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Wednesday, October 13, 2004 - Page updated at 12:00 A.M.
Starbucks names its next CEO
By Monica Soto Ouchi
Starbucks President and Chief Executive Orin Smith, one of the triumvirate under which Starbucks came of age, will retire in the spring.
He will be succeeded by Jim Donald, 50, president of Starbucks North America, on March 31, the company announced yesterday. Donald will serve as CEO designate until then.
Starbucks hired Donald in 2002 with the understanding that he would take over as CEO in two to three years. Before Starbucks, Donald had been chairman, president and CEO for Pathmark Stores and helped develop Wal-Mart's Super Center stores.
"Over the ensuing two years, Jim's been right by my side, learning this business and relationships with people," Smith said. "We've been grooming him for this job."
Smith helped current Chairman Howard Schultz and Howard Behar, who led the company's expansion overseas, build the specialty-coffee retailer from a privately held local company into a global icon. When he became chief financial officer in 1990, Starbucks had 45 stores in two countries and $19 million in annual sales.
It hired a sophisticated headhunter to lead the search, but "we were frustrated because he kept talking only about professional qualifications and didn't get our point about character and culture," Schultz wrote.
They found Smith through a personal recommendation. He took a pay cut to accept the job.
Before joining Starbucks, Smith worked for 14 years in the management-consultant division at Touché Ross & Co., where he was partner-in-charge of the Seattle division for three years. He later served as an executive vice president and CFO of two transportation companies.
Gardner said Smith took his responsibility for managing the state budget "more deeply than anybody I've ever met, and I'm sure he took that ethic with him at Starbucks."
"Few people deserve to retire as much as him," Booth said.
Starbucks was not a professionally managed business when Smith joined the company, Schultz wrote in his book. A consultant had described its approach as "ready, fire, aim."
Smith, who Schultz described in his book as quiet, reserved "and almost always in his shell, like a tortoise," helped build the company's management team in some of the most-needed areas management, information systems, financing and legal affairs, among others.
The system worked well. In the early 1990s, Schultz, Behar and Smith became known as H2O.
Schultz described Orin's function as one in which Smith took care of the back room while Schultz focused on "what the customer saw."
"The efficiency of the back room is really what's made Starbucks a financial success," Schultz wrote. "That's been Orin's crucial contribution to the company. He's made me look much better than I am."
Smith eventually took over as CEO as Schultz took on the role of chief global strategist and continued as chairman.
During Smith's five years at the helm, the retailer went from 2,498 stores and $1.7 billion in annual sales to more than 8,500 stores and more than $5 billion in sales.
He is credited as the primary author of the company's social-responsibility programs, which focus on helping to develop the communities from which Starbucks buys its coffee.
Although Smith took a pay cut to join the company, it paid off. In fiscal 2002, he was the highest-paid CEO in the Pacific Northwest after converting $36.3 million of stock options into shares. He owned 2.4 million shares at the end of the 2003 fiscal year, filings show.
While Smith says his time with Starbucks has been "extraordinarily rewarding," it has also been all-consuming. He plans to spend more time on philanthropy projects, including Conservation International, where he will assume responsibility for a $1 billion fund-raising effort.
Last month, Smith was named to the board of directors of Beaverton, Ore.-based Nike. He also serves on several advisory boards at the University of Washington.
Schultz said the company's vision will not change with Donald as CEO. Meantime, Donald has been replaced by Jim Alling, who was promoted, effective yesterday, from executive vice president of business and operations to a new position: president of Starbucks Coffee U.S.
Monica Soto Ouchi: 206-515-5632 or email@example.com
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