I Hope Howard Schultz Doesn't Run for President
(Bloomberg Opinion) -- Before Howard Schultz came along, the most famous example of a chief executive trying to use his company for social good was William Norris, the CEO of Control Data Corp. Based in the suburbs of Minneapolis, Control Data was a highly successful maker of so-called supercomputers; by the early 1980s, it was a $5 billion company with 60,000 employees.
But Norris, who was a superb computer engineer, also believed that corporations had a social mission to improve the communities in which they operated. He took to spending about 7 percent of Control Data’s revenue on social programs, including opening factories in struggling urban areas. Alas, Norris and Control Data missed the moment when supercomputers gave way to workstations and desktop computers, and by 1985 the company was deeply in the red. Norris soon left the company, and by 2000 Control Data had ceased to exist.
Critics claimed that Norris’s emphasis on social programs is what caused him to take his eye off the ball. Had he been more focused on profits — and on the business itself — he might have seen the coming competition and adapted to it. It seemed an affirmation of one of Milton Friedman’s maxims: “There is one and only one social responsibility of business — to use its resources and engage in activities designed to increase its profits.”
In the intervening years, two things happened. First, the emphasis on profits, especially short-term profits, became ever-more pronounced, as shareholder activists became ever-more powerful. And second, the “corporate social responsibility” movement took hold. But the latter always struck me as more for show than for accomplishing something significant. For instance, in 2004 Ford Motor Co., which considers itself an environmentally conscious company, overhauled its River Rouge factory complex to make it “green.” But the vast bulk of its profits still came from gas-guzzling pickup trucks.
Which brings me back to Howard Schultz, who announced Monday, via Andrew Ross Sorkin’s column in the New York Times, that he would be leaving Starbucks at the end of June. Starting in 1987, when he bought a small coffee chain with a handful of stores, Schultz built Starbucks into an enormously successful company, with more than $22 billion in annual revenue, $3 billion in net income, and about 28,000 stores. The Starbucks brand is one of the most powerful in the world; the Chinese are so enamored that the company is opening about two stores a day in that country. At 64, Schultz is leaving Starbucks the same way Sandy Koufax left baseball: while he’s still on top.
Yet very little of the commentary surrounding his retirement dealt with his success as a businessman. Rather, it focused on whether his retirement might be a prelude to a presidential bid in 2020. (In Sorkin’s column, he didn’t say yes — but he didn’t say no either.) That speculation, in turn, was the result of his willingness to use Starbucks to raise social issues in a way not seen since, well, William Norris.
When Starbucks needed to open a new plant in 2012, it chose to build it in Augusta, Georgia — even though that meant costs would be 20 percent higher than building in Asia, as Schultz acknowledged to me in an interview that year. “I don’t apologize” for the higher costs, Schultz said at the time. “The country needs more manufacturing jobs.” And Starbucks goes out of its way to employ veterans at the plant, part of Schultz’s plan to hire 25,000 veterans by 2025.
Starbucks has long had employee benefits that might be described as “progressive” — health-care benefits and stock options even for part-time baristas, and a program that underwrites part of a college degree. But it was the debt-ceiling crisis of 2011 that moved Schultz to become a social activist as well. Disturbed by the extreme partisanship, he called on America’s chief executives to stop making campaign contributions until the two political parties started working again on behalf of the country. It was a naïve hope, to be sure, but Schultz sincerely thought that if the movement was successful, it could change politics.
He co-wrote a book about veterans — which Starbucks displayed prominently in its stores. Schultz was so troubled by the riots in Ferguson, Missouri, in 2014 that he started an initiative called #RaceTogether. It included writing that phrase on Starbucks cups (which was widely derided) and holding forums with employees to talk about race, which were powerful and moving. Afterward, Schultz vowed to hire 10,000 disadvantaged youths. And he opened a Starbucks store in Ferguson and other low-income neighborhoods across the country.
It is sadly ironic that after all that, a Starbucks manager in Philadelphia put the company under a black cloud by calling the police on two black men waiting in a store for a friend. But in his last act as Starbucks’s chairman, Schultz organized a one-day course on unconscious racial bias for all U.S. employees, even shutting down its stores for an afternoon late last month. Was it criticized? Yes, by some. Will it make a difference? It’s hard to know. But that didn’t stop Schultz from trying.
“If he wakes up one day and decides he wants to help improve race relations, what’s wrong with that?” Mellody Hobson, an African American financial executive who sits on Starbucks board, told me after Ferguson. “He could be doing something else. Or nothing.” In an email exchange I once had with Schultz, he said his goal was to “re-establish the American dream not just for a select few but for everyone.”
One thing Schultz has always insisted is that a company didn’t have to choose between profitability and doing good. “I’ve never seen it as a bifurcated question,” he said in 2012. “I’ve always seen it in parallel.” His view is that customers and employees both want to be part of a company whose values align with their own. “If a company does the right thing,” he said, “it will be embraced.” He added, “I don’t believe any company can build an enduring enterprise based on profitability.”
On the other hand, Starbucks has a huge advantage over most corporations — it sells coffee for $4, $5, even $6 a cup, and sells that coffee to customers who are price insensitive. Starbucks can afford to build a plant that brings higher costs, or provide health care for part-time baristas, or shut its stores for an afternoon at a cost of $12 million. Could Walmart do that? Could McDonald’s? Could Pepsico? It’s doubtful.
I hope Schultz doesn’t run for president. As I said in a recent column, I don’t think he would have the stomach for it, especially once the mud-slinging begins. He is guileless, and he wears his sincerity on his sleeve. These qualities may make him a decent human being and a charismatic CEO, but he’ll be ripped to shreds if he goes into politics.
Schultz wants to stay in the public arena once his post-Starbucks life begins at the end of this month. “One of the things I want to do in my next chapter is to figure out if there is a role I can play in giving back,” he told Sorkin.
With a lot of ex-CEOs, “giving back” is little more than a platitude. I don’t think that will be the case with Schultz. Whatever he does next will be done with the same sense of purpose, the same guilelessness, and the same sincerity, as his efforts at Starbucks. And who knows? It might even make a difference.
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