A corporate hero or a tragedy? Why boomerang CEOs like Bob Iger and Sergio Ermotti may actually signal a leadership failing

There are several reasons why boards opt to bring back a former CEO. They’re often iconic figures who steered their company to unprecedented financial success, oversaw major expansions or M&A deals, and are already familiar with company politics, internally and externally. It’s easier to turn to a familiar face than to hire someone new. Jobs’ return to Apple proved to be a smart call, as the company went from the brink of insolvency in 1997 to turn a $309 million profit by the following year.

Selecting a former CEO “makes a lot of sense to the board because they’re thinking, ‘This is a known quantity, and it can reassure the stockholders,” says Chris Bingham, a distinguished professor and area chair of strategy and entrepreneurship at the University of North Carolina’s Kenan-Flagler Business School. “It’s often during a time of crisis, so they’re trying to stabilize the markets. They know this individual; they’re comfortable with them.” But Jobs’ success doesn’t foretell the same outcome for others. In fact, the annual stock performance of boomerang CEOs was 10.1% lower than that of their first-time counterparts, according to a study of 167 boomerang CEOs from the S&P Composite 1500 between 1992 and 2017.

Bingham says bringing back a former CEO is indicative of a broader managerial dysfunction and failure of CEO succession planning.

What’s more, today’s business environment moves at a rapid pace, meaning returning CEOs often don’t recognize the company during their second stint as they face new challenges that require new operations and solutions they might not be well-versed in. Look at early 2020 compared with now: a pandemic, supply-chain issues, racial justice protests, the Great Resignation, the rise of unionization efforts, and so on. Even executives like Ermotti, who left UBS in 2020, are returning to a different landscape.

“The more dynamism you’re facing in an industry, the faster that knowledge or skill set is going to become outdated and obsolete. In accounting, we call it depreciation,” Bingham says, because companies are reluctant to take ex-CEOs off the books. “That’s not the right way to do it. They’ve served their useful life just like any other good asset, and it’s time to replace them.”

In defense of ousted successors, some argue that the circumstances created by and during the pandemic make it all the more challenging to follow a starring act. “There’s a large and unpredictable shadow cast, often by an iconic, long-tenured CEO,” says Constantine Alexandrakis, CEO of Russell Reynolds Associates. “While it could be a faulty succession process, it could also be a myriad of other things, depending on the individual situation.”

Many former CEOs also remain on their company’s board and, as such, can sow doubt over a new CEO’s business strategy and wield influence over succession decisions. At Disney, Iger remained chairman of the board and chafed at his onetime successor Bob Chapek’s leadership style, causing their relationship to sour.

“I’ve seen that happen, where the new CEO comes in, has the right strategy, and the board gets scared because it’s too new, and they go back to the old way. And the old way turns out to be wrong,” says Dora Vell, CEO of Vell Executive Search, a firm that recruits technology executives and board members.

The boomerang CEO trend poses another problem: Most are white and male. Given that the vast majority of Fortune 500 CEOs are white men, coupled with companies’ tendency to drop the ball on diversity initiatives during crises, reappointing a former CEO can stagnate diversity efforts in succession planning. 

Finding a suitable successor falls to the board and outgoing CEO, the latter of whom often spends years priming and appraising the potential next-in-line, as shown by Goldman Sachs’ Lloyd Blankfein, whose closely watched corner office pick minted current CEO David Solomon. But first, it’s important to understand why these CEOs return to their former companies.

Why CEOs come back

Boards tend to ask boomerang CEOs to return for three reasons:

1. They were exemplary CEOs during their first tenure. For example, Bob Iger’s first reign at Disney saw an era of financial growth and major acquisitions like Pixar, Marvel, Lucasfilm, and 21st Century Fox.
2. The company has stopped performing well, and the current CEO is not the right person for the job. The board is also likely facing shareholder pressure to replace the chief executive.
3. The board does not believe there’s a viable, immediate successor internally and needs to move quickly, avoiding the onboarding and relationship-building required with a new CEO.

