CEO News From Target and Starbucks

In this podcast, Motley Fool senior analyst Jason Moser discusses:

• Target extending Brian Cornell's job as CEO for three more years.
• Starbucks' plan to spend the next six months onboarding CEO-in-waiting Laxman Narasimhan.

Motley Fool producer Ricky Mulvey talks with Entrepreneur magazine editor-in-chief Jason Feifer about key takeaways from his new book Build for Tomorrow: Embrace Change, Adapt Fast, and Future-Proof Your Career and Life.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on Sept. 7, 2022.

Chris Hill: Three CEOs walk into a bar. Motley Fool Money starts now.

I'm Chris Hill. Joining me today: Motley Fool senior analyst Jason Moser. Thanks for being here.

Jason Moser: Hey, thanks for having me.

Chris Hill: We're going to talk about Apple's event tomorrow. Today we're going to talk about CEOs.

Let's start with Target, because Target announced that CEO Brian Cornell is going to be in the job for another three years. This is noteworthy because apparently, Target had a policy in place that CEOs have to retire when they hit the age of 65. Cornell is 63, which was another surprise to me; he does not look 63 years old. He looks great. But where do you want to go with this? I was surprised by this policy. I didn't know they had it. But you didn't seem all that surprised.

Jason Moser: No. It's something that I think it was more common than it probably is now. It is something that was far more common years ago. Life expectancy maybe wasn't what it is today. Retirement meant something maybe a little bit different than it does today.

Let's face it, being the CEO of a major corporation in America, which ultimately, if you're a major corporation in America means that you are more than likely a global organization to some extent. That just requires a certain skill set that not a lot of people have. There's a limited pool of talent from which you can choose. But just generally the idea that the older you get, the less polished maybe your decision-making becomes, and you gotta be concerned with those types of things. Boards typically are trying to see around that corner and make sure they don't run into a buzzsaw, where all of a sudden the executive talent isn't necessarily able to get the job done. Then they're faced with that long arduous process of trying to find someone to replace him or her.

Now, I think you're seeing more and more companies are just putting that mentality on the back burner, because CEOs are just more capable for doing the job for longer periods of time. I think Brian Cornell's a perfect example there. I was reading through this, I saw that there was a time if you go back to 2018, it was Lloyd Blankfein I believe, he is retiring from Goldman Sachs. I thought this is pretty interesting, he said, "When times are tougher, you can't leave, and when times are better, you don't want to leave."

I think that really rings true. When things are going well, you're like, "Golly, I could do this forever." When things are going poorly, you have a sense of responsibility, or at least I would think most people would, and they don't want to leave the team hanging. It is a very difficult thing to time. I think that in Target's case, I think they've just seen: The writing's on the wall that Cornell has done a very good job with the business.

He's been there since the middle of August in 2014. If you look at his track record over that stretch of time, the total return for investors -- if you've owned Target throughout his tenure -- your total returns are better than 250%, and that's outperforming the market handily. I think that he's built up a pretty good track record of helping this business pivot into this digital age. He's made some smart acquisitions. The Shipt acquisition toward the end of 2017 really stands out to me.

But I think when you put that all together and then you look at his work history -- he had stints with PepsiCo and Walmart and Michaels Stores -- he is very experienced in this realm. And you said it too: He's still a young guy, 63 turning 64. This keeps him there till around 66, so he's not really well beyond that 65-year range. Honestly, it wouldn't shock me if he stayed on longer than that, because he does seem like he really enjoys what he's doing, and I think he's enjoying his success, in going back to that Blankfein quote. Right now, times are tough and he feels responsibility. That worm, as they say, will turn, and he's going to be in a period where things are going really well. He's probably not going to want to leave then either.

Chris Hill: As a Target shareholder, I like the certainty it provides just locking him in. I do wonder the extent to which the recent struggles for the company and Cornell's admission over the summer -- and he took responsibility, he basically said the buck stops with me; he blew the inventory mix, and I appreciate that. I wonder if part of this was to not only send a signal about the backing that the board has for Cornell, but also to give a sense of like: No, we're in a rough stretch here. He's going to see us through this.

