The pros and cons of CEO returning, Boomerang CEO

CEO return

Let facts speak

How high is the probability?

Between 1992 and 2017, 167 CEOs of companies listed on the S&P Composite 1500 returned to their posts. Such CEOs are known as boomerang CEOs.

Th famous enterprises

Apple (ticker: AAPL), Texas Instruments(ticker:TXN), Starbucks (ticker: SBUX), Disney (ticker: DIS),Salesforce (ticker: CRM), Oracle (ticker: ORCL), Seagate Technology (ticker: STX) , Dell (ticker: DELL), Enron, Google (tickes: GOOG and GOOGL), Twitter, Chipotle Mexican Grill (ticker: CMG), Snap (ticke: SNAP), Best Buy (ticke: BBY), Xerox (ticker: XRX), Twitter, Yahoo, DuPont (ticker: DD), Procter & Gamble (ticker: PG), JC Penney, Reddit, Bloomberg, Urban Outfitters (ticker: URBN), Charles Schwab (tickers: SCHW ) all have CEO returning to the businesses they once led.

Most Famous and Successful Case

In the spring of 1985, Apple’s board of directors made the decisive decision to oust co-founder Steve Jobs. Apple struggled over the next decade, losing most of its market share and dominance of the PC industry. When it was on the brink of collapse in 1996, Jobs came back to take back the helm of the company he had created. Through a series of brilliant changes and innovations, Jobs helped Apple reposition and rebuild, eventually becoming one of the largest and most powerful companies in the world.

Who is the next one?

Amazon (ticker: AMZN ) is now being named by many as to whether it will be the next company to return as a CEO.

Commonality of these companies

Leader in a field

In all aspects, at least once had a glorious history; and most of them are leaders in a certain field.


The stock prices of companies will be above the standard, and most of them will distribute dividends, and the stock prices will not fluctuate sharply; that is, blue chip stocks are more suitable for general investment retail investors to hold for a long time.

Many expectations

Because these businesses are very successful and carry a lot of expectations from everyone.

The Pros and Cons of a CEO Return

Benefits of a CEO Return

Companies sometimes turn to previous CEOs in times of crisis — which usually means their successors run into trouble (often in the form of a sharp drop in stock prices) and either resign or are abruptly fired. One of the best arguments for recalling a former CEO is that their legacy is well known, and that’s often important to employees and investors looking to get their company back on track.

When companies need a leader who can be invincible, they also choose to bring back the CEO. Most new CEOs must go through an initial learning period, familiarizing themselves with all aspects of the new company’s operations. Even for seasoned executives, acquiring the knowledge and skills that are unique to a particular company’s CEO position takes time. However, for former CEOs who are very familiar with the business, much of this learning time is likely to be less or nonexistent.

Several examples of the most famous boomerang CEOs seem to be very successful. Howard Schultz, for example, returned to Starbucks “for the first time” after an eight-year hiatus when the company’s stock price was taking a beating. In pursuit of rapid growth, his successors made a series of changes — such as the introduction of automatic espresso machines and a more “sterile” store design — that diminished Starbucks’ high-touch, high-quality experience.

By refocusing on the core company principles that made the premium brand successful in the first place, Schultz was able to help customers and employees fall in love with Starbucks again, and its stock price more than tripled during his second term.

Likewise, Stephen Luczo returned to Seagate Technology in 2009 amid declining revenue and record-low stock prices. The company’s stock rose sharply during his second term, placing him among the top five performers in the S&P 500 and earning Luzzo a spot on Harvard Business Review’s 2017 list of the world’s best executives. top of the list.

Disadvantages of CEO return

While these high-profile anecdotes garnered a lot of attention among corporate leadership and the business media, “these success stories have proven to be the exception rather than the rule”: Boomerang CEOs do perform worse than other types of CEOs a lot of. On average, companies led by Boomerang CEOs underperformed their first-term peers by 10.1% for the year.

