8/15/24 – Issue 9.30 – Your weekly news on all things board. 

For anyone interested in succession planning, the story behind the CEO change at Starbucks this week makes for fascinating reading. Starbucks Chair Mellody Hobson recounts to the Wall Street Journal how the board identified and stealthily recruited former Chipotle CEO Brian Niccol without so much as a recruiter involved, and only let founder Howard Schultz in on the plan after it had started to gel. It’s a tale of conviction and willingness to Go For It. And speaks, of course, to a need to move speedily to effect change before activist investors did.

In other news: Activist investor Elliot Management seeks to replace two-thirds of the Southwest Airlines board, 40% of millennials say a CEO’s political opinion could drive them from their jobs, why AI risks are keeping boards up at night, Delta accuses CrowdStrike of trying to blame the victim, and legal minds suggest new risks for boards require rethinking some standard board practices.

In the Spotlight

Starbucks Replaces CEO With Chipotle’s Brian Niccol

Laxman Narasimhan is leaving the company after just over a year at the helm

“The chief executive of Chipotle Mexican Grill is moving over to Starbucks, the coffee chain announced on Tuesday. Brian Niccol, who has held the top position at Chipotle since 2018, will take the helm of Starbucks next month, the company said. He will replace Laxman Narasimhan… The sudden change in management comes as the coffee chain grapples with weak results in the United States and China, and amid pushback from activist investors who are looking for a shake-up to address slowing sales. The company has also faced mounting pressure from union officials and activists who argue it illegally retaliated against workers and resisted contract negotiations in the midst of a nationwide union campaign…” NEW YORK TIMES

Inside Starbucks’s Surprising CEO Firing and Hiring

As the coffee giant’s shares sank and activists circled, the board arranged a cold call that brought dramatic change

“Behind the scenes, Niccol’s appointment was the culmination of months of internal angst over Starbucks’s direction and leadership…. The company’s board, once firmly in Narasimhan’s camp, quietly discussed finding a possible replacement while he remained in charge. Starbucks board Chairwoman Mellody Hobson said in an interview that the board had been thinking about the company’s trajectory for some time. The board didn’t have a special connection to Niccol, but focused on him as the best candidate to potentially replace Narasimhan. The board set its sights on trying to directly woo him to Starbucks, rather than using a recruiter…. Starbucks’s board managed the entire recruitment process itself, tapping just a few outside advisers to get it done, Hobson said.” WALL STREET JOURNAL 

From Boardspan this Week:

Have You Benchmarked Your Board Lately?

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Across the Board

Elliott Readies Southwest Proxy Fight

Southwest last month announced the biggest changes to its business model in its more than 50 years with the end of its open seating model

“Elliott Management will launch a proxy fight at Southwest Airlines, and intends to nominate as many as 10 directors to the company’s 15-person board, the activist said Tuesday evening, a long-expected move following weeks of back and forth between the airline and the investor…. Elliott disclosed its Southwest investment in June, writing to the company’s board to say that it believed that CEO Bob Jordan and chairman Gary Kelly were responsible for a precipitous decline in the company’s fortunes and that Southwest should move to replace them… The 10-person slate does not include any Elliott employees.… The news comes the same day that another Elliott-targeted company, Starbucks, announced it would appoint Chipotle CEO Brian Niccol as the coffee chain’s new chief.” CNBC

CEO’s Politics a Deal-Breaker for 40% of Gen Z and Millennial Employees

That said, the majority of workers would rather not talk about politics in the workplace

“… A recent survey from Indeed and Harris Poll shows that when it comes to politics at work, it may be best for companies if personal political opinions stay muted—especially those of the CEO. The survey, which aimed to delve into how employees feel about politics in the workplace, revealed that 40% of Gen Z and millennial workers aged 18-34 said they would leave their company if its CEO expressed political views that they disagreed with. Almost 40% of workers in the same age range also stated they would leave their jobs due to political differences in the workplace.” FAST COMPANY

Why AI Risks Are Keeping Board Members Up at Night

Company directors are trying to get a handle on artificial intelligence as its use soars, bringing potential productivity gains—but also raising the prospect of employee blunders

“At a recent bank board meeting, directors were treated to a surprise. They listened to the chief executive talk strategy—except it wasn’t actually the CEO talking.  It turned out to be a voice-cloning model that was trained, using the CEO’s prior earnings calls, to generate new content. More boards are undertaking such staged exercises to better grasp the impact—and potential risks—of generative artificial intelligence, says Tariq Shaukat, CEO of coding company Sonar…. Public-company directors should regularly be asking around a dozen key questions on AI. Those include: Who in senior leadership focuses on AI? Where is AI being used within the company? How are tools being identified and ranked for risk? How are third-party providers using it, and how are boards monitoring evolving regulatory regimes and litigation?” WALL STREET JOURNAL

Delta to CrowdStrike: Don’t Blame Us for Tech Problems
Airline says cybersecurity company is shirking blame for July outage, which led carrier to cancel 7,000 flights