You're right, he may stick around beyond that. Although I think there's a decent chance that two years from now, unless there is another announcement, I think the conversation starts to become OK, is this his last year? Naturally, what does the succession planning look like if in fact it is his last year?

Jason Moser: It does make you wonder about the meetings behind closed doors. Who really initiated this idea? Do you think it was Cornell who said, listen, I really want to stick around here, I feel like we've got this thing going in the right direction and once economic conditions improve, we really have a lot of potential here? Or if the board approached him and said, hey, listen, we really want a little bit of certainty here, and we're trying to plan for the future, but understanding that in order to do that, we're going to need some time to really hunt for the right talent to take over when your time is up.

This certainly does give us at least a time line with which to work. If the board is looking at this appropriately, they would be, I think, starting to plan for that succession now. I just can't imagine that he wants to be doing this when he's 70. Maybe he does. But at some point, you feel like you want to go off and enjoy those remaining years, enjoy the fruits of your labor, so to speak. Obviously, it feels like we're closer to the end for him than not. But yeah, it's always a little bit of a wildcard here. I mean, you remember, we had these conversations with Bob Iger and Disney for so long, and it just kept on postponing, and part of that was because it was a business and a little bit of a pivot, a little bit of a shift target at this point. I think probably the hard work has been done in transforming this into a digital omnichannel retailer, and so maybe he just wants these last few years to be able to really execute and get this thing established. But, yeah, whether he sticks on beyond that remains to be seen.

Chris Hill: Let's move on to Starbucks, because this morning, the current CEO, Howard Schultz, did a sit-down interview on CNBC with Andrew Ross Sorkin. And joining them was the future CEO, Laxman Narasimhan, who was named formerly the CEO of Reckitt Benckiser, and is going to be taking over the top job in six months; he's going to be taking over as CEO in April.

I'm curious -- I don't think you and I have talked about this offline -- I was initially puzzled by this idea that there was all this buildup of, we're going to name the CEO in the fall. Here's the next CEO, but actually, he's not going to be taking over until the spring of 2023. The more I think about it, Jason, the more I'm warming up to the idea, given all of the challenges that Starbucks currently faces as a business, some of their own making, some that are not of their own making. But before we get into that, what was your reaction to the news that this is the new CEO, and the news that it's not going to happen for another six months?

Jason Moser: Yeah. I think, with Laxman, I mean, there's just a lot that we don't really know. I think coming from Reckitt, he's probably got some pretty good background there, at least in running a global organization and global beverage company like Starbucks. I like the fact that he's only 55. I mean, you're not going to have to worry about him hitting any sort of mandatory 65-year retirement age. Not that Starbucks has that. I don't know that they do. Maybe they do. I don't think they do, but.

Chris Hill: If they do, it's not 65, because Schultz is 69 [laughs].

Jason Moser: Well, they could have made an exception. Yeah, I just don't know. I can't imagine they do. But I do think, with Starbucks, there is a very interesting piece in The Wall Street Journal over the weekend, it's several days now, but it was titled "Starbucks is Rethinking Almost Everything, Including How to Make Frappuccinos." Ultimately what the crux of the article, what it was getting at, at least the way I look at it, it could be argued that Starbucks has really underinvested in itself over the last several years.

It's a company that ultimately was built as a "third place." It was built with that third-place mentality, trying to give people another place to go, to congregate, to relax, and enjoy, whether alone or with a group. But now, if you fast-forward to today, Starbucks has essentially become an app on our phones. It's much less about, "Hey, I'm going to go hang out at Starbucks." It's more, "Well, I'm going to stop by and grab something from Starbucks on my way to wherever." It's become an app on our phones. It's made it far more convenient than ever before, which is great for consumers. Honestly, it's great for the business as well.

