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 / Winter 2011 / Issue 65(originally published by Booz & Company)


Best Business Books 2011: Ethics and Aspirations

Of course, the measure of corporate leaders is not what they say, not how nice they are, not even the extent to which they have their egos under control. What matters is how they act, and by that metric Schultz shines. Consider a few things he did in the midst of his company’s financial crisis — and while stockholders, Wall Street analysts, and business journalists were carping about his every move. He started by being honest with everyone about what the company’s problem really was: Starbucks had lost sight of its values and, thus, was shortchanging its customers. In the past, the company’s goal had been to make “the perfect cup of coffee” for every customer, but Schultz acknowledged that its focus had shifted to generating growth at all costs to satisfy “the Street.”

To show he was serious about restoring the quality of Starbucks coffee, Schultz shut down all the company’s 7,100 North American stores for a barista video training session one Tuesday afternoon in February 2008. And to ensure that “the romance of coffee” would once again be central to the company’s culture, he brought Starbucks’s 11,000 store managers to New Orleans (at a cost of $35.5 million) for a week of discussions about the firm’s values, problems, and potential. Because one of those prime values was balancing profitability with a social conscience, the managers spent a day in the city’s Hurricane Katrina–devastated neighborhoods, where they donated 50,000 hours of community service. And, even as Starbucks’s team worked to cut costs and boost profits, the company redoubled its efforts with regard to the ethical sourcing of coffee beans and its complementary microfinancing and community development programs in impoverished rural areas.

That’s all impressive stuff, but to my mind, Schultz’s actions have been most admirable in the arena of employee relations. Schultz, we recall, grew up in Brooklyn’s housing projects, the son of a blue-collar worker who never made more than $20,000 a year. As a direct witness to the psychological injuries that too often result from low-level employment — as well as the physical injuries and the absence of health insurance and workers’ compensation to pay for them — Schultz vowed he would become the “good employer” his father never had. From Day One, Starbucks has offered the highest pay and most generous benefits (for part-timers, too) in the fast-food industry. Even when the company was hemorrhaging red ink, Schultz announced that Starbucks’s employee stock ownership and health insurance programs were sacrosanct.

Now that the company stock is trading near its all-time high, Schultz continues to engage in some rather unusual CEO behavior: He keeps reminding his 200,000 employees about the lessons Starbucks learned from its near-death experience. He says they must never forget that complacency and hubris are dangerous by-products of success; success must be re-earned every day by exceeding customer expectations; it is necessary to stay, and think, small even in a big corporation; growth needs to be disciplined and not subject to irrational exuberance; having passionate people is more important than having a robust strategy, ergo, treating employees with respect must be the company’s first order of business; and, although strategy, products, and policies need to be continually reexamined, Starbucks’s commitment to its basic values must be constant. Nothing original there, perhaps, but unusual in that Schultz’s actions seem to match his words. That’s called integrity, and Schultz sees that ethical virtue as a wellspring of the trust that motivates employees to make that little extra effort to prepare the perfect cup of coffee.

Although he doesn’t explicitly say so, Schultz’s ongoing leadership actions seem focused on institutionalizing Starbucks’s culture, so it will live on long after he vacates the C-suite. Schultz has good reason to be concerned: Not only were Starbucks’s values quickly diluted after he stepped down as CEO, but history shows that few companies are able to sustain highly responsible cultures after their founders step down. In the 1980s, I undertook a study of some two dozen firms widely recognized for their social commitments and ethical practices. Today, only a half dozen of the companies — Johnson & Johnson (J&J), Dayton-Hudson (now Target), Cummins, Xerox, W.L. Gore, and Herman Miller — are still in existence, still financially successful, and still practicing something like their original virtuous behaviors. Of those companies, J&J and Herman Miller had their commitment to virtue severely tested over the years, and Cummins and Xerox saw that commitment considerably weakened by new CEOs. More recently, three of yesterday’s exemplars of corporate virtue — Toyota, BP, and Goldman Sachs — have had their once-sterling reputations badly tarnished, and two of the most radically progressive models of social responsibility — Ben & Jerry’s and the Body Shop — lost much of their uniqueness when they were acquired by companies with more conventional business philosophies. Hard as it is to do good, it seems harder still to sustain that behavior.

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