Boomerang CEOs: What Happens When the CEO Comes Back?

Many companies have turned to their former CEOs in times of need, but little was known until now about the implications of this practice.

Christopher Bingham, Bradley Hendricks, Travis Howell, and Kalin Kolev

In the spring of 1985, the board of Apple Computer made the fateful decision to force out cofounder Steve Jobs. Apple struggled over the next decade, losing much of its market share and dominance in the personal computer industry. As it neared collapse in 1996, Jobs returned to retake the reins of the company he had created. Through a series of brilliant changes and innovations, Jobs helped refocus and rebuild Apple, which ultimately became one of the largest and most powerful companies in the world.

Jobs is certainly a unique case — yet, surprisingly, many other large and high-profile companies have turned to former CEOs, often called boomerang CEOs, in times of need. Dell, Enron, Google, Twitter, Snapchat, Best Buy, Starbucks, Yahoo, DuPont, Procter & Gamble, J.C. Penney, Reddit, Bloomberg, Urban Outfitters, and Charles Schwab, among others, all had former CEOs return to lead their organizations. But while boomerang CEOs appear to be prevalent, little was known until now about the implications of this practice.

To better understand the consequences of bringing back a former CEO, we collected and analyzed data on the performance of 167 boomerang CEOs of companies listed on the S&P Composite 1500 index from 1992 to 2017. We then compared their tenures with those of more than 6,000 other (non-boomerang) CEOs over the same period. This comparative investigation revealed some non-obvious insights and critical implications for leaders of large and small organizations.

The Possible Upside

Companies sometimes turn to former CEOs in times of crisis — which usually means that their successors have gotten into trouble and either resigned or been fired abruptly. One of the best arguments for bringing back former CEOs is that they are a known quantity, an attribute often important to employees and investors looking for reassurance that a company can get back on track.

Companies also elect to bring back boomerang CEOs when they want a leader who can hit the ground running. Most new chief executives must go through an initial learning period, becoming familiar with all the operational nuances of the new company. Even for an experienced executive, it takes time to gain the knowledge and skills that are specific to the CEO position in a particular company. For ex-chiefs intimately familiar with the business, however, much of this learning period may be reduced or even eliminated.

Several of the best-known examples of boomerang CEOs have been highly successful. For example, Howard Schultz returned to Starbucks after an eight-year hiatus, when the company’s stock price was suffering. Pursuing rapid growth, his successors had made a series of changes — such as introducing automatic espresso machines and more “sterile” store designs — that degraded the higher-touch, higher-class Starbucks experience. By refocusing on the company’s core principles that had originally made the premium brand successful, Shultz was able to help customers and employees fall back in love with Starbucks, leading its share price to more than triple during his second tenure. Similarly, Stephen Luczo returned to Seagate Technology in 2009 amid declining revenues and an all-time-low stock price. The company’s stock appreciated sharply during his second tenure, placing it among the top five high-performing stocks in the S&P 500 and earning Luczo an enviable spot on Harvard Business Review’s 2017 list of the best-performing CEOs in the world.

The More Likely Downside

While these high-profile anecdotes capture a great deal of attention among corporate leadership and in the business press, our analysis suggests that these success stories are the exception rather than the norm. The differences in our data were striking: Boomerang CEOs indeed performed significantly worse than other types of CEOs. On average, the annual stock performance of companies led by boomerang CEOs was 10.1% lower than their first-stint counterparts. These results held true even when we compared them with other (non-boomerang) CEOs who were hired in times of crisis.

Why are boomerang CEOs so rarely successful? First, many boomerang CEOs barely recognize the company upon returning, because business conditions differ dramatically from those of their first stint as CEO. Between the times when they leave and return, changes inevitably occur in consumer preferences, competitors, suppliers, demographics, or the broader economy. These changes are especially pronounced and problematic in dynamic and fast-changing industries
— in which boomerang CEOs performed much worse, per our data — as the value of the boomerang CEO’s accumulated experience depreciates much more quickly. Although some executives may be able to adapt to these new challenges, our evidence suggests that most do not.

