Former Starbucks CEO Howard Schultz is struggling to quit. His time as chief executive of the coffee chain came to an end last year when he stepped down as interim CEO for the third time, having already boomeranged back to the company twice.
Despite this, he remains one of their largest shareholders and is enmeshed in various aspects of the company – from its olive oil supply to its use of his private jet. Schultz has kept his parking spot at Starbucks’ Seattle HQ, retains access to the office and holds a lifetime role as chair emeritus, which lets him attend board meetings.
To top it off, after the company reported a decline in sales in May, Schultz took to LinkedIn to call for the Starbucks’ leadership team to spend more time in stores wearing the green apron. His continued connections to the business led Financial Times editor Roula Khalaf to describe Schultz as Starbucks’ “backseat barista”.
Even with Brian Niccol replacing Laxman Narasimhan as CEO of Starbucks in September, it appears that Schultz is having difficulty letting go.
The sunk-cost fallacy
He is not alone. The FTSE 100 didn’t have any CEO departures in the second quarter of 2024, which is the lowest level since Russell Reynolds began recording this data in 2018. In times of political upheaval and economic instability, it is easy to see why CEOs with a long and impressive track record seem like a stable option.
When Schultz took over Starbucks, they had just 11 regional coffee houses, which he later expanded to 35,000 worldwide. It is perhaps the best known coffee chain in the world. This is quite an achievement – and one that is hard to walk away from.
Running a business involves a lot of hard work and personal sacrifice. This brings me to the conundrum often described as the ‘sunk-cost fallacy’. Simply put: the more you put in, the harder it is to withdraw. For successful leaders, who have painstakingly built their companies over many years, there is a tendency to cling on to power in an attempt to preserve their legacy.
Being in charge is also addictive. Bob Sutton, organisational psychologist at Stanford, explains that leaders often struggle to leave because of the ‘four Ps’ – power, prestige, privilege and pay. As well as no longer receiving a leader’s hefty pay packet, it can be a wrench to leave behind the social perks that come with such an exalted position.
Sutton says CEOs often tell him that people defer to them wherever they go. When Tony Cosgrove took on the leadership of The Cleveland Clinic, he told Sutton: “I became better looking and my jokes got funnier.” Being at the top is a powerful drug and retirement means you have to go cold turkey.
Being at the top is a powerful drug and retirement means you have to go cold turkey
But for organisations that need a lease of new life, sometimes the old guard must step aside. We saw this recently with the withdrawal of President Biden from the 2024 US presidential race. With Kamala Harris replacing Biden on the Democratic ticket, there is new energy in the party and donations have flooded in.
A change of leadership can have a similar impact on companies. Research shows that businesses led by CEOs who are close to retirement are often less innovative. It’s hard to take a fresh look at things without a fresh pair of eyes. But this may also be due to the incumbent CEO’s desire to preserve their legacy or a lack of willingness to disrupt.
In the early 2000s, the previous CEO of Microsoft, Steve Ballmer, famously dismissed the concept of the iPhone as he believed business customers would continue to prefer using keyboards. As a result, Microsoft was slower off the mark when it came to developing smartphone technology, missing out on a massive potential revenue stream. Some say he stayed in post a little too long and held a vision that didn’t adapt to the times. When he left, Microsoft began innovating once more and its stock price has since soared.
During my time working for large investment banks, I saw a number of executive and C-suite leaders leave their organisations. Those with lengthy tenures were often revered but everyone must move on at some point – no-one is indispensable.
Succession was well planned and new leaders were provided with time and space to flourish. But I have also seen first-hand incidences of organisations rejecting outsiders, even at the C-suite level. This is often down to company trauma, institutional betrayal and collective self-preservation.
That said, just because a CEO is close to retirement age, does not mean they should be dismissed. Ageism is the most frequently experienced form of discrimination experienced in the workplace, according to a survey from the recruitment company Michael Page.
Workers with many decades of experience can bring a wealth of knowledge and wisdom to their role. It also helps to have people who have weathered a few storms and can therefore help steady the ship when times are tough.
In these unstable times, with markets changing rapidly, wise leaders are in demand. The more that age diversity is represented within a business, the better. That way an organisation can be both innovative and resilient.
The right time to quit
So it’s not the age of a CEO we should necessarily be questioning, but the length of their tenure. What is the optimal time for a CEO to be in post?
There’s no easy answer. Some research suggests that “optimal” tenure length is 4.8 years, while other papers cite 10 years. There are many successful CEOs who are still doing incredible work after 20 years in post. The exact time varies depending on how quickly a leader learns and their adaptability.
One of the best ways for CEOs to understand when it’s their time to go is to first work out what they want their legacy to be. It’s better to be remembered as a leader at the top of their game than someone without any new ideas.
Of course, hindsight is a wonderful thing and knowing when you’ve hit the perfect sweet spot is different for everyone. But if a former CEO is negotiating a parking spot for life, it’s probably a good sign it’s time to let them go.
