The American cult of the superstar CEO is alive and well.
Starbucks shares enjoyed their biggest one-day gain in history on Tuesday, soaring 25 per cent after announcing embattled chief executive Laxman Narasimhan was being replaced by Brian Niccol. That equates to a gain in market capitalisation of $21 billion (€19 billion).
Is Niccol – is anyone – worth $21 billion? He is certainly well-regarded, following a six-year stint at burrito restaurant Chipotle that saw the shares gain almost 800 per cent.
Bank of America describes him as “arguably considered the best CEO in the restaurant industry” over the last six years. Bernstein analyst Danilo Gargiulo went further, saying many regarded Niccol as “the Messi of the restaurant industry”.
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Starbucks is happy to pay him the big bucks, if you’ll pardon the pun, awarding Niccol a sign-on package reportedly worth up to $113 million.
Those who lionise superstar CEOs can point to examples like Microsoft, which saw its shares rise 8 per cent in 2013 after then boss Steve Ballmer announced he was stepping down.
Shares had lost more than a third of their value under Ballmer; under his successor, Satya Nadella, they have surged 10-fold.
Still, much research suggests the CEO’s importance is generally overstated, a point encapsulated in Warren Buffett’s observation that “when a management team with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact”.
Investors clearly think otherwise, but it remains to be seen whether Niccol really is the saviour Starbucks needs.
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