Corporations, across the globe, must serve the communities in which they do business, as well as their customers and shareholders.
4Ps Business & Marketing, in a strategic alliance with the new york times service, presents a column by howard Schultz, Chairman, President and CEO of Starbucks corporation
There are times when business leaders are so bound by their responsibilities to shareholders that we can forget we have free will.
I am not implying that we should shirk the obligations we have to deliver a return on investment to the people and institutions helping our companies to grow. What I mean is that we as leaders should not become so beholden to Wall Street and short-term performance goals that we stop doing what we believe to be right – inside and outside our organisations.
I recognise this trap because Starbucks and I got caught in it.
Several years ago, while I was serving as the company’s chairman, Starbucks went through a dangerous period of hyperexpansion. This behaviour was fed by a need to meet Wall Street’s high-growth expectations, which analysts had adopted, in part, because our company had fueled them. Starbucks had a rich history of annual revenue and profit increases of 20%, which became tougher to maintain as the company got bigger and the economy began to slide.
Every day, with every decision, my colleagues and I felt more pressure to meet that bar, fearing the stock would tank if we did not. I got so caught up in our monthly sales performance that I often forgot I had the ability – and sometimes an obligation – to say “no.”
“No” to opening new stores rapidly instead of thoughtfully. “No” to selling products in our stores that had nothing to do with coffee, such as board games. In short, we were chasing a pace of growth with quick fixes rather than with more sustainable activities.
One of the reasons I agreed to return as Starbucks’ CEO in 2008, after eight years as chairman, was to reverse this trend. After retaking the reins on day-to-day operations, I began the painful but necessary process of weaning the company from the yoke of short-term expectations.
We began to say “no” to growth for growth’s sake and “yes” to more investments that might not deliver an immediate ROI but would strengthen the company in the long term. We said “yes” to risky but potentially game-changing research and development projects, to closing underperforming stores, to investing in our information-technology infrastructure and in creative marketing campaigns. Many of these decisions involved short-term costs that ultimately paid off.
Perhaps the biggest “yes” was insisting we keep health-care coverage for Starbucks’ part-time workers, despite pressure from Wall Street to drop it. The potential savings would have dramatically boosted our bottomline. But eliminating health coverage for some of our workers who had come to value it would have been unethical, in my eyes, and would have forever drained the reservoir of trust we had established with tens of thousands of people.
Saying “yes” to these types of long-term investments were, in large part, how we reversed the company’s downward spiral.
More recently, I have said “yes” to something else that, while providing no measurable impact on shareholder value, should deliver an equally important return.
In August I wrote a memo to Starbucks partners (our term for employees) to air my personal frustrations with the failure of America’s politicians to work together to effectively address the country’s complex economic problems, including high unemployment. I followed that with open letters to other CEOs and to concerned American citizens, asking them to join me in withholding campaign contributions to any political party until our elected leaders could do what they were put in office to do: cooperate and compromise.
4Ps Business & Marketing, in a strategic alliance with the new york times service, presents a column by howard Schultz, Chairman, President and CEO of Starbucks corporation
There are times when business leaders are so bound by their responsibilities to shareholders that we can forget we have free will.
I am not implying that we should shirk the obligations we have to deliver a return on investment to the people and institutions helping our companies to grow. What I mean is that we as leaders should not become so beholden to Wall Street and short-term performance goals that we stop doing what we believe to be right – inside and outside our organisations.
I recognise this trap because Starbucks and I got caught in it.
Several years ago, while I was serving as the company’s chairman, Starbucks went through a dangerous period of hyperexpansion. This behaviour was fed by a need to meet Wall Street’s high-growth expectations, which analysts had adopted, in part, because our company had fueled them. Starbucks had a rich history of annual revenue and profit increases of 20%, which became tougher to maintain as the company got bigger and the economy began to slide.
Every day, with every decision, my colleagues and I felt more pressure to meet that bar, fearing the stock would tank if we did not. I got so caught up in our monthly sales performance that I often forgot I had the ability – and sometimes an obligation – to say “no.”
“No” to opening new stores rapidly instead of thoughtfully. “No” to selling products in our stores that had nothing to do with coffee, such as board games. In short, we were chasing a pace of growth with quick fixes rather than with more sustainable activities.
One of the reasons I agreed to return as Starbucks’ CEO in 2008, after eight years as chairman, was to reverse this trend. After retaking the reins on day-to-day operations, I began the painful but necessary process of weaning the company from the yoke of short-term expectations.
We began to say “no” to growth for growth’s sake and “yes” to more investments that might not deliver an immediate ROI but would strengthen the company in the long term. We said “yes” to risky but potentially game-changing research and development projects, to closing underperforming stores, to investing in our information-technology infrastructure and in creative marketing campaigns. Many of these decisions involved short-term costs that ultimately paid off.
Perhaps the biggest “yes” was insisting we keep health-care coverage for Starbucks’ part-time workers, despite pressure from Wall Street to drop it. The potential savings would have dramatically boosted our bottomline. But eliminating health coverage for some of our workers who had come to value it would have been unethical, in my eyes, and would have forever drained the reservoir of trust we had established with tens of thousands of people.
Saying “yes” to these types of long-term investments were, in large part, how we reversed the company’s downward spiral.
More recently, I have said “yes” to something else that, while providing no measurable impact on shareholder value, should deliver an equally important return.
In August I wrote a memo to Starbucks partners (our term for employees) to air my personal frustrations with the failure of America’s politicians to work together to effectively address the country’s complex economic problems, including high unemployment. I followed that with open letters to other CEOs and to concerned American citizens, asking them to join me in withholding campaign contributions to any political party until our elected leaders could do what they were put in office to do: cooperate and compromise.
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Source : IIPM Editorial, 2011.
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
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