In the spring of 1985, the board of Apple Computer made the fateful decision to force out cofounder Steve Jobs. Apple struggled over the next decade, losing much of its market share and dominance in the personal computer industry. As it neared collapse in 1996, Jobs returned to retake the reins of the company he had created. Through a series of brilliant changes and innovations, Jobs helped refocus and rebuild Apple, which ultimately became one of the largest and most powerful companies in the world.
Jobs is certainly a unique case — yet, surprisingly, many other large and high-profile companies have turned to former CEOs, often called boomerang CEOs, in times of need. Dell, Enron, Google, Twitter, Snapchat, Best Buy, Starbucks, Yahoo, DuPont, Procter & Gamble, J.C. Penney, Reddit, Bloomberg, Urban Outfitters, and Charles Schwab, among others, all had former CEOs return to lead their organizations. But while boomerang CEOs appear to be prevalent, little was known until now about the implications of this practice.
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To better understand the consequences of bringing back a former CEO, we collected and analyzed data on the performance of 167 boomerang CEOs of companies listed on the S&P Composite 1500 index from 1992 to 2017. We then compared their tenures with those of more than 6,000 other (non-boomerang) CEOs over the same period. This comparative investigation revealed some nonobvious insights and critical implications for leaders of large and small organizations.
The Possible Upside
Companies sometimes turn to former CEOs in times of crisis — which usually means that their successors have gotten into trouble and either resigned or been fired abruptly. One of the best arguments for bringing back former CEOs is that they are a known quantity, an attribute often important to employees and investors looking for reassurance that a company can get back on track.
Companies also elect to bring back boomerang CEOs when they want a leader who can hit the ground running. Most new chief executives must go through an initial learning period, becoming familiar with all the operational nuances of the new company. Even for an experienced executive, it takes time to gain the knowledge and skills that are specific to the CEO position in a particular company. For ex-chiefs intimately familiar with the business, however, much of this learning period may be reduced or even eliminated.
Several of the best-known examples of boomerang CEOs have been highly successful. For example, Howard Schultz returned to Starbucks after an eight-year hiatus, when the company’s stock price was suffering. Pursuing rapid growth, his successors had made a series of changes — such as introducing automatic espresso machines and more “sterile” store designs — that degraded the higher-touch, higher-class Starbucks experience. By refocusing on the company’s core principles that had originally made the premium brand successful, Shultz was able to help customers and employees fall back in love with Starbucks, leading its share price to more than triple during his second tenure.
Similarly, Stephen Luczo returned to Seagate Technology in 2009 amid declining revenues and an all-time-low stock price. The company’s stock appreciated sharply during his second tenure, placing it among the top five high-performing stocks in the S&P 500 and earning Luczo an enviable spot on Harvard Business Review’s 2017 list of the best-performing CEOs in the world.
The More Likely Downside
While these high-profile anecdotes capture a great deal of attention among corporate leadership and in the business press, our analysis suggests that these success stories are the exception rather than the norm. The differences in our data were striking: Boomerang CEOs indeed performed significantly worse than other types of CEOs. On average, the annual stock performance of companies led by boomerang CEOs was 10.1% lower than their first-stint counterparts. These results held true even when we compared them with other (non-boomerang) CEOs who were hired in times of crisis.
Why are boomerang CEOs so rarely successful? First, many boomerang CEOs barely recognize the company upon returning, because business conditions differ dramatically from those of their first stint as CEO. Between the times when they leave and return, changes inevitably occur in consumer preferences, competitors, suppliers, demographics, or the broader economy. These changes are especially pronounced and problematic in dynamic and fast-changing industries — in which boomerang CEOs performed much worse, per our data — as the value of the boomerang CEO’s accumulated experience depreciates much more quickly. Although some executives may be able to adapt to these new challenges, our evidence suggests that most do not.
One such example is Paul Allaire, who returned to lead Xerox in 2000 amid an onslaught of new challenges and shifting market conditions brought on by new digital technologies. Unable to effectively address these frequent and fundamental challenges and changes, Allaire ultimately left in 2001 with the stock down a spectacular 60% from when he returned. Similarly, A.G. Lafley returned as CEO of Procter & Gamble after the company suffered under his successor, with investors hoping for a “Steve Jobs-like sequel.” Unfortunately, this sequel never occurred: P&G experienced lackluster performance under Lafley’s second tenure, and the company’s stock price dramatically underperformed compared with competitors’ as the company lost market share. And of course, it’s hard to forget Kenneth Lay, whose second stint at Enron included one of the most surprising and devastating failures in corporate history.
