In a shocking move, Starbucks has ousted its CEO, Laxman Narasimhan, who is of Indian origin, just 18 months after he assumed leadership. Narasimhan has stepped down as the chief executive and from the company’s board “with immediate effect”, according to a statement from Starbucks on Tuesday.
Starbucks has unveiled its leadership transition plan, with Brian Niccol, CEO of Chipotle, set to join as CEO on September 9. In the meantime, CFO Rachel Ruggeri will serve as interim CEO. Furthermore, Mellody Hobson, chair of the Starbucks board, will take on the role of lead independent director, ensuring continuity and stability during this period.
Following the announcement of Starbucks CEO departure, the company’s shares soared 24% on the S&P 500, achieving a record-breaking intraday gain and adding a staggering $20 billion to its market capitalization, as investors reacted positively to the leadership change.
Narasimhan’s sudden departure has ignited a flurry of conversations on social media, with many speculating about the reasons behind his exit and the implications of his removal for the future of Starbucks.
The reason behind Narasimhan’s exit
Starbucks in its statement said that the outgoing CEO, during his tenure, “improved the Starbucks partner experience, drove significant innovation in the brand’s supply chain, and enhanced our store operations.”
While Starbucks has not publicly disclosed the reasons behind Laxman Narasimhan’s sudden departure, speculation suggests that a combination of factors contributed to his exit. According to reports, the company’s lackluster global performance and recent controversies that arose during his tenure are believed to have played a significant role in his departure.
Prior to the CEO change, Starbucks faced significant challenges, including a 20% drop in shares this year and two consecutive quarters of declining same-store sales. Additionally, the company encountered controversy and backlash related to the Israel-Palestine conflict, sparked by a social media post from Starbucks Workers United expressing solidarity with Palestine. This led to protests and calls for boycotts in the US, further complicating the company’s landscape.
Starbucks faced a multitude of challenges beyond its financial struggles, including deteriorating consumer sentiment, a challenging market environment in China, and internal tensions surrounding labor issues. In May, former CEO Howard Schultz candidly acknowledged that operational issues in the US were the main contributor to the company’s decline, emphasizing the need for senior leadership to foster stronger connections with employees to address these challenges.
Adding to the pressure, activist investors Elliott Investment Management and Starboard Value, which collectively hold a significant $2-billion stake in Starbucks, had been urging the company to take decisive action to boost its share price and drive growth.
“The replacement of Laxman Narasimhan as Starbucks CEO is the result of growing dissatisfaction, particularly from activist investors, over the way the chain has been run. While some of the slowdown can be attributed to a more sluggish consumer cutting back, much is also the result of a worsening store experience and a lack of innovation in areas like food.” Managing director at GlobalData, Neil Saunders said in a statement.
Following his departure, attention has been drawn to Narasimhan’s recent remarks to Fortune magazine, in which he emphasized the importance of maintaining a strict work-life balance, including leaving the office by 6 pm. Many social media users have seized on these comments, suggesting that his commitment to this approach may have contributed to his exit from Starbucks.
“I am very disciplined about balance. If there’s anything after 6 pm, and if I am in town, it’s got to be a pretty high bar to keep me away from the family. Anybody who gets a minute of time after that better be sure that it’s important. Because if not, it’ll just wait for another day,” said Narasimhan during the interview.
As Brian Niccol assumes the leadership role, Starbucks is poised for a brighter future, navigating the shifting landscape of the industry with renewed optimism.
According to Starbucks board chair Mellody Hobson, “Brian is a culture carrier who brings a wealth of experience and a proven track record of driving innovation and growth.”
About Laxman Narasimhan
Laxman Narasimhan, a 57-year-old native of Pune, Maharashtra, boasts a distinguished career spanning over two decades. He began his journey at McKinsey & Company in 1993, rising to Director before transitioning to PepsiCo in 2005. During his nearly five-year tenure, he held key roles, including CEO of the South America division and Chief Commercial Officer. Narasimhan then led Reckitt, a prominent UK-based consumer health company, as CEO. His exceptional leadership track record and collaborative efforts with former CEO Howard Schultz paved the way for his appointment as Starbucks CEO in March 2023. Tasked with driving a comprehensive ‘reinvention’ of the coffee giant, Narasimhan brought a wealth of expertise to the role.
Laxman Narasimhan’s academic credentials include an engineering degree from the College of Engineering, Pune, as well as an MA in International Studies and an MBA in Finance from the University of Pennsylvania’s Lauder Institute and Wharton School, respectively. Notably, his unexpected departure contributes to the rising trend of CEO exits in the US. According to exechange.com, which tracks executive changes through public sources, 74 out of 191 CEOs who left companies in the Russell 3000 Index this year were reportedly fired or forced out, underscoring a significant shift in corporate leadership.
