By Joann S. Lublin and Julie Jargon 

It's good to be the boss -- unless the former boss is looking over your shoulder.

Howard Schultz, who is relinquishing his role as Starbucks Corp.'s chief executive, says he will truly step back from daily decision-making, unlike the last time he gave up the top job 16 years ago.

Mr. Schultz, who over the past two decades changed the way Americans drink coffee, said last week that he plans to hand over the CEO title in April to Starbucks President Kevin Johnson, who has served on the company's board for seven years and has been second in command for nearly two years.

Instead of managing the day-to-day business, Mr. Schultz will stay on as chairman and take on a new project to build luxury coffee shops within Starbucks.

During an investor conference in New York on Wednesday, Starbucks said it plans to grow revenue by 10%, earnings per share by 15% to 20% and same-store sales by a percentage in the mid-single digits in each of the next five years while opening 12,000 new stores globally.

The transition plan is fairly unusual in corporate America. More typically, a successful exiting CEO remains board chairman for a transition period that lasts no longer than a year.

The handover comes at a pivotal moment for the coffee chain. After many years of posting strong same-store sales growth in its key U.S. market, sales have begun to slow. Starbucks has missed sales targets in the U.S. for four straight quarters, which it says is due to economic uncertainty. It may be years before the new high-end stores have an impact on results.

Keeping the former CEO hanging around in another operational role is more common at tech start-ups than at large, established companies, experts say. It can succeed if the current and former CEO have distinct areas of expertise, said Jeffrey Sonnenfeld, a senior associate dean at Yale School of Management who has written leadership books.

But such an arrangement won't work if the company is "trying to appease" its former chief, according to George L. Davis Jr., leader of the global CEO practice at executive recruiter Egon Zehnder. Then, "it usually is a recipe for friction."

People who have worked with the 63-year-old Mr. Schultz say he has created a culture in which staffers feel free to disagree with him.

But Mr. Schultz, who helped build Starbucks into a global brand, has had a hand in the direction of the business as far back as 1982, when he joined the company as its director of marketing and retail operations.

Orin Smith, who served as CEO after Mr. Schultz stepped down from running the company in 2000 to focus on opening more stores overseas, said "we had our share of conflicts" over issues such as whom to promote and which new countries to enter. But the two executives knew how to collaborate and settled disagreements privately, Mr. Smith said.

Yet, Mr. Schultz also remained highly involved in other major strategic decisions and "had the last call on all matters," Mr. Smith said.

Mr. Smith retired in 2005 and was succeeded by Jim Donald, whom directors fired three years later after the company's sales faltered and traffic at its U.S. stores declined for the first time. Under Mr. Donald, the chain had ventured into selling books, music and movies, which distracted Starbucks from the business of selling coffee.

In a 2011 book, Mr. Schultz said his relationship with Mr. Donald became complicated. "I tried to give him space to do his job by forcing myself to stay out of meetings and keeping some opinions, but not all, to myself," Mr. Schultz wrote. He wrote that he had continuing disagreements with Mr. Donald about which people to promote into key roles. Mr. Schultz retook the helm in 2008.

Mr. Donald couldn't be reached for comment.

Mr. Schultz said leaving the CEO post this time will be different. Through a spokesman, he said Mr. Johnson, once he becomes CEO, will have the final call on all company decisions.

But pairing a company's visionary with an operations executive doesn't always work out in a CEO handover.

At Martha Stewart Living Omnimedia Inc., for example, founder and chairman Martha Stewart was appointed chief creative officer when the company elevated operating chief Lisa Gersh to CEO in July 2012. Less than six months later, Ms. Gersh announced plans to resign. Her tenure had been marked by a difficult relationship with Ms. Stewart, people familiar with the company said at that time.

Messrs. Schultz and Johnson have a close working relationship and a unique friendship, according to people familiar with the matter. The two men, who are known to finish each other's sentences, work in adjacent offices at Starbucks's Seattle headquarters and plan to continue doing so.

Analysts say Mr. Johnson, a former Microsoft Corp. executive and CEO of Juniper Networks Inc., has the know-how to oversee the chain's 25,000 stores.

In an interview last week, Mr. Schultz credited Mr. Johnson as a co-architect of the strategy of moving upscale. Mr. Schultz, who began talking with Mr. Johnson about becoming CEO this spring, said: "Our skill base couldn't be more complementary."

Write to Joann S. Lublin at joann.lublin@wsj.com and Julie Jargon at julie.jargon@wsj.com

 

(END) Dow Jones Newswires

December 07, 2016 09:48 ET (14:48 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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