One such example is Paul Allaire, who returned to lead Xerox in 2000 amid an onslaught of new challenges and shifting market conditions brought on by new digital technologies. Unable to effectively address these frequent and fundamental challenges and changes, Allaire ultimately left in 2001 with the stock down a spectacular 60% from when he returned. Similarly, A.G. Lafley returned as CEO of Procter & Gamble after the company suffered under his successor, with investors hoping for a “Steve Jobs-like sequel.” Unfortunately, this sequel never occurred: P&G experienced lackluster performance under Lafley’s second tenure, and the company’s stock price dramatically underperformed compared with competitors’ as the company lost market share. And of course, it’s hard to forget Kenneth Lay, whose second stint at Enron included one of the most surprising and devastating failures in corporate history.

What are some takeaways from these findings? We suggest the following guidance for organizations considering bringing a key leader back.

Move forward, not backward. It can be tempting in times of crisis to return to a former hero who made the company great once and who can hopefully do it again. But doing so may end up pushing the company backward rather than moving it forward. Many successful executives are one-trick ponies, and research on CEOs finds time and again that they have a relatively fixed paradigm of how their industries work, what options are feasible, and how an organization should be run.

Even when CEOs are able to adapt to the company’s new environment, some may still not be willing to change. Many remain convinced that since their initial vision led the company to earlier success, it should provide the path to future success. For example, after relinquishing the CEO position for three years, Michael Dell returned to lead his namesake company in 2007. Unwilling to make necessary changes to vision, strategy, and operations, Dell continued doing the same old thing, even when it no longer worked for his company. Eventually, he took his company private after its shares had fallen by an additional 40%.

In short, our data and analysis suggest that boomerang CEOs may be either unable or unwilling to make necessary strategic changes when they return to lead the companies they founded. The unexpected outcome is that they often end up hurting the company instead of helping it.

Don’t neglect succession planning. Bringing back an ex-chief may actually be indicative of a broader managerial dysfunction: failure of CEO succession planning. When companies simply have not devoted enough time and thought to who the next CEO will be, many are forced to rehire a familiar face in part because there is no one else to turn to. Boards rarely want to talk about it — why risk offending or undermining an incumbent CEO? Why spend valuable board meeting time discussing a situation that may be several years off? Yet, when the company is in crisis and it’s time to fire the CEO, it’s often too late to talk about a smooth transition to a new executive.

Even where companies do engage in succession planning, they sometimes do a poor job of it. One such example is the leadership of J.C. Penney’s Myron “Mike” Ullman. After being injured in a car accident, Ullman handed the reins over to Ron Johnson, a former Target executive. Johnson’s tenure as CEO went down in history as one of the most destructive of any CEO at any company ever and is largely credited for J.C. Penney’s historic slump. The company’s stock price jumped initially after Johnson’s firing was announced, but it tumbled once again after Ullman was announced as the returning CEO. Ullman’s reinstatement signaled that the desperate company had no one else to turn to.

Companies are less likely to face these problems when, having devoted adequate time to succession planning, they have at least one person to tap in a time of need. To plan well for succession, company leaders should think more broadly about the surrounding executive team rather than more narrowly about just the CEO. Research shows that giving team members experience in all aspects of the business and helping them develop the broad set of skills they’ll need in the top job will ensure that the company always has someone who can take over.

Be especially wary of bringing back a founder. Of all boomerang CEOs, perhaps the most notable and most common category consists of founders who return to retake the lead of the companies they started. While founders made up only 4% of our overall CEO sample, they accounted for 44% of the boomerang CEOs. In a few cases, these founders performed especially well. For example, Panera Bread founder Ron Shaich returned as CEO amid slow growth and was able to inject new life into the company, ultimately making it one of the top-performing restaurant stocks in recent history. Another is Charles Schwab, whose namesake company experienced rapid growth after his return as CEO.

Once again, however, these founders are the exception rather than the rule. Most boomerang founders in our data performed particularly poorly. Although founders possess the entrepreneurial skills required to lead a new venture, they often lack the administrative skills necessary to manage the challenges associated with a larger, more complex organization. This is especially true if the company is in crisis or requires a turnaround, which demands a very different set of management capabilities compared with founding a new venture.