But the problem is, they didn't pivot enough to accommodate for this. The article talks about this fact: You've got cafes that once averaged 1,200 orders a day; now they're up to 1,500. You've got stores that were averaging $1 million in annual sales, 10 years ago, now chalking up $3 million in sales a year. These stores, fundamentally, they haven't changed. They're still equipped ultimately the same way; they're still set up ultimately the same way. Because Starbucks now is a different type of business, a far more digital, far more omnichannel business, these cafes aren't set up as efficiently as they should be. And so Starbucks ultimately has not invested in itself the way that it really should. They've underinvested in themselves.

To me, when I see that Laxman is, there's going to be that six-month grace period, and getting acclimated with the company and strategy, I think part of that really is that Schultz would like to be able to work with him in seeing this new age of what Starbucks needs to become. It goes back to that article. They're rethinking almost everything. They need to rethink how these stores are laid out. Because it's not just about consumers and how we get our stuff from Starbucks; even more so, it's really about the folks that work at those cafes. It's about the people that run those shops. We need to make sure that they're OK and happy with their work in the way that things are set up. What I mean, when you grow up and you have a job here, and you have a job there, and everybody loves to complain, and you criticize, and you think, well, this could be done better. You got a lot of good ideas.

And so I think what they're really trying to do is, ultimately, rethink how these stores are laid out, how to accommodate for this Starbucks 2.0 that now has become more in-app on our phones, and access to convenient beverages, for the most part, food to a lesser degree. From that perspective, it makes a lot of sense that he gets that six-month grace period to get in line with the thinking or the vision that maybe Howard Schultz has. Because I do feel like, at the end of the day, Howard Schultz is the one who is most intimately familiar with this business, and what it ultimately should look like.

Chris Hill: Part of what he's going to be doing over the next six months is traveling around, visiting stores, meeting with those regional managers. Which reminds me a little bit of, this is not an apples-to-apples comparison, but it reminds me a little bit of when Steve Easterbrook took over at McDonald's. He didn't have the onboarding grace period. By the way, let's just put aside how Easterbrook left McDonald's; let's just put that aside.

Jason Moser: Yeah.

Chris Hill: But when you think about how he came into that job, and essentially gave himself, not a grace period, but basically, signaled to Wall Street, "Hey, here's what I'm going to be doing over the next three to six months. I'm going to be meeting with people, I'm going to be meeting with the franchisees, I'm going to be asking a lot of questions, I'm going to do a lot of listening. Then I'm going to come out with my plan for this company." That worked, right up until the point that he had to be dismissed --

Jason Moser: Yeah.

Chris Hill: -- for perfectly valid reasons. But it strikes me, Jason, that one version of the future is, that's how the next six months goes. That when Laxman finally takes over in April, he has his plan in place. And to your point, part of it is absolutely investing in the locations in ways that they've done some investments, and certainly, the new locations for Starbucks --

Jason Moser: Yeah.

Chris Hill: -- overwhelmingly in the U.S. are drive-thru-oriented. It'll be interesting to see, but as a Starbucks shareholder of 20 years plus, that is absolutely my hope.

Jason Moser: Yeah, and I think something to keep in mind is going to be this relationship between Laxman and Howard. Laxman is going to have the benefit not only of working closely with Howard over these next six months, but that'll extend beyond that. Howard will still be on the board. He'll still be essentially an advisor for Laxman.

Now that could be seen as a good thing or a bad thing. Ultimately, my feeling is, my thinking is, because Howard seems so convinced that he's got the right guy for the job, the right person for the job, that Laxman is in line; he sees that same vision that perhaps Howard ultimately sees. Because if you had the two conflicting, then you might run into a Disney situation, where you have outgoing Iger and incoming [Bob] Chapek. At the very beginning, it seemed like they were simpatico. It seemed like they were on the same page. But very quickly thereafter, it became obvious that they weren't. Chapek wants to make this his Disney. Now, that may work out well, it may not work out; time is going to tell there. But we're already seeing decisions being made that would not have been decisions that Iger made, and we've seen Iger be critical of Chapek and what he's done with Disney to this point.

