a situation where everything is super stable,” said Ben Silverman, director of research at VerityData, an adviser to investors.

As Schultz tries to steady the business, he’s “putting in place kind of long-term focus and strategies, and they’ve got to find [a successor] who aligns with that,” he said.

Schultz, 68, is set to stay on as interim leader until a handoff in the first quarter of 2023.

In the latest of several leadership changes under Schultz, the chain’s head of North America, Rossann Williams, stepped down last week after declining an offer for a position at Starbucks that was not CEO.

Schultz says his successor will be a creative person who understands the power of the Starbucks brand.

“Our customer base is getting younger, they are digital natives, and they expect Starbucks to be as relevant outside of our stores as we are inside,” he said in May.

In trying to find a CEO, Starbucks could encounter the same challenge it faces in hiring for its restaurants: a tight labor market.

Buffkin, the recruiter, said the pandemic prompted a wave of early retirements and career changes that has shrunk the pool of qualified executives.

Bob Gershberg, chief executive officer of Wray Executive Search, says it’s the toughest hiring market he’s seen in his career.

“The talent pool is tight,” he said. “Recruiting is tough.”

For a company like Starbucks, with $84 billion in market value and an iconic brand to protect, that’s especially true.

“They need a superstar,” Gershberg said. “It’s got to be someone very strategic – a great strategic mind.”