For example, Chipotle founder Steve Ells’s first stint as CEO was characterized by rapid growth and remarkable success. However, when he returned to lead the company in 2016, it was experiencing a series of food safety scandals, an influx of new competitors, and a declining customer base. These conditions proved ill-suited for Ells’s skill set, and he gave up the CEO position a year later, acknowledging the need for improvements that he was unable to oversee. Similarly, Jerry Yang’s second stint at Yahoo is often credited with bringing about the company’s demise, as many investors believed he was unqualified to make painful but needed strategic choices. The irony is that company founders often return to propel progress, but their very retention may impede it.

Businesses should think twice before bringing back a former boss to steady the organization. Although it may appear to be a smart choice in principle, our research suggests that it may be a poor choice in practice.

The same advice goes to those CEOs who are considering making a comeback and returning to a former company; it’s hard to stay on top forever, and the best choice may be to pass the torch along to someone else rather than risk tarnishing your hard-earned legacy. While CEOs have always been, and will continue to be, key to a company’s success, those who are boomerangs might come back to bite rather than benefit the organization.

ABOUT THE AUTHORS
Christopher Bingham is the Phillip Hettleman Distinguished Scholar and professor of strategy and entrepreneurship at the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill. Bradley Hendricks is an assistant professor of accounting at the Kenan-Flagler Business School. Travis Howell is an assistant professor of strategy at the Paul Merage School of Business at the University of California, Irvine. Kalin Kolev is an assistant professor of management at the Marquette University College of Business Administration.

Pick n Pay puts its trust in veteran Sean Summers

The former executive will come back from abroad to take over from Dutchman Pieter
Boone, who joined the retailer two-and-a-half years ago

0 2 O C T O B E R 2 0 2 3

by K A T H A R I N E C H I L D

Former CEO Sean Summers will be returning to the helm of Pick n Pay as the group’s core grocery business struggles, with its present boss having been asked to leave by the board. The announcement was made as Pick n Pay issued a dire trading statement detailing its headline losses per share of R1.29-R1.49 for the half-year to August 27…

REQUIREMENTS FOR THE PROPOSED STUDY

Normative frameworks in management seek to explain how organisations should be managed, while descriptive frameworks show how they are actually managed (Meirovich, 2016). Unpacking the tension between the normative perspective and the descriptive perspective of organisational behaviour often constitutes an opportunity for interesting research.

As with many other large and high-profile companies that have turned to former CEOs in times of need, the recall of Sean Summers from pension to the helm of Pick n Pay is symbolic of a knight in a shining armour on a mission to rescue the Pick n Pay group from its current business struggles. This decision by the board of Pick n Pay is characteristic of the descriptive perspective of organisational behaviour.

On the other hand, Bingham, Hendricks, Howell, and Kolev’s (2022) normative claim regarding the phenomenon of boomerang CEOs is that “Businesses should think twice before bringing back a former boss to steady the organization. Although it may appear to be a smart choice in principle, our research suggests that it may be a poor choice in practice”. This argument may be viewed as an illustration of a normative theoretical framework of an organisational behaviour as it sets new standards, values, or concrete proposals that involve criticism of present arrangements and calls for change in order to create a better future.

As an organisational researcher with a keen interest in organisational behaviour, you are intrigued by the apparent dichotomy between theory and practice regarding the phenomenon of boomerang CEOs. You seek a deeper understanding of what informs corporate boards’ decisions to turn back to Boomerang CEOs as exemplified by the decision of the board of Pick n Pay to call upon a former CEO to come back and turnaround the group’s core grocery business. Consequently, you are proposing a study with the aim of exploring the strategic factors that influence Boards of Directors’ decisions to call back former CEOs. You have access to the Boards of Directors of ten large South African companies, including Pick n Pay, that have re-hired a former CEO.