What are some takeaways from these findings? We suggest the following guidance for organizations considering bringing a key leader back.
Move forward, not backward. It can be tempting in times of crisis to return to a former hero who made the company great once and who can hopefully do it again. But doing so may end up pushing the company backward rather than moving it forward. Many successful executives are one-trick ponies, and research on CEOs finds time and again that they have a relatively fixed paradigm of how their industries work, what options are feasible, and how an organization should be run.
Even when CEOs are able to adapt to the company’s new environment, some may still not be willing to change. Many remain convinced that since their initial vision led the company to earlier success, it should provide the path to future success. For example, after relinquishing the CEO position for three years, Michael Dell returned to lead his namesake company in 2007. Unwilling to make necessary changes to vision, strategy, and operations, Dell continued doing the same old thing, even when it no longer worked for his company. Eventually, he took his company private after its shares had fallen by an additional 40%.
In short, our data and analysis suggest that boomerang CEOs may be either unable or unwilling to make necessary strategic changes when they return to lead the companies they founded. The unexpected outcome is that they often end up hurting the company instead of helping it.
Don’t neglect succession planning. Bringing back an ex-chief may actually be indicative of a broader managerial dysfunction: failure of CEO succession planning. When companies simply have not devoted enough time and thought to who the next CEO will be, many are forced to rehire a familiar face in part because there is no one else to turn to. Boards rarely want to talk about it — why risk offending or undermining an incumbent CEO? Why spend valuable board meeting time discussing a situation that may be several years off? Yet, when the company is in crisis and it’s time to fire the CEO, it’s often too late to talk about a smooth transition to a new executive.
Even where companies do engage in succession planning, they sometimes do a poor job of it. One such example is the leadership of J.C. Penney’s Myron “Mike” Ullman. After being injured in a car accident, Ullman handed the reins over to Ron Johnson, a former Target executive. Johnson’s tenure as CEO went down in history as one of the most destructive of any CEO at any company ever and is largely credited for J.C. Penney’s historic slump. The company’s stock price jumped initially after Johnson’s firing was announced, but it tumbled once again after Ullman was announced as the returning CEO. Ullman’s reinstatement signaled that the desperate company had no one else to turn to.
Companies are less likely to face these problems when, having devoted adequate time to succession planning, they have at least one person to tap in a time of need. To plan well for succession, company leaders should think more broadly about the surrounding executive team rather than more narrowly about just the CEO. Research shows that giving team members experience in all aspects of the business and helping them develop the broad set of skills they’ll need in the top job will ensure that the company always has someone who can take over.
Be especially wary of bringing back a founder. Of all boomerang CEOs, perhaps the most notable and most common category consists of founders who return to retake the lead of the companies they started. While founders made up only 4% of our overall CEO sample, they accounted for 44% of the boomerang CEOs. In a few cases, these founders performed especially well. For example, Panera Bread founder Ron Shaich returned as CEO amid slow growth and was able to inject new life into the company, ultimately making it one of the top-performing restaurant stocks in recent history. Another is Charles Schwab, whose namesake company experienced rapid growth after his return as CEO.
Once again, however, these founders are the exception rather than the rule. Most boomerang founders in our data performed particularly poorly. Although founders possess the entrepreneurial skills required to lead a new venture, they often lack the administrative skills necessary to manage the challenges associated with a larger, more complex organization. This is especially true if the company is in crisis or requires a turnaround, which demands a very different set of management capabilities compared with founding a new venture.
For example, Chipotle founder Steve Ells’s first stint as CEO was characterized by rapid growth and remarkable success. However, when he returned to lead the company in 2016, it was experiencing a series of food safety scandals, an influx of new competitors, and a declining customer base. These conditions proved ill suited for Ells’s skill set, and he gave up the CEO position a year later, acknowledging the need for improvements that he was unable to oversee. Similarly, Jerry Yang’s second stint at Yahoo is often credited with bringing about the company’s demise, as many investors believed he was unqualified to make painful but needed strategic choices. The irony is that company founders often return to propel progress, but their very retention may impede it.
Businesses should think twice before bringing back a former boss to steady the organization. Although it may appear to be a smart choice in principle, our research suggests that it may be a poor choice in practice.
The same advice goes to those CEOs who are considering making a comeback and returning to a former company; it’s hard to stay on top forever, and the best choice may be to pass the torch along to someone else rather than risk tarnishing your hard-earned legacy. While CEOs have always been, and will continue to be, key to a company’s success, those who are boomerangs might come back to bite rather than benefit the organization.