Key takeaways
- Boomerang chief executives, or former CEOs who return to their previous roles during a time of crisis, are becoming more common in the corporate world.
- While the idea of bringing back a successful CEO may seem appealing, data suggests that companies typically underperform when they bring back former leaders.
- Boomerang CEOs may hurt more than help organizations due to returning to a different business environment and potentially sniping at their replacement.
- The decision to bring back a former CEO may indicate a failure in the succession planning process.
In times of crisis, corporate boards often seek stability and familiarity, and one way to achieve this is by bringing back former chief executives, or boomerang CEOs. This trend has become increasingly common in recent years, with notable examples such as Sergio Ermotti returning to UBS and Bob Iger to Disney. However, while the idea of bringing back a successful CEO may seem appealing, data suggests that companies typically underperform when they bring back former leaders.
The Boomerang CEO Phenomenon
The concept of boomerang CEOs is not new, but it has become more prevalent in the corporate world in recent years. Research by headhunter Spencer Stuart found that 22 chief executives of companies in the S&P 500 had returned to their previously held posts in the past 12 years. Of these, 13 came back permanently and nine were appointed on an interim basis, with most staying less than a year.
The allure of bringing back a former CEO lies in their familiarity with the company’s culture and their knowledge of the business. They are a known entity to the board, top executives, and shareholders, which can pave the way for a seamless turnaround. Moreover, they may have dealt with crises in the past and can bring reassurance to investors.
The Downside of Boomerang CEOs
Despite the potential benefits of bringing back a former CEO, data suggests that companies typically underperform when they do so. Chris Bingham, a professor of strategy and entrepreneurship at the Kenan-Flagler Business School at the University of North Carolina, conducted research on boomerang CEOs published in the MIT Sloan Management Review in 2020. Bingham and his co-authors analyzed the performance of 6,429 chief executive tenures at companies in the S&P Composite 1500 from 1992 to 2017. They found that stock performance was 10% lower at the 167 groups led by reappointed leaders than at their counterparts. This was particularly true if the returning chief executive was one of the company’s original founders.
Bingham believes that the reason why boomerang chief executives do not perform as well is that they are returning to a starkly different business environment. From managing the fallout from Covid to having policies on flexible working, diversity and inclusion, the role of the post-pandemic chief executive has evolved. Furthermore, the returning CEO may potentially undermine their replacement and snipe from the sidelines, creating a toxic work environment.
The Role of Succession Planning
The decision to bring back a former CEO may indicate a failure in the succession planning process. Some executive search professionals believe that more often than not, boomerang CEOs are highly alpha CEOs who are not interested in creating successors. The board may have failed to ensure a smooth succession process, and the successor may have been deemed unable to fill the shoes of the previous leader.
Conclusion
While the idea of bringing back a successful CEO may seem like a logical move in times of crisis, data suggests that companies typically underperform when they do so. Boomerang CEOs may hurt more than help organizations due to returning to a different business environment and potentially sniping at their replacement. Additionally, the decision to bring back a former CEO may indicate a failure in the succession planning process.
Companies should prioritize succession planning to ensure a smooth transition of leadership in times of crisis. This involves identifying potential candidates for the top job, providing them with adequate training and development opportunities, and creating a culture of mentorship and leadership development. Boards should also consider the possibility of an external hire for the CEO position if they feel that no internal candidate is suitable for the role.
In conclusion, while the allure of boomerang CEOs may be strong, companies should carefully consider the potential drawbacks before making such a decision. Succession planning should be a priority to ensure a smooth transition of leadership in times of crisis. By doing so, companies can build a strong and sustainable leadership pipeline that can weather any storm.
