Why Is Howard Schultz Taking This So Personally?
Howard Schultz did not like the smell of burnt cheese. For weeks in 2007, he stewed about it.
At the time, Mr. Schultz hadn’t been in charge of Starbucks for years, and he couldn’t shake the feeling that the company was adrift. Starbucks, which had long sought to bring an authentic Italian coffee experience to the masses, was in his view becoming watered down and warmed over. And no feature better epitomized the decline than its breakfast sandwiches — specifically, the odor they gave off when heated.
“Whatever rich, hearty coffee aroma remained in the store was overwhelmed by singed Monterey Jack, mozzarella, and, most offensively, cheddar,” Mr. Schultz wrote in “Onward: How Starbucks Fought for Its Life Without Losing Its Soul,” the second of his three memoirs. He added: “As far as I was concerned, nothing could be further from the romance of the Italian espresso bar. I could not stand it.”
The following year, Mr. Schultz was back and the sandwiches were on their way out. It would not be the last time Mr. Schultz came back to fix a problem at Starbucks he thought no one else could. Since then, he has left and come back again, for a remarkable third turn in the C.E.O.’s chair.
In 2021, as in 2007, Mr. Schultz was no longer chief executive when the company took a turn that clashed with his idea of what Starbucks should be: Its workers began to unionize. Between last December and April, when Mr. Schultz abruptly replaced Kevin Johnson as chief executive, workers at dozens of company-owned stores filed paperwork for union elections.
Starbucks employees and supporters celebrated as votes to unionize were counted in Buffalo, New York, in December of last year.Credit…Joshua Bessex/Associated Press
Mr. Schultz, 69, appears intent on defusing interest in a union before he leaves the company next spring for the third — and, dare one say, final — time. He has thrown himself into providing new benefits and wage increases, but withheld them from employees in the union, which represents about 2 percent of the company’s U.S. work force of more than 250,000. When asked in an interview in June if he could ever imagine embracing the union, Mr. Schultz responded with a single immovable word: No.
He has alluded to a downside for customers, and some labor experts argue that a union could seek to limit the number of syrups, powders and foams that can be added to drinks, as a way to ease the burden on baristas. Such “modifiers” brought in about $1 billion during the last fiscal year and have helped drive record revenues.
But friends and longtime colleagues say Mr. Schultz’s opposition to the union isn’t primarily about the bottom line. It’s emotional. A union clashes with his image of Starbucks as a model employer. “It’s a sore for him, I guarantee you,” said Willard Hay, a former senior vice president at the company. (Mr. Schultz declined to comment for this article.)
The stakes extend far beyond Starbucks. The union campaign has helped give rise to labor organizing at a variety of other companies, including Apple, Trader Joe’s and REI. If the union manages to wring significant concessions from Starbucks, it could accelerate organizing elsewhere and help change the relationship between management and labor across the country.
If, on the other hand, the union fades away under Mr. Schultz, it could undermine the recent organizing renaissance and further relegate unions to the economy’s margins.
No one knows which scenario will come to pass before Mr. Schultz hands the keys to his appointed successor, Laxman Narasimhan. But those who assume Mr. Schultz will stop at nothing to eradicate the union might find the burnt cheddar insurgency of 2007 instructive.
Though Mr. Schultz officially killed the company’s breakfast sandwiches shortly after returning as chief executive, it took less than six months for the sandwich to rise from the dead, albeit after some slight modifications. “The result was, I had to admit, a breakfast offering that was worthy of our coffee,” Mr. Schultz later conceded. Given the cover to reassess, he didn’t dig in. He made more room in his vision of Starbucks.
Not the Boss, but Giving Orders
In December 2017, Starbucks opened a gleaming store in Shanghai covering nearly 30,000 square feet. To celebrate, the company’s new chief executive, Mr. Johnson, flew to China. But according to two employees at the time, he left the party early, apparently dismayed to play a supporting role to the company’s main spokesman at the event: Howard Schultz, from whom Mr. Johnson had taken over several months earlier.