Why are boomerang CEOs so rarely successful? For starters, many Boomerang CEOs come back with little recognition of the company they once led because the business is so different from when they first became CEO. Between their departure and their return, there will inevitably be changes in consumer preferences, competitors, suppliers, demographics, or the broader economy.

These changes are especially pronounced and problematic in dynamic and rapidly changing industries–in which Boomerang CEOs fare much worse–because the value of experience accumulated by Boomerang CEOs is devalued by more quick. While some executives may be able to adapt to these new challenges, evidence suggests that most cannot.

One such example is Paul Allaire, who returned to Xerox in 2000, buffeted by new challenges and changing market conditions posed by new digital technologies. Unable to effectively deal with these frequent fundamental challenges and changes, Allaire eventually left Xerox in 2001, and the stock price plummeted 60% since his return.

Likewise, with AG Lafley returning as CEO of Proclamation after the company took a hit under his successor, investors wanted a “Jobs-esque sequel”. Unfortunately, a sequel didn’t happen: Procter & Gamble had a lackluster second term in Lafley’s tenure, and as the company lost market share, the company’s stock price underperformed relative to rivals. Of course, it’s hard to forget Kenneth Lay, whose second tenure at Enron suffered from one of the most surprising and devastating failures in the company’s history.

Founder return should be especially careful

Of all the boomerang CEOs, perhaps the most visible and common category is the founders, who come back and re-lead the companies they started. While founders make up only 4% of the sample, they make up 44% of Boomerang CEOs. In a few cases, these founders performed particularly well.

For example, Panera Bread founder Ron Shaich returned as CEO amid sluggish growth and breathed new life into the company, ultimately making it one of the best-performing restaurant stocks in recent history. The other is Charles Schwab, Schwab has experienced rapid business growth since his return as CEO.

Yet again, these founders are the exception rather than the rule. Most boomerang founders in our data performed particularly poorly. Although founders possess the entrepreneurial skills needed to lead a new venture, they often lack the necessary management skills to address the challenges associated with larger, more complex organizations. If a company is in crisis or needs to be turned around, this obviously requires a very different set of management capabilities than starting a new business.

For example, Steve Ells, founder of Chipotle Mexican Grill, marked his first term as CEO with rapid business growth, building a remarkably successful business. However, when he returned to lead the company in 2016, the company was reeling from a series of food safety scandals, an influx of new competitors and a declining customer base.

Those conditions proved ill-suited to Ayers’ skill set, and he relinquished the chief executive job a year later, acknowledging improvements needed that he couldn’t oversee. Likewise, Jerry Yang’s second tenure at Yahoo is often credited with bringing about the company’s demise, as many investors deemed him unqualified to make painful but needed strategic choices. Ironically, company founders often come back to drive progress, but their retention can hinder progress.

Stock performance

Past share price performance

First of all, most of these companies are blue-chip stocks, which have been listed for many years, and their market capitalization is not too small, and they all have a long history. The backbone of the US stock market. However, this also means that it is difficult for such stocks to “significantly” outperform the market.

Stock performance of CEO return

Not all returning CEOs did better the second time around. On average, annual stock performance with boomerang CEOs was worse — 10.1 percent lower — compared with those in which CEOs ranked No. 1, according to a 2020 study published in MIT Sloan Management Review. round of work.

Reasons could include changes in the industry and the company itself following the departure of the CEO. If a CEO has been away for an extended period, it may mean returning to a brand new company rather than the one they left. In other words, past success does not necessarily predict future success.

Closing words

Businesses should think twice before bringing back the former boss to stabilize the organization. While this seems like a sensible choice in principle, our research shows that it can be a poor choice in practice.

The same advice applies to CEOs who are contemplating a comeback and returning to their former company; staying on top forever is hard, and the best option may be to pass the torch to someone else rather than risk tarnishing your hard-earned legacy risks of. While the CEO has been and will continue to be the key to the company’s success, those boomerangs may come back to bite rather than benefit the organization.

But success stories of CEO comebacks have proven to be the exception rather than the rule.

CEO return

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