“Delta Air Lines ratcheted up efforts to seek compensation from CrowdStrike, blasting what it called the cybersecurity company’s ‘blame the victim’ defense for a disruption that the airline said cost at least $500 million. ‘There is no basis—none—to suggest that Delta was in any way responsible for the faulty software that crashed systems around the world,’ David Boies, the high-profile litigator Delta hired, wrote Thursday in response to public comments from CrowdStrike. Delta, CrowdStrike and Microsoft MSFT have become embroiled in a dispute over who bears responsibility for the cascade of flight cancellations and delays that followed the global information-technology outage.... The tech companies have said they offered assistance that Delta ignored or rejected. Bastian said Thursday that those offers came days into the outage, in some cases after Delta was already well on its way to sorting out its problems.” WALL STREET JOURNAL

Who’s Responsible for Business Disruptions from CrowdStrike’s Glitch?
Delta is not the only airline placing blame for operations snafu on CrowdStrike

“Frontier Airlines also blamed the CrowdStrike snafu for some $20 million in lost revenue in July. The day before the CrowdStrike issue, problems with Microsoft impacted sales and resulted in flight cancellations, Frontier CEO Barry Biffle said on the company’s earnings call last week. Frontier said it’s still working out how to assess these damages—though CrowdStrike responded that Frontier is not a customer.” FORBES

Under Pressure—Rethinking Board Practices
Many boards have abandoned the traditional quarterly meeting schedule in favor of more frequent meetings and more tightly packed agendas

“Today’s corporate boards are facing unprecedented challenges, an evolving and expanding risk profile—and a significantly heavier workload…. From our seat as legal advisors to boards, we see a higher level of legal risk than ever before. … While there are no simple solutions, we encourage boards to critically assess their routines and commitments to determine whether changes would make it easier to navigate the workload and make deliberations sharper. Four Key Takeaways: 1. Corporate boards face an evolving and expanding risk profile. 2. There are no easy solutions, but critically assessing and modifying board practices, as appropriate, can help reduce pressure. 3. Boards can look at areas such as board meeting logistics, committees, mentorships, internal and external board resources, and director commitments to help reduce their workloads. 4. The intensity of board workloads is unlikely to ease in the years ahead, and rethinking these practices can help optimize board performance.” HARVARD LAW SCHOOL FORUM ON CORPORATE GOVERNANCE

Elizabeth Warren: Elon Musk 'Betrayed' Tesla Investors
Musk's many side projects have worried Tesla investors for years

“Elon Musk has turned his back on his own car company and appears to be putting his other projects ahead of Tesla, US Senator Elizabeth Warren said in a letter published this week. Warren — who's been a loud critic of Musk and has sent multiple letters about his conduct to Tesla's board — pointed to Musk's simultaneous leadership roles at various companies including Tesla, SpaceX, and X Corp. In particular, Musk's recent decision to divert Nvidia chips originally meant for Tesla to X shows a ‘glaring conflict of interest,’ and could be interpreted as him neglecting his responsibilities to Tesla investors… ‘I write to you with ongoing concern that Tesla's Board of Directors appears to be failing to meet its fiduciary duties to Tesla's shareholders by neglecting to address company CEO Elon Musk's multiple interests,’ Warren wrote. ‘Regardless of his personal pursuits and his vast personal wealth, Mr. Musk has legal responsibilities to Telsa—a publicly traded company—and its shareholders.’” AUTO BLOG

Seat at the Table

• Walmart adds to its board Bob Moritz, former Global Chair of PricewaterhouseCoopers

• Dollar General welcomes to its board Kamy Scarlett, Senior EVP of Human Resources, Corporate Affairs and Best Buy Canada for Best Buy

• Professional services firm AON appoints to its board Admiral James Stavridis, Partner and Vice Chair of Global Affairs at investment firm Carlyle

• Energy products distributor UGI Corporation elects to its board Tina Faraca, former Chief Commercial Officer at energy transfer firm Enable Midstream Partners

• Engineering firm KBR welcomes to its board Nchacha Etta, EVP and CFO of healthcare tech firm Omnicell

• Consumer robot firm iRobot Corp adds to its board Michael Loparco, former CEO of AI firm Symbotic

• Automotive tech firm Lear appoints to its board Rod Lache, former Managing Director and Senior Analyst of automotive firm Wolfe Research

• Immunological agents firm Agenus announces to its board Tom Harrison, Senior Operating Parter at Merida Capital Partners

• Insurance broker Brown & Brown welcomes to its board Stephen Hearn, former CEO of Ardonagh Capital Solutions Holdings

• Chemical manufacturer FutureFuel adds to its board Richard Rowe, former President and CEO of sustainable materials firm Arkema

• Digital marketing firm Similarweb elects to its board Kipp Bodnar, CMO of HubSpot

• Riskified announces to its board David Meredith, CEO of software firm Everbridge

• Life sciences firm Seer appoints to its board Dr. Nicolas Roelofs, former President of the Life Sciences Group at Agilent Technologies

• Analytical software firm Waters Corporation welcomes to its board Heather Knight, EVP and Group President of Medical Products and Therapies at Baxter International

About Boardspan
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