The return of Robert Iger as CEO of Walt Disney followed by a poorer-than-expected company performance has rekindled the debate about whether the decision to bring back formerly successful CEOs to revitalize an organization is a good thing for investors. Large Disney investors who opposed Iger’s reappointment, along with the most-often cited research investigators on the topic, say no.
Those who support the notion of bringing back a formerly successful CEO cite the need for someone who understands the business, the problem, and the organization’s ability to deal with it. A boomerang CEO typically can be reinstalled quickly and can hit the ground running, providing a timely solution to a problem. The CEO is a known entity to members of the board of directors who have to make the decision. They cite high-profile successful examples, such as Steve Jobs at Apple, Howard Schultz at Starbucks, Ron Shaich at Panera Bread, and Charles Schwab.
Those who oppose the idea characterize the decision as a board’s way of taking the easy path, not doing its primary job of managing CEO succession adequately. They argue that the boomerang CEO is likely to take the organization back to where it was when he or she was leading it, something that can be fatal, especially in a rapidly evolving and highly competitive industry. Old ties within the organization can be both beneficial and problematic. They cite organizations such as Xerox, Dell, Procter & Gamble, and JCPenney, in which boomerang CEOs were thought to have underperformed.
"One problem is that boomerang CEOs most often aren’t asked to come back to organizations with robust performance records to begin with."
The question is: underperform in relation to what? Previous performance of the organization under the boomerang CEO? Other competitors in the industry? Other organizations in general? Performance expectations?
Critics of the notion of bringing back a former CEO can back up their arguments with a large-scale research study by a team led by Professor Christopher Bingham at the University of North Carolina to support their claim. The Bingham study analyzed data for 6,429 CEOs of S&P 1,500 index firms from 1992 to 2017. Among these were 438 boomerang CEOs with more than a year out of office between stints as CEO; 193 of these were founders. At the risk of oversimplification, the study found that stock performance of companies led by boomerang CEOs was 10 percent below that of their non-boomerang contemporaries in the sample while they were in their second stints in the office. Performance of boomerang founders was even worse.
One problem is that boomerang CEOs most often aren’t asked to come back to organizations with robust performance records to begin with. And, as is the case in any study of this kind, there is always the unanswerable question of how the organization might have performed under a non-boomerang CEO during the recovery period.
Researchers point out that such findings are a comment primarily on the inadequate succession planning of an organization’s board of directors as opposed to the CEO.
Do boomerang CEOs get a bad rap? What do you think?
Share your thoughts in the comments below.
Reference:
- Christopher Bingham, Bradley Hendricks, Travis Howell, and Kalin Kolev, “Boomerang CEOs: What Happens When the CEO Comes Back?,” MIT Sloan Management Review, September 17, 2020, Kenan Institute of Private Enterprise Research Paper No. 19-27, also available at through the Social Science Research Network website.