I think Howard Schultz is so convinced they got the right guy because they went through the process of interviewing, and they feel like they've got this person who is seeing the same vision of the future. And so assuming that they can work well together, assuming that Laxman has the self-awareness and the humility to know that Howard Schultz knows Starbucks better than anyone in this world, and he wants to tap that resource for valuable knowledge -- as long as they're on the same page, I think things work out very well. I think what you need to keep an eye out is for any potential conflict. Perhaps that manifests itself in ultimately Schultz stepping away as an advisor for the board. Time will tell there. But I think assessing that relationship six months down the road, a year down the road and so on, I think will be a good indicator as to how the future should unfold for Starbucks.

Chris Hill: Fingers crossed, Jason Moser, thanks for being here.

Jason Moser: Thank you.

Chris Hill: Jason Feifer is the editor-in-chief of Entrepreneur magazine and author of the new book, Build for Tomorrow: Embrace Change, Adapt Fast, and Future-Proof your Career and Life. Ricky Mulvey caught up with Feifer to talk about key takeaways from his book, including how a product can change society and still not be a great investment.

Ricky Mulvey: In your book, it's all about change. And one of the poster child[ren] for missing out on change is Blockbuster, particularly in its battle against Netflix. You mentioned it's easy to look at Netflix and basically say bad things happen to dumb people.

Jason Feifer: We'll look at Blockbuster and say that.

Ricky Mulvey: Look at Blockbuster and say that. But bad things happen to dumb companies. We can switch it out for that. When we look at the Blockbuster and Netflix story, you talked about the outside investments, and the pressures that were put on Blockbuster at the time. What do you think are the complexities we miss?

Jason Feifer: I think the major complexity that we miss is that we tell the story of Blockbuster as a dumb company run by dumb people who didn't see major change coming, and that is not actually the case. What really happened was that there were a lot of people at Blockbuster who did see the change coming, and they couldn't do anything about it. They couldn't do anything about it because they were structured too much, with incentives that were driving immediate short-term growth, rather than thinking about how to set this company up for the long term. That meant that ideas like developing a digital presence for Blockbuster were shelved in terms of stupid, short-term ideas like, can we start selling more toys in the store? There was even a pushback against the company's getting rid of late fees.

You remember that? If you brought a VHS back late -- at some point they started waiving the late fees as a way to drive consumer satisfaction, and make people feel better about renting. And there was an effort to get rid of that, because they were losing the money from the late fees. This was really bad long-term planning. And it was not something that the CEO of the company at the time could navigate, because there was too much external and internal pressure to just keep things focused on the short term. If we want to -- and this is what I find as I study companies that succeed -- if we want to make sure that we're building great long-term value, then we need to set ourselves up in a way in which not every incentive inside a company is driving toward efficiency. Because the more that we structure ourselves entirely around efficiency, the more we're going to inhibit our ability to react to disruptive moments.

Ricky Mulvey: Well, I think there's also a fair criticism in that companies need to focus on what's profitable as well. You look at Facebook -- Meta [Platforms], going to the metaverse, spending a ridiculous amount of money there. And the argument that Mark Zuckerberg would make is similar to the one that you just did, which is "We need to focus on tomorrow." But there's also: Focusing on the things that make you money is not a bad idea for all companies. It's incredibly difficult for, I would say, leaders to find that balance of R&D [research and development] and focusing on what's cashing your checks. What have you found about entrepreneurs who are able to find a good balance in that?

Jason Feifer: That's a really great point, and I want to make sure that I'm not contradicting it in what I said. Because I think for what I just said there about how efficiency can blind you to disruption, there's also a lot to be said for efficiency. Obviously, what we want to do is we want to identify great value that we can provide to a marketplace, and then figure out how to do it in a way in which it's faster, better, cheaper. That's good growth. But what we don't want to do is then do that in exclusive so that everything else that is changing around us becomes, oh, that's fine, that's a secondary thing.

Here's what I think that we need to be doing as leaders. We need to mostly be focused on what is the core value that we're providing to our consumers. Not just the product, but the value. How do we understand where the consumer is changing?

