When a crisis hits, boards can find comfort in familiarity.
Swiss bank UBS did just that this week, announcing that Sergio Ermotti would return as chief executive to lead the difficult integration of domestic rival Credit Suisse.
Several other “boomerang” CEOs have returned to their roles. last november Bob Iger was reappointed to the top job at Disney after a loss of confidence in the leadership of successor Bob Chapek. Founder of Starbucks Howard Schultz returned to the coffee chain for his third term as managing director in April 2022 following the retirement of his replacement, Kevin Johnson.
Largely an American phenomenon, the hope is that these people – who know the company and understand its corporate culture – can bring stability in times of chaos. They are a familiar entity to the board, senior executives and shareholders, paving the way for a smooth turnaround.
Activist investor Carl Icahn this week called on US biotech Illumina to bring back former boss Jay Flatley – his latest move in a brewing proxy fight with the company.
“I’ve spoken to a number of big Illumina shareholders and most of them like him and say he’s done a great job in the past. And we need someone who can do that. great job right now,” Icahn told the Financial Times. “When you’re in trouble, it’s very hard to find someone to run a business, that’s why you often look back to see who it is. has done well in the past.”
An old person chief at UBS said the Credit Suisse acquisition was the largest bank combination since the financial crisis, presenting huge uncertainty. “This is a major deal, hugely complex, and the board didn’t want to take any risks when executing it. It’s as simple as that. Sergio is the right man for the case. He knows both sides well. He has the experience.”
Ermotti, who ran UBS for nine years before handing over the reins to Ralph Hamers in 2020, had during his previous stint repeatedly hatched plans to acquire Credit Suisse, according to people familiar with his thinking.
Research by headhunter Spencer Stuart found that 22 CEOs of S&P 500 companies had returned to their positions they previously held over the past 12 years. Of these, 13 returned permanently and nine were appointed on an interim basis, most remaining for less than a year.
But the data suggests companies typically underperform the market when bringing back former executives.
Chris Bingham, professor of strategy and entrepreneurship at the University of North Carolina’s Kenan-Flagler Business School, said these people tend to “hurt rather than help” organizations.
He conducted research published in the MIT Sloan Management Review in 2020 evaluating the performance of “boomerang” leaders. Using a sample of 6,429 CEO tenures at S&P Composite 1500 companies, from 1992 to 2017, Bingham and his co-authors found that stock performance was 10% lower in the 167 groups led by reappointed executives. compared to their counterparts. This was especially true if the returning CEO was one of the company’s original founders.
“Boards want someone who can be operational. They often don’t have much time and there is a crisis. This is often the logic. Why shake things up is someone who has faced crises in the past and can handle today’s. This is particularly useful for investors looking for reassurance. That’s what’s happening at UBS,” Bingham said.
But he issued a warning: Part of the reason boomerang CEOs didn’t perform so well was because they were returning to a radically different business environment.
“For UBS Hermotti — it’s only been two years, but look how much things can change,” he added.
From managing the fallout from Covid to implementing policies on flexible working, diversity and inclusion, the role of the CEO post-pandemic has evolved.
Still, the idea of bringing back a successful CEO is appealing when a company is struggling. The reappointment of Steve Jobs at Apple is often cited as a game changer for the technology group. After being removed as CEO in 1985, he returned as Apple was on the verge of collapse in 1996, refocusing and rebuilding it into the tech titan it is today.
Other high-profile examples include Michael Dell, who left his namesake company to return to run it three years later in 2007, as well as former bosses at Twitter, Best Buy, Bloomberg and Charles Schwab.
In another recent example, Katrina Lake, founder of online personal shopping subscription service Stitch Fix, returned to the role of chief executive in January, less than two years after stepping down.
Some executive search professionals believe that the return of a former CEO says more about the board’s inability to ensure a smooth succession process than it does about the outstanding performance of a former executive.
“Each company has its own story. Ermotti’s story is a bit different from Iger’s story, for example. But in general, if I were to see a pattern, it’s that you have a strong and respected leader of long standing who leaves big shoes to fill and the successor is then deemed unable to do so,” said a hunter. high-level heads on boards.
“Most often these are high alpha CEOs who are not interested in creating successors and can be seen to be lagging behind and undermining their replacement,” he added. “When a successor fails, the board often thinks ‘let’s bring the old CEO back,’ but they probably should think ‘shouldn’t we bring in someone else’.”