Leadership by Geoff Colvin

Guest Post: Former Starbucks CEO's tips for tough times

April 1, 2009: 1:02 PM ET
Photo courtesy of Starbucks

Photo courtesy of Starbucks

by Jim Donald, former CEO of Starbucks and Pathmark

"Good morning, general store managers, assistant store managers, VPs and all 26,000 employees…Jim here…

It's Wednesday morning and the merchandising message today is--and you are not going to believe it-- but I am telling you that it is OK to steal."

It was 5:30 a.m., and I was on the phone, in my kitchen, sending out my daily voicemail. As I paused for effect, I was thinking that the supermarket industry has one of the strictest employee honesty codes in the world.  Because of the large number of employees, the vast number of items and the low profit margins, it's an absolute necessity to have zero tolerance for employee theft. I hadn't informed my senior team that I would be sending out this message…hmm…better think about how to handle that one…

"You heard correctly…despite what you might think about controlling losses and theft, I am saying to all of our associates, it's now time to start stealing…stealing market share, that is."

Call it hokey, but this is how I needed to deliver my message to my 26,000 associates. I wanted to convey that the power of the company comes associate by associate, item by item… and it's up to them to translate that power into sales. So I finished my broadcast this way:

"That's my message for today…it's OK to steal…steal market share, that is. Thanks, and I'll talk to you tomorrow."

That's how I communicated though a crisis almost a decade ago when I was CEO of Pathmark Supermarkets. The economic crisis back then wasn't as bad as today's. But Pathmark was barely hanging on, just like a lot of companies now. Once the giant grocery chain in the New York metro area, it was one the longest living LBOs from the 1980s and still strapped with $1.6 billion in loans and junk bonds. Employee morale was at an all-time low. It was no longer a price leader. And our suppliers worried that we wouldn't be able pay the bills.

I learned a lot at Pathmark—and during my time at Albertsons, Safeway, Wal-Mart (WMT) and Starbucks (SBUX), where I was the CEO until January of last year. Since I have some experience in crisis and now I have some distance, too, let me share just a few ideas with you:

Communicate, communicate, communicate. Especially at a time of crisis, make sure your message reaches all levels, from the very lowest to the uppermost. When Pathmark was in dire straits, I began to send out my daily message to all employees. Make sure too that you give them an opportunity to reply.

Reach deep for answers. Sam Walton once said to me, "Jim, if you ever want to know what is troubling your business, ask your front-line employees. They know, and they will tell you." It's true, your people on the front line are your real marketing experts. Take advantage of the fact that they're closest to your customer everyday.

Beware the success trap. Success breeds risk aversion. And what happens when we become risk averse? We stop innovating. And we lose our best people because they become restless and even bored. Various studies by McKinsey and others lists three things that employees want from a company today: an open and honest work environment, the opportunity to be stretched and valued, and the ability to make decisions. Especially today, when so many companies are frozen by risk aversion, giving your people freedom to fail could be your competitive advantage.

By the way, we eventually took the company public and eliminated about two-thirds of the debt. And we did steal a point or two of market share along the way. Pathmark is owned by A&P now and has 144 stores in the northeast. Things worked out OK.

Jim Donald was CEO of Starbucks from 2005 until January 2008. Before that, he was chairman and CEO of Pathmark, president of Safeway's (SWY) eastern division, and head of Wal-Mart's supercenter division. He's on the board of Rite-Aid (RAD) and is an executive in residence at the University of Washington, Bothell. Also, Donald is one of the candidates whom activist investor Bill Ackman wants to place on the board of Target (TGT). Read Jennifer Reingold's "Taking Aim at Target" in Fortune for more on that.

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