QUESTION 1 (30 Marks) Please outline how you would go about conducting the proposed study with reference to the following: REQUIRED:
1.1 Suggest a suitable title for the proposed study. (3 marks)

1.2 Formulate THREE (3) Research Objectives and THREE (3) Research Questions for the proposed study. (6 marks)

1.3 Briefly explain the concept of research design and on the basis of the prescribed requirements for the proposed study, specify an appropriate research design for the proposed study. (6 marks)

1.4 Based on the design you have chosen, discuss the methodology you would follow with regard to:

1.4.1 Sampling Methodology:
Briefly discuss the sampling methodology that you would use for the proposed study by answering the following questions:

1.4.1.1 Propose and discuss a method of sampling for the proposed study, justifying the propriety of the chosen method of sampling for the proposed study. (4 marks)

1.4.2 Method of Data Collection:

Briefly discuss the main data collection considerations that you would take into account by answering the following questions:

1.4.2.1 Propose and discuss a suitable method or instrument of data collection for the proposed study. Provide a rationale for, and a justification of the appropriateness of, the proposed data collection method(s). (5 marks)
1.4.2.2 What would inform your approach to data collection and the content of your proposed data collection
instrument(s)? (2 marks)

1.4.3 Method of Data Collection:
Briefly discuss the main data analysis considerations that you would take into account by answering the following question:

1.4.3.1 Briefly discuss the methods of data analysis that you would employ in the proposed study (note: you are required to specify and explain, where necessary, the methods of analysis you would employ for each of the research questions formulated in question 1.2). (4 marks)

QUESTION 2 (10 Marks)

The goal of research ethics is to ensure that no one is harmed or suffers adverse consequences from research activities. In this regard, discuss any four (4) ethical principles that you would consider and for each principle, elaborate on the stance that you would adopt to ensure that the study conforms to the highest ethical standards expected of business management research.

QUESTION 3 (20 Marks)

Read the note provided below and answer the following questions.

Dr Amanda Mofokeng, a social scientist and business researcher, is conducting a sequential study, comprising a qualitative exploratory phase and a subsequent quantitative explanatory phase. From the findings of the exploratory phase which involved a phenomenological interview of 50 entrepreneurs, Dr Mofokeng isolated five attributes common to the most successful entrepreneurs, namely, associative thinking (Dyer et al., 2011), self-efficacy (Bandura, 1986), uncertainty avoidance (Hofstede, 2011), long-term orientation (Hofstede, 2011), and an inclination towards continuous innovation (Tushman et al., 1997).

In the subsequent quantitative phase of the study which was aimed at establishing the determinants of entrepreneurial success, Dr Mofokeng completed a pilot study before administering a well-validated and reliable questionnaire to 200 entrepreneurs who were randomly chosen from the nine provinces of South Africa. All measurements were on an interval scale. The excerpt of the data collected from the 200 entrepreneurs is shown in the table below:

Table 3.1 Excerpt of data collected in the second phase of the study.

Data Analysis:
Dr Mofokeng employed IBM SPSS Statistics version 25 to analyse the data (see Table 3.1) and the output shown in
Figure 3.1 to Figure 3.5 was generated:

Figure 3.1: Tests of Normality

a. Lilliefors Significance Correction

Figure 3.2: Correlations

**. Correlation is significant at the 0.01 level (2-tailed).

Figure 3.3: Model Summary

Figure 3.4: ANOVAa

a. Dependent Variable: ES
b. Predictors: (Constant), CI, AT, UA, SE, LO

Figure 3.5: Coefficientsa

a. Dependent Variable: ES

Finally, Dr Mofokeng compared and contrasted the findings from the two phases of the study and drew conclusions and recommendations from the study.
REQUIRED:

3.1 Specify and explain the research design employed by Dr Mofokeng in the study described above. (5 marks)
3.2 Identify the independent and dependent variables underpinning the quantitative phase of Dr Mofokeng’s study
and state the level of measurement of the data. (4 marks)
3.3 Provide a comprehensive interpretation of the output of the statistical analysis shown in Figure 3.1 to Figure
3.5. Include the standard reporting format. (