I've had fascinating conversations with people who are in audience insights research. What they find is that CEOs oftentimes lose touch with exactly what their consumer wants and who their consumer is, because that's changing very rapidly. If you don't have a good idea of exactly what people see your value to them being, then you're going to start to lock in on a product or a service that maybe people don't want in the same way, or they're starting to be interested in something else.

Let me give you another example, because you brought up Facebook. I had a really fascinating conversation with this guy named Hamza Mudassir who's a disruption expert, University of Cambridge, and he said that there's a really interesting case to be made that the thing that didn't kill Kodak was the digital camera. That's the story that we always tell, that the digital camera killed Kodak, because obviously Kodak was very involved in the development of the digital camera, and then they shelved it very famously. But rather, that the thing that killed Kodak was Facebook. And the reason for that was because when digital cameras first came out, they were garbage. People saw them as a fun toy, but they weren't going to replace the great print photos that people had. Then when Facebook came along, what it did is it gave people the use case for these digital photos. Now people said, I understand where to put these, I understand how to share them, I understand how they have value to me. Now, Kodak was not being aware of that. They were focused too heavily in on their own industry and what disruption would look like inside the camera film space, instead of what disruption would look like in the usability of photos. That is a distinction that is critical, and that I think that the leaders of Kodak lost sight of, because they didn't understand where the consumers were shifting.

Ricky Mulvey: On the nature of change: You look at essentially how societal transformations happen, particularly between something that is new and scary and into something that one can't live without. You call this the "99% there" problem. You talked about this theory with Jim McKelvey, who's the co-founder of [Block's] Square. And he learned quite a bit about this during the introduction of the Square reader, which basically allowed small businesses to take credit cards, which was something that wasn't afforded to many of them before. What did you learn about this theory from Jim McKelvey, and how did he handle it at Square?

Jason Feifer: Yes. It goes a little bit of reversal. Let me tell you. I had noticed through studying the history of innovation and also watching how a lot of companies adapted to blowback, you might say, or negative perceptions, that oftentimes what we were doing was, we were confusing a smaller problem with a larger problem.

An example that I give is Lime scooters. When those scooters first hit the streets, people were very upset by them. There was a lot of talk about cities banning them. Part of the problem was that people said that these things are too dangerous, technology is simply too dangerous. But when Lime dug into the problem, they discovered something pretty compelling. And that was that in fact, a very small percentage of -- I'm pulling up the actual numbers here -- of all trips, 99.985% of trips involve no safety incidents at all. Of the trips with incidents, 93% of them were minor scrapes or cuts; this left 0.0011% of all trips that required medical attention. These were the ones that were getting all the news attention. And if you dig into that, what you discover is that a good percentage of those trips were happening in somebody's first five rides.

Now that you understand that, you can see that what we don't have is a technology problem. What we do have is an education problem, we have a consumer education problem. You can solve that by doing things like running clinics so that people's first five rides are happening in a controlled environment, and that addressed a lot of problems. I call this the 99% problem, which is to say that oftentimes we are 99% of the way there on introducing a product, on serving a consumer base. But that 1% is problematic and is getting all the attention, and therefore, it's a "princess and the pea" situation where we feel like everything is wrong, even though a very small thing is wrong.

I ran this by Jim McKelvey, because I wanted to know what he thought, as a great innovator. He really liked the theory. He told me that he thinks that the two most important words that people should be thinking about [laughs] when they're trying to understand whether or not they have a competitive advantage is whether or not they understand what their "but" really is. Jim said: "For example, people thought the secret to Square's success was building the card reader that plugged into the headset jack. But really it was the 14 other things that are in our innovation stack."

Now, the competitors didn't understand that, which is why the thing that they tried to knock off was simply the reader, and it didn't go very well. Because McKelvey understood what they did not, which is that actually, it was these other things that they had done. Things like negotiating better deals with credit card processors. That was ultimately driving the success of Square. He said, ''Look, every entrepreneur, every leader, better understand their 'but really.'''

