The Perils of Picking a CEO:
5 Things Starbucks Can Teach Us All About Leadership Hires

Red flags were all over the field when Starbucks hired Laxman Narasimhan as CEO in 2023, so it was not a big surprise when there were challenges during his tenure, and his time there ended after just sixteen months. The five red flags below could happen to any company, and they are shared to help others avoid the same outcomes Starbucks and its employees and customers experienced.

CULTURAL MISALIGNMENT

Starbucks has a strong and unique company culture that emphasizes community, employee engagement, and a commitment to social responsibility. Narasimhan's previous roles, particularly in the more corporate and profit-driven environments of PepsiCo and McKinsey, signaled a potential misalignment with Starbucks' values. His approach to leadership which focused on financial performance, may not have fully resonated with the Starbucks ethos.

Outcome: During his tenure, there were reports of declining employee morale and dissatisfaction among baristas, who felt overworked and underappreciated. This could be seen as a sign that Narasimhan's leadership style was not effectively fostering the inclusive and supportive environment that Starbucks prides itself on.

LACK OF RETAIL EXPERIENCE

One of the most obvious red flags was Narasimhan’s lack of experience in Starbucks’ core business. Narasimhan had a background in consumer goods, particularly at PepsiCo, and twenty years consulting at McKinsey & Company, but he lacked direct experience managing the core of Starbucks' business: retail. The retail sector, especially at the scale of Starbucks, requires a deep understanding of operational complexities, supply chain logistics, and frontline employee management—areas where Narasimhan's experience was limited.

Outcome: This gap in experience became apparent when Starbucks faced operational issues with the mobile order-ahead system. The new system was intended to enhance customer experience, but instead led to store-level chaos. Long wait times frustrated customers and stressed employees, highlighting a disconnect between corporate strategy and on-the-ground execution.​

STRATEGIC MISJUDGMENTS

Narasimhan's decision to prioritize and rapidly implement mobile order-ahead services was seen as a strategic move to modernize Starbucks. However, this strategy underestimated the operational strain it would place on stores and did not account for the complexities of managing increased digital orders alongside in-store customer service.

Outcome: The mismanagement of this initiative led to customer dissatisfaction, with many frustrated by long wait times and a decline in service quality. The strategy also alienated some loyal customers who valued the in-store experience over the convenience of mobile ordering​. The operational strain negatively impacted employee morale too.

POOR CRISIS MANAGEMENT

Starbucks, like many global brands, often finds itself at the center of social and political debates. Narasimhan's handling of the Israel-Gaza conflict, which sparked backlash from both pro-Palestinian and pro-Israeli customers, highlighted a lack of adeptness in navigating sensitive issues that require a nuanced and careful approach.

Outcome: The company's handling of this situation not only led to a public relations challenge but also negatively impacted sales. Narasimhan might not have fully appreciated the complex dynamics of leading a brand like Starbucks, which is deeply intertwined with its global customer base's social values​.

INVESTOR AND BOARD RELATIONS

Howard Schultz, the former CEO and a key figure in Starbucks' history, had a significant influence on the company and its strategic direction. Despite Schultz initially endorsing Narasimhan, there were signs that Schultz's confidence in Narasimhan waned as financial and operational issues surfaced. Additionally, activist investors like Elliott Management began to pressure the board for changes, indicating growing dissatisfaction with Narasimhan's leadership.

Outcome: The eventual loss of support from Schultz and activist investors contributed to Narasimhan's premature exit. The fact that these influential stakeholders lost confidence relatively quickly could be seen as an indicator that Narasimhan was not the right fit for the role​.

While the first two red flags were visible prior to hiring Narasimhan, the others evolved. The first two should have been enough to either not hire him in the first place or create a different onboarding plan.

For his onboarding, Narasimhan spent six months training as a barista, which gave him insight into daily store operations. He saw the anxiety over keeping up with long lines of customers and their orders, tension between stores and corporate, and supply chain management issues. He burned his hand during his time in the stores. He had good intentions but his misunderstanding of the culture and lack of experience with operations would have taken too long to repair the challenges Starbucks faced at the time.

The takeaways for our companies and us as leaders? Pay attention to the red flags you see when you are interviewing as the candidate or company.

A thorough understanding of the challenges facing the company, the skills needed to face them in the timeframe required, and a customized onboarding plan would have helped Narasimhan and Starbucks.

That understanding might have prevented Narasimhan from getting burned literally or figuratively by taking on the role in the first place.