The company said the two men had agreed that Mr. Schultz would focus on the company’s high-end stores after stepping down as chief executive. Mr. Johnson did not respond to requests for comment.
The encounter — between a leader and a former leader who did not appear eager to hand over the microphone — seemed to foreshadow the tensions of the next few years.
Mr. Schultz largely disentangled himself from Starbucks in 2018, when he stepped down as chairman and began exploring an independent presidential campaign on which he spent tens of millions of dollars.
But by the next year, Mr. Schultz had given up his presidential hopes. He began to re-immerse himself in the company, regularly communicating with executives.
Those close to Mr. Johnson expressed frustration that Mr. Schultz appeared to be obtaining confidential information, according to two corporate employees at the time, and the company’s ethics and compliance officer told colleagues he planned to look into the issue. (The company said Mr. Schultz’s 2018 retirement agreement granted him access to non-public information.)
Mr. Schultz’s tinkering from outside the formal chain of command was not new. Mr. Hay, who was a senior vice president for more than a decade, recalled that Mr. Schultz played a key role in his hiring in 2002 even though he was no longer chief executive.
“I agreed to go up and chat and spent the day with Howard, who was still chairman and every bit involved,” recalled Mr. Hay. “Howard is never hands off,” he added. “The air he breathes is Starbucks.”
While in Nashville for a speaking engagement in 2019, after he had retired, Mr. Schultz stopped by a Starbucks store and noticed that it was low on cups available for purchase. He became upset and called corporate officials to complain, according to a former aide.
The pattern continued into last fall, when Mr. Schultz arrived in Buffalo a few weeks after workers went public with their union campaign, even though he was no longer an executive or a board member.
In a meeting with store managers, Mr. Schultz said Starbucks had let them down on issues like staffing and training — in the vein of a retired high school football coach telling the team that his successor had dropped the ball. Some interpreted his comments as criticism of Mr. Johnson, who did not attend the meeting.
Once Mr. Schultz formally replaced Mr. Johnson in April, he upended the company’s leadership ranks. Starbucks parted ways with its general counsel, its top retail executive for North America and its top human resources official, all of whom had figured prominently in the response to the union.
To help fill the vacuum, Mr. Schultz brought back longtime advisers and hired a senior executive, Frank Britt, to help improve employees’ benefits and morale. The company announced that it would partly automate the production of cold beverages to ease the stress on baristas.
Mr. Schultz also rethought Mr. Johnson’s hands-off policy on working from home, pushing corporate employees to work in the office at least one day a week.
In May, Mr. Schultz announced a package of wage increases and new benefits for hourly employees, like faster sick leave accrual, that would only apply to nonunion stores. Organizers say the announcement alarmed workers who depend on the company for health care and other benefits and made them far less interested in unionizing. Filings for union elections dropped from more than 60 a month in March and April to under 10 in August.
The National Labor Relations Board has issued complaints against the company for discriminating against unionized workers when adding benefits. Starbucks has denied the accusations, saying it is legally prohibited from granting new benefits and wage increases to unionized workers without first negotiating over them. The company has bargaining sessions scheduled with about two dozen stores this month.
The company also said that the departure of top executives was part of a broader shift toward a new generation of leadership and that it had invested over $2 billion in employees and stores since Mr. Schultz returned to reshape the company.
“He has led the way in improving pay, benefits and the overall work experience,” said AJ Jones, a Starbucks spokesman. While Mr. Schultz respects the rights of employees to organize, Mr. Jones said, “his focus remains on making Starbucks an even better place to work.”
‘They Wouldn’t Need a Union’
Mr. Schultz, who is a longtime Democratic donor, has not struck friends and colleagues as philosophically opposed to labor. Jeffrey Katzenberg, the former chief executive of DreamWorks Animation, on whose board Mr. Schultz sat from 2004 to 2008, said that Mr. Schultz’s sympathies tended to lie with workers, whom he urged Mr. Katzenberg to compensate as generously as possible.
“For him it was an anthem: ‘Your assets turn out the lights and walk out the door at night,’” said Mr. Katzenberg, whose work force had a large union presence.