I'm just going to say it again here. This is what he said: "People thought the secret to Square's success was building a card reader that plugged into the headset jack. But really it was the 14 other things in our innovation stack." What is the thing that other people do not see? What is the thing that you understand, because you have a foundational advantage, that others don't, that is not visible to others. What is that? Because the more that you can understand what your "but" really is, the more you can see how you can really capitalize on your opportunity.

Ricky Mulvey: This is where I think there's an important connection with the scooter store. You look at a company like Bird, which basically went from being worth more than, I think it was worth more than $1 billion. Now it's basically a penny stock. One of the reasons when I look at that as an outsider, I think it has to do with the innovation stack. It's very difficult for these scooter companies to create deep innovation stacks when the substitution effect is so easy. It doesn't really matter to me as a consumer whether or not I'm using a Lime scooter or a Bird scooter, and that company is going to pay for the scooters anyway.

Jason Feifer: Well, I think that's right. I think there was another problem with these. I'll tell you the technology I quite love; I've used Lime, I've used Bird. I think that it's a great way to get around town. But I think that we often overestimate what disruption looks like and what change looks like. I think that we tend to think that new things are going to wholesale-replace old things, which means that when you put scooters out on the street, people are going to just widely abandon the other ways in which they used to get around town, and they're going to use scooters too. That's not what happens. What tends to happen is that we integrate new things. We take the best of the old and we take the best of the new, and we have something else.

As a result, I think these companies have provided a nice additional service for micro-mobility getting around town, but not at the scale and level of success that I think drove that initial valuation. That's a problem from the company's perspective. I think you're right that there's an innovation stack challenge here. But I think it's also a perception challenge that we all had as to what is really going to be the major impact of introducing a new kind of transportation. We need to be mindful of that. Things are not always going to replace in either good or bad ways. We're not going to see new things that just sweep out everything that came before them. I think that we need to temper our expectations as a result.

Ricky Mulvey: Think about the externalities. In my view, the scooter issue, it's not just injuries, it's accessibility. I think if you're able-bodied, it's made cities -- I live in a more urban area -- it's made it more accessible. But let's say you're pushing a stroller, or you're in a wheelchair. I think scooters in a lot of ways have made cities less accessible for those people with parking issues. People just put them in the middle of the sidewalk, and it's something that I'd like to see these companies take on a little bit more head-on.

Jason Feifer: I agree with that. In fact, you make a really good point about the limited use. I think that what we're seeing with those is that people have found places in which they fit into their lives, but it's probably a lot more limited than the companies would like, or that other people expected. And then you're right that oftentimes, I think companies have this challenge in which they assume that people are going to understand their innovation as well as they do. That's not the case.

I think that companies need to build what I like to call a bridge of familiarity, where we start not with: Hey, I've got this amazing new thing; you're definitely going to ditch every old way that you're doing things and understand exactly how to utilize these, and greatness will come. And rather to say, what am I building from? What level of familiarity am I building from? What do people need to get around? What do they understand right now about what is comfortable and safe and what they want from their cities? Then how can I start from there and help bring them to me?

When these companies dropped these scooters around, and let people just leave them lying around in sidewalks -- look, there's a level of convenience that comes with just having these scooters be scattered around the streets. But it did create a perception problem that was really, really negative. I think that they could have done a better job of anticipating that, building that bridge of familiarity for people, so that people understood exactly how this could fit into their lives better. And then also have been more mindful about how to be partners with these cities, so that you didn't have that pent-up blowback.

Ricky Mulvey: Jason Feifer, he's the editor-in-chief of Entrepreneur magazine. He also is the author of Built for Tomorrow, Embrace Change, Adapt Fast, and Future-Proof Your Career in Life. It's out right now. Thank you so much for your time.

He also hosts the Built for Tomorrow podcast. I should've plugged that as well.

Jason Feifer: Hey, thank you. I appreciate it. I'll take every plug you got.

Chris Hill: That's all for today, but coming up tomorrow, we will have key takeaways from Apple's big event.

As always, people on the program may have an interest in the stocks they talk about and The Motley Fool may have formal recommendations for or against it, so don't buy or sell stocks based solely on what you hear. I'm Chris Hill. Thanks for listening. We'll see you tomorrow.