What about the boomerangs themselves? What causes them to return to their old stomping ground? While specific reasons vary, returning CEOs generally come back for three reasons:

1. The CEO is still very passionate about the company, and externally will point to a call of duty as a reason to return. 
2. Internally, CEOs are motivated to protect their legacy, especially if they had a hand in choosing their successor, as Iger did with Chapek, and want to course correct.
3. They’re bored and miss the fast-paced corporate environment. “When you’re a high-performing CEO, as hard as the job is—and it is hard—these people grow to love it. It’s a whole way of life, and they miss that,” says Jim Citrin, who leads Spencer Stuart’s CEO practice.

On the flip side, former CEOs may decline to return because their tenure was intense and time-consuming. They may also refuse because they recognize that the business, economic, or regulatory environment has changed and they feel ill-equipped to steer the company into the future.

Sure, ego plays a part, too. CEOs often try to insert themselves in the search process, which can complicate finding a successor who is truly fit for the role. “There’s a lot of politics around successions,” Vell says, noting that she refuses to perform a search if the outgoing executive is on the committee. “You can’t possibly replace yourself. Inserting those people in the process, or the search committee, is the kiss of death,” she says.

A better approach 

Succession planning should be proactive and ongoing, says Cassandra Frangos, a consultant on Spencer Stuart’s leadership advisory services team. Companies should tackle succession three to five years before the CEO leaves and treat the planning process like a funnel, starting with broad developmental plans in the early stages and narrowing to more intensive evaluations as the CEO’s tenure draws close.

Early on, companies should use succession planning to develop leaders, even if they don’t become CEO. The process includes identifying internal and external successors and former executives who could step into the role. Companies should also invest in cross-functional training for senior leaders to ensure the successor has a team that accommodates their weaknesses. “It used to be the hero CEO, one person would need to solve it all, but it’s actually more about the team. A lot of my work is working with the CEO and the team to really think about who complements each other,” Frangos says.

Frangos recommends that boards hold succession planning discussions at least once annually because the future CEO profile will change as business needs fluctuate. And in the early years of priming the talent pool, the board or succession team should hold semiannual or quarterly conversations about performance and development with potential heirs, Alexandrakis says. But he warns against discussing CEO succession with candidates to avoid creating a rat race.

Development and assessment efforts should intensify as the outgoing CEO’s departure draws nigh. Don’t just assess past performance. Rather, benchmark corner office contenders against outside talent and run them through live simulations of issues they’ll likely face during their tenure. 

Beware the founders

Boards have a penchant for bringing back founders, as with Apple’s Jobs and, more recently, Schultz at Starbucks and Katrina Lake at Stitch Fix. Founders make up 4% of all CEOs but 44% of boomerangs, according to Bingham’s research. But companies should be wary of this practice.

“These founders have especially strong mental models about how things should proceed. This is their baby, and they have a very strong emotional attachment,” he says. While they have the entrepreneurial skills needed to start a venture, they sometimes lack the administrative skills and emotional intelligence needed to tackle the challenges of a larger, more complex organization.

Separately, most returning CEOs are men. Only one boomerang CEO on the S&P 500 since 2010 was female—Susan Cameron of tobacco company Reynolds American—though some non–S&P 500 companies have brought back female CEOs like Stitch Fix’s Lake. That’s likely because there are already so few female CEOs in general, and given their tendency to outperform male CEOs, they are also likely more successful at finding and mentoring a befitting successor.

Opt for interim

Companies that lack better options than a former CEO may find it best to make the role interim and clearly express the duration before a permanent chief executive is chosen, similar to Starbucks. Nine of the 22 S&P 500 boomerang CEOs appointed since 2010 were interim placements, which sends a message to internal candidates that the returning head is a temporary solution. If the boomerang is permanently placed, even if the board only expects them for two or three years, it can discourage executives eyeing the corner office, causing them to seek out other employment.

But ensuring the interim CEO doesn’t overextend their welcome is easier said than done, Bingham warns. “On the one hand, it’s good to signal that ‘I’m not in for the long haul, and really want to try to figure out with the board an appropriate successor who can take the reins and take this organization to the next frontier,’” he says. On the other hand, the interim CEO may become comfortable and start to develop long-term goals for the company. Soon, Bingham says, the “short term can lead to a much longer term.”