At Starbucks, Mr. Schultz’s resistance to a union appears to be a matter of self-image, according to those who know him: He prefers to see himself as a generous boss, not a boss who is forced to treat employees generously.
When Mr. Schultz acquired Starbucks from two Seattle businessmen in 1987, the company’s six stores were already unionized, along with employees at its local coffee roasting plant. After workers voted to dissolve their union over the next few years, Mr. Schultz saw it as personal vindication.
“If they had faith in me and my motives, they wouldn’t need a union,” Mr. Schultz wrote in his first memoir.
As a manager, Mr. Schultz asked workers to obsess over the customer experience. For years, to preserve the “romance and theater” for patrons, he resisted automating the laborious chore of brewing espresso.
In return, he would reward employees with above-market wages and benefits, offering full health care coverage to part-timers and valuable stock options. Mr. Schultz wrote that an employee making $20,000 per year in 1991, the year before Starbucks went public, would have been able to cash out 1991 options for more than $50,000 in 1996.
The grand bargain began to break down during the Great Recession. In late 2007, sales at Starbucks stores were failing more than 10 percent from the same day the year before. To shore up the company, Mr. Schultz would close hundreds of stores and lay off 7 percent of its workers.
Those who remained faced a more grueling workplace. Starbucks ramped up its efforts to save on labor costs, later adopting new scheduling software that could “better control staffing and expenses,” Mr. Schultz wrote.
But the approach left many workers with erratic hours, making it harder to earn steady incomes, find reliable child care or attend college classes. (Mr. Schultz later wrote that the company had “revamped the software and our policies to ensure more predictability, consistency, and flexibility.”)
Julie Langevin, a Starbucks shift manager who has worked on and off at the company since 2005, said the job also became more demanding as the company rolled out increasingly elaborate cold drinks in the 2010s, like its Mocha Cookie Crumble Frappuccino.
“You’d see somebody struggling to keep up, with 30 drinks on the counter,” said Ms. Langevin, who has been active in the union campaign.
The changes were lucrative for Starbucks. In 2011, the company kicked off a streak of 30 quarters of record profits. Since 2019, cold beverages have helped drive revenue gains of over 20 percent, or nearly $6 billion, placing Starbucks among the pandemic’s “winners.”
In Mr. Schultz’s mind, however, Starbucks wasn’t just a financial success. It continued to be unusually solicitous of hourly employees. “As the company grew, we never took our eyes off our initial mission,” Mr. Schultz wrote in his third memoir, timed for his potential presidential campaign. “The first place for us to show our values was, of course, with our own workers.”
When Mr. Schultz Is in Town
About five years into his second stint as chief executive, Mr. Schultz traveled to Buffalo to meet with Starbucks employees who had won a nationwide sales contest. Two store managers in the area said they were shocked by the amount of effort that their higher-ups put into preparing for the visit: The stores were deep cleaned, the managers said, and they suddenly had more labor than they knew what to do with.
One reason Mr. Schultz did not always appreciate how conditions had deteriorated for Starbucks workers is that he operated at a remove from their frustrations.
When Mr. Schultz visited, operations officials often ensured that stores looked and functioned immaculately. When he appeared at company events, he was hailed as a rock star — as when he addressed thousands of cheering managers at the company’s 2012 Global Leadership Conference in Houston. The event featured a life-size cutout of Mr. Schultz that employees could snap selfies with.
The union campaign penetrated this bubble. Workers who supported the union were telling Mr. Schultz he was, in effect, delusional — that they were overworked and underpaid and didn’t trust the company to address their concerns. That while customers may love ordering the latest caffeinated invention to trend on TikTok, they found it brutal to prepare those drinks hour after hour, day after day.
“There was a real come-to-Jesus realization that the job of a barista at Starbucks is much harder than it was 10 or 15 years ago,” said Andy Barish, a managing director at Jefferies.
