The January 8th edition of the The Economist has an article on the fate of returning CEOs. Typically returning CEOs have not fared out that well on their second time around. Steve Jobs serves as a major exception but Michael Dell, Dell Computer, Howard Schultze, Starbucks, and many others have not fared quite as well. The article refers to recent research.
That there are so many disappointing second acts is perhaps not surprising, given the difficult circumstances in which they tend to begin. According to Rudi Fahlenbach of Ohio State University, former chief executives typically “come back when the firm is doing awfully”. In a recent study of 60 returning chief executives, he and two other economists found that they typically replaced bosses under whom the firm’s share price had dramatically underperformed its industry benchmark—by 20% a year on average.
The returning chief executives in the study had been particularly strong first time around, and most had not been retired for long, so they could plausibly claim to have remained familiar with the inner workings of the firm, making them better placed to revive it than any outside candidate. Indeed, most of them (including all but two of those studied by Mr Fahlenbach et al) were members of the board that reappointed them, and in many cases the chairman. Strikingly, Apple’s Mr Jobs was an exception, having distanced himself from Apple after being ousted in a boardroom battle in 1985—a separation that may have contributed to his second-act success.
Determine for yourself whether second time around returning CEOs are worth doing. Read the piece.
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