Former CEO Attacks Starbucks

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• Howard Schultz, Starbucks Corp.’s (NASDAQ: SBUX | SBUX Price Prediction) on-again, off-again CEO, has attacked current management about its possible settlement with an activist investor.
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Howard Schultz, who has been Starbucks Corp.’s (NASDAQ: SBUX) on-again, off-again CEO, has attacked current management about its possible settlement with an activist investor.

Elliott Investment Management, which for years has taken stockholder positions in public companies to get them to change their management plans, wants board participation and a plan to get Starbucks out of its current trouble. Starbucks stock is down 23% this year, while the S&P 500 is 15% higher. Recent earnings have been weak, and management has admitted it needs to repair several problems.

The Financial Times reports a person close to Schultz said, “Howard left the board a year ago, and in his limited contact with the board since, his input has always focused on Starbucks’ values and culture as the primary driver of success and performance.” It is not that simple. Schultz has made statements about what he views as weaknesses of current management. He has attacked management before.

Schultz stepped down in September and was replaced by Laxman Narasimhan, a selection Schultz approved of. While Narasimhan may not have started most of Starbucks’s current problems, many have become highly visible on his watch.

In the most recently reported quarter, Starbucks’s revenue dropped 2% to $8.6 billion, and net income slid 15% to $772 million. Narasimhan commented, “In a highly challenged environment, this quarter’s results do not reflect the power of our brand, our capabilities or the opportunities ahead.” He added that he understood the company’s challenges.

Those challenges include labor disputes over what Starbucks pays its store workers. Wait times for customers have risen, although the company has not directly identified this as an issue. Online orders often swamp stores during the busiest hours of the day.

Schultz has broken an unstated rule among retired public company CEOs: He has not allowed the current board and management to solve their problems. With Elliott clamoring for change, he has decided to break his short-lived silence.