If Starbucks employees’ decision to dissolve their union in the early 1990s was an affirmation of their faith in Mr. Schultz, their decision to unionize in the early 2020s was a vote of no confidence in the company he had built. “That has to hurt Howard more than anything else, where they’re going to unionize,” said Mr. Hay, the former senior vice president. “It was a family.”
The company’s posture toward the union appeared to harden once Mr. Schultz took over in April. Under his predecessor, Mr. Johnson, some top executives argued that workers seeking to unionize were partners who should be treated with respect, according to a Starbucks official involved. Mr. Johnson met with representatives of Starbucks investors who had urged the company to stay neutral in the union campaign, according to Jonas Kron, chief advocacy officer of Trillium Asset Management, who attended the meeting.
For his part, Mr. Schultz has suggested that union organizing is the work of outside agitators.
“While not all the partners supporting unionization are colluding with outside union forces,” Mr. Schultz wrote a few days after returning as chief executive, “I do not believe conflict, division and dissension — which has been a focus of union organizing — benefits Starbucks.” He did not meet with the investors urging neutrality, according to Mr. Kron.
Fat-Free Milk, Frappuccinos, Unions?
Not everyone inside Starbucks shares Mr. Schultz’s attitude toward the union. In fact, some appear to be more alarmed by his approach to the union.
In October, Bloomberg obtained a video of a staff meeting in which Starbucks officials presented the results of an internal survey showing that only about half the company’s white-collar workers “completely agree” that the company acts in an “ethical and responsible manner.”
According to Bloomberg, a chart showed that the figure was a record low for the company, and a top human resources executive cited two explanations for the finding: the company’s return-to-office policies and its response to the union campaign.
It’s hard to know what Mr. Schultz makes of his corporate employees’ concerns. But the ambivalence recalls the internal debates that preceded a number of course corrections over the years.
In the late 1980s, the company’s top retail official informed him that customers were demanding nonfat milk in lattes and cappuccinos, prompting what Mr. Schultz later called “one of the biggest debates in Starbucks’ history.” Mr. Schultz insisted that no authentic Italian coffee shop would serve fat-free milk, and that neither would Starbucks. “It’s not who we are,” he said. But he reluctantly agreed to let managers test a nonfat option in several stores and found that customers were delighted. Mr. Schultz quickly embraced it.
Even one of the company’s most successful product lines — blended cold drinks — would not exist if Mr. Schultz had gotten his way. (“I thought it was awful,” Mr. Schultz wrote of an early prototype, “which only confirmed my opposition.”) His employees kept at it and soon the Frappuccino was born. It became a multibillion-dollar business.
When it comes to unions, it’s possible that the internal pushback will fade as the growth in union stores slows.
On the other hand, union organizers believe that Starbucks has a key vulnerability: a potential gap between its progressive image — the company’s long-stated ambition is to “balance profitability and a social conscience” — and its opposition to the union. Union supporters appear intent on highlighting that gap through strikes and other actions until Starbucks agrees to stay neutral in future elections.
Friends and former colleagues suggest that if the pressure continues to mount, it’s not impossible to imagine Mr. Schultz reversing course. They say he is fundamentally a pragmatist who understands that much of Starbucks’ value is tied up in its brand, which he is loath to see tarnished. They note that for any given initiative, he is meticulous about getting the optics just so.
In 2011, the job market was sluggish, and Mr. Schultz decided that Starbucks should do more to address the problem than simply hire people directly. He forged a partnership with a nonprofit group that raised capital for loans to small businesses. The project brought in more than $15 million and supported more than 5,000 jobs, according to the nonprofit.
Mark Pinsky, who led the group, said that Mr. Schultz was involved in almost every detail, and that he was preoccupied with marketing. Mr. Schultz seemed determined to make sure an ad that ran during the World Series projected the right image, fretting over the slightest missed opportunity to highlight the partnership’s job-creating ambitions. “I go in there and we watch the ad 10 times,” Mr. Pinsky recalled. “I’m looking at it going, ‘Oh my god, this is the best thing I’ve ever seen.’ And he’s saying, ‘It’s not right.’”
Susan Beachy, Sheelagh McNeill and Alain Delaquérière contributed research.