When a crisis hits, corporate boards can find comfort in familiarity. Swiss bank UBS did just that this week, announcing that Sergio Ermotti would return as chief executive to steer the difficult integration of domestic rival Credit Suisse.
Several other “boomerang” chief executives have taken back their roles. Last November, Bob Iger was reappointed to the top job at Disney after a loss of confidence in successor Bob Chapek’s leadership. Starbucks founder Howard Schultz returned to the coffee chain for his third stint as chief executive in April 2022 after his replacement, Kevin Johnson, retired.
Largely a US phenomenon, the hope is that these individuals – who know the business and understand its corporate culture – can bring stability at a time of chaos. They are a known entity to the board, top executives and shareholders, paving the way for a seamless turnaround.
Activist investor Carl Icahn this week called on US biotech Illumina to bring back its former boss Jay Flatley – his latest move in a brewing proxy fight with the company.
“I spoke to a number of big shareholders in Illumina and most of them like him and say he did a great job in the past. And we need someone who can do a great job right now,” Icahn told the Financial Times. “When you have problems, it is very hard to find somebody to lead a company, which is why you often look back to see who did it well in the past.”
Boards want someone who can hit the ground running. They often don’t have a lot of time and there is a crisis
One senior leader at UBS said the acquisition of Credit Suisse was the most significant banking combination since the financial crisis, presenting huge uncertainty.
“This is a major, major deal with enormous complexity and the board wanted to take no risk on execution. It is as simple as that. Sergio is the right man for the deal. He knows both parties well. He has the experience.”
Ermotti, who ran UBS for nine years before handing the reins to Ralph Hamers in 2020, had in his previous stint drawn up plans to acquire Credit Suisse several times, according to people familiar with his thinking.
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.
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But data suggests companies typically underperform the market when they bring back former leaders. Chris Bingham, professor of strategy and entrepreneurship at the Kenan-Flagler Business School at the University of North Carolina, said these individuals tended to “hurt rather than help” organisations.
He conducted research published in the MIT Sloan Management Review in 2020 assessing the performance of “boomerang” chiefs. Using a sample of 6,429 chief executive tenures at companies in the S&P Composite 1500, from 1992 to 2017, Bingham and his co-authors found that stock performance was 10 per cent 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.
Sergio is the right man for the deal. He knows both parties well. He has the experience
“Boards want someone who can hit the ground running. They often don’t have a lot of time and there is a crisis. This is often the logic. Why shake things up? This is someone that has dealt with crises in the past and can deal with the current ones. This is especially helpful for investors who are looking for reassurance. This is what is happening at UBS,” said Bingham.
But he issued a warning: the reason why boomerang chief executives did not perform as well was partly because they were returning to a starkly different business environment.
“For UBS’s Ermotti – it has only been two years, but look at how much things can change,” he added.
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.
Still, the idea of bringing back a successful chief executive is alluring when a company is in trouble. Steve Jobs’ reappointment at Apple is often cited as a game-changer for the tech group. After being removed from his position as chief executive in 1985, he returned when Apple was close to collapse in 1996, refocusing and rebuilding it into the tech titan it is today.
It is very hard to find somebody to lead a company, which is why you often look back to see who did it well in the past
Other high-profile examples include Michael Dell, who left his namesake company in 2004 only to return to lead it three years later, as well as former bosses at Twitter, Best Buy, Bloomberg and Charles Schwab.
In another recent example, Katrina Lake, founder of Stitch Fix, the online personal shopping subscription service, returned to the role of chief executive in January, less than two years after stepping aside.
Some executive search professionals believe bringing back a former chief executive says more about the board failing to ensure a smooth succession process than about the stellar performance of a past leader.
“Each company has their own story. The Ermotti story is a little different from the Iger story, for example. But in general, if I was to see a pattern, it is that you have a strong, long-standing respected leader leaving big shoes to fill and the successor then deemed not able to do it,” said one headhunter of top boardroom roles.
“More often than not, these are highly alpha CEOs who are not interested in creating successors and can be seen sniping from the sidelines and undermining their replacement. When a successor fails, the board often thinks: ‘Let’s bring back the former CEO’, but they probably should think: ‘Shouldn’t we bring in someone else?’” – Copyright The Financial Times Limited 2023
