Starbucks’ Schultz: from cocky to vulnerable

July 31, 2008, 10:42 PM UTC

Seeing Starbucks , once America’s model retailer, post its first-ever quarterly loss, you realize how dire the retail category is these days. Just about everybody except the low-price players like McDonald’s , Wal-Mart and TJX are losing.

But beyond being a victim of the harsh economy, Starbucks made real mistakes. It dramatically over-expanded. And when Howard Schultz, who built the company from a tiny Seattle chain, fired CEO Jim Donald last December – blaming him for the over-expansion – Schultz got cocky, I think. Returning to the CEO role, Schultz assumed he knew best and could save the day. More key defections followed. Many investors believe that Schultz now lacks a viable plan to grow with a profit profile they’d come to expect. So the stock is stuck, 44% below its price a year ago.

I’ve been critical of Starbucks lately, but I’m actually biased on the company in the positive direction. I start each day sitting in my local Starbucks reading three newspapers (the New York Times, the Wall Street Journal, and the New York Post – always the Post first!) And I’ve long been a fan of Schultz, whom I’ve met but don’t know well. My boss, Fortune managing editor Andy Serwer, knows him better. Andy recently sat down with Schultz and former UCLA basketball coach John Wooden, now 97, at UCLA’s Anderson School of Management. “You could see on his face that this is a very trying period for him,” Andy says about Schultz.

When Andy asked the two legends what the key to leadership is, Schultz, 55, replied, “The hardest thing about being a leader is demonstrating or showing vulnerability…. When the leader demonstrates vulnerability and sensibility and brings people together, the team wins.”

Winning, of course, is more difficult than that – but good luck, Howard.

P.S. For ex-CEO Jim Donald’s take on what went wrong at Starbucks, see my recent Q&A, Lessons of the Fall, with him and two other former chiefs, Ed Zander of Motorola and David Neeleman of JetBlue . Click here for video of Donald. And for an interesting take on Howard Schultz, the humanist leader, check out this Fortune excerpt from True North by former Medtronic CEO Bill George.