By Jessica Tasman-Jones
This article is brought to you by Agenda, an FT Specialist publication that focuses on corporate boards
Bob Iger postponed his retirement several times before stepping down as chief executive of Disney in 2020, and then executive chairman at the end of 2021. But late last year – after a wave of controversies and performance issues under his successor, Bob Chapek – Iger returned as chief executive of the media giant in an interim capacity.
Likewise Starbucks' founder Howard Schultz, who helped build the coffee chain from 11 stores to more than 28,000 during his four decades of leadership, returned for his third stint as chief executive last April.
So-called “boomerang” chief executives are not common. Just 22 of the leaders in the S&P 500 named since 2010 had a prior stint as a permanent chief executive of the same company, according to data from executive search firm Spencer Stuart.
In the UK, there are few examples. River Island's former chief executive Richard Bradbury this year returned to become executive chairman having retired in 2010. And Andy Milner, who was chief executive of infrastructure and engineering company Amey until 2019, has returned to the post after a private equity buyout.
It is easy to see why boards might be tempted to go back to reliable executives amid an increasingly complex macro environment.
There might be an “emergency situation" with the existing leadership, says Jim Citrin, leader of Spencer Stuart’s chief executive practice. The board may decide there are no credible internal candidates and the urgency means it can't afford the time or risk involved with an outside search, he adds.
Or perhaps the board might bring back a founder chief executive if it feels their vision has been lost after a leadership transition, says Matteo Tonello, managing director of ESG at The Conference Board, a business research and membership group.
But the bet on boomerang chief executives may not always pay off. “The hand dealt the second time is usually harder than the first,” Citrin says. “If they try to do the same thing in a different context, it’s inevitably not going to work as well.”
Indeed, research suggests that returnees often perform worse second time round compared with their initial tenure. The 13 permanent boomerang appointments in the S&P 500 since 2010 achieved an average market-adjusted compound annual growth rate total shareholder return of 6 per cent during their first stint compared with 2 per cent during their second, according to data from Spencer Stuart.
Companies led by boomerang chief executives posted an annual stock performance 10 per cent lower than their counterparts in the role for the first time, according to a 2020 study published in the MIT Sloan Management Review. Academics analysed a sample of more than 6,000 chief executive tenures at S&P 1500 companies between 1992 and 2017 – though it is worth noting that just 167 of these were boomerang executives.
Returnees “often end up dragging the company backward when, instead, it needs to move forward,” says Chris Bingham, professor of strategy and entrepreneurship at the Kenan-Flagler Business School at the University of North Carolina and co-author of the study.
But not all boomerang chiefs produce a lacklustre performance. The late Steve Jobs famously returned to Apple in 1997 after leaving in 1985. He went on to unveil products such as the iPhone and iPad that would help Apple become the first $1trn company.
Boards should consider how the appointment of a boomerang chief executive will reflect on them. “The hiring of the CEO and succession planning is the most important role of the board,” says Sheila Hooda, an experienced director who serves on multiple public and private boards. “Resorting to boomerang CEOs reflects a major corporate governance failure — a red flag.”
If boards elect to bring back a former chief, it may be better to designate them as an interim while searching for a permanent successor. Iger, for example, will serve for two years and help find a replacement.
One of returnees’ main responsibilities tends to be the succession strategy, adds Tonello. “In a way, calling back a former CEO, especially when the current CEO is ousted for [poor] performance, means recognising that your previous succession plan was inadequate.”
This article is based on a story written for Agenda by Lindsay Frost