In case you missed it, Robert Iger returned to the helm as CEO of the Walt Disney Company in November, less than two years after “retiring” in 2021. This makes him the latest in a series of high profile ‘boomerang CEOs’ who return to their former posts after allegedly leaving it to a successor. Other companies where this has happened include: Dell, Enron, Best Buy, Starbuck’s, Yahoo, Procter & Gamble, JC Penney, Bloomberg, Seagate, Apple and Xerox.
Disney performed very well during Mr. Iger’s initial 15-year run, and we certainly wish him the best as he navigates Disney’s current situation, but history would suggest that the odds are against him. While some highly publicized boomerang CEOs did succeed, like Howard Schultz returning to run Starbuck’s or Stephen Jobs returning to Apple, more often than not, they do not.
A 2020 article in the Sloan Management Review looked at 167 such instances at publicly traded companies between 1992 and 2017 and found that, on average, boomerang CEOs underperform other new CEOs by about ten percentage points. This is consistent with an earlier study by the UNC Kenan-Flagler School of Business that found that boomerang CEOs ‘significantly underperform’ their non-boomerang peers.
So, if it rarely works, why do boards continue to look to the past when changing leadership at the top? The stated reason is often that when this type of transition is required, it is best to turn to someone who can ‘hit the ground running.’ True enough, an outside CEO would take time to get up to speed and in a real crisis this can be costly. However, we suspect that there are usually other underlying reasons behind the choice:
- Risk aversion – picking the known quantity over other candidates even if they may be a better fit for the current situation may seem less risky
- Volitional narrative – the tendency to personalize performance – “things were great when Bob was here, Bob must be a great leader”
- Golden age fallacy – the tendency to romanticize some former time as the ‘golden age’ that was clearly superior to today (wonderfully parodied by Woody Allen in “Midnight in Paris”)
- Lack of internal candidates – at many big companies, CEO succession is a fairly public tournament. Those who are not chosen may leave to lead other companies rather than stick it out for five to ten years or more before getting their next shot, and this can leave a gap in the chain of succession
We can understand the temptation to think that a prior CEO could simply pick up where they left off and get the company headed back in the right direction. But why do they seem to struggle? The primary reason is that the company they rejoin is not the same one that they left. Markets and competitors are constantly changing, and if the transition is truly due to a ‘crisis,’ it is likely that some of the old assumptions have changed and so some of the old instinctive moves will not work. Paul Allaire at Xerox would appear to be an example of this. While the company did very well under his initial tenure, when he returned he failed to recognize how much competition had shifted to software-based solutions and his tactics grounded in hardware-based competition failed to turn things around.
In addition, bringing back an old CEO can send a negative signal to the company. The implied message of ‘we want to go back to the good old days’ can undermine succession planning and create rifts in the company culture.
Lastly, we think that there may be another factor at play, roughly equivalent to the statistical concept of ‘regression to the mean.’ If CEO performance is at least partially due to luck (right place, right time), it would serve to reason that after a great run, a second tenure would be closer to average and therefore not as good as the first term. We can’t prove this, but it is consistent with our view that luck plays a bigger role in performance than most executives want to acknowledge (and is far more important than they ever admit in their autobiographies!).
How can companies avoid this temptation to try and relive their glory days by bringing back an old CEO? We have a few thoughts:
- First, and most importantly, identify the root causes of performance issues – what has changed with markets, channels, competition since the last regime? These are issues that should be board-level topics, but can get lost in the backward-looking nature of many committees and formal report-outs
- In keeping with the above, fix the strategy not the person – great leadership is important, but cannot overcome the wrong strategy. Boards need to recognize when assumptions have changed and challenge leadership to update their strategy, rather than personalizing the decision as a performance issue
- Keep an eye on succession planning. The board should know leaders and their potential a couple levels down – even if there is a true crisis, a ‘battlefield promotion’ of an internal candidate who is not quite ready sends a much better signal to the organization than bringing back a prior CEO
- Lastly, consider interim leadership and/or mentoring for leaders who are asked to step up. There are any number of options available that will be seen as temporary and therefore avoid some of the downsides of the back to the past solution
In summary, looking backwards to a previous successful CEO is tempting, especially when they are a legend (or in some cases, even a founder). But like an aging athlete making one more comeback, it rarely goes well. Understanding the root causes of performance and avoiding the fallacy of attributing it all to personal performance can help avoid the usually negative consequences of boomerang CEOs.
What do you think? Has anyone ever seen a boomerang CEO return from the inside? We’d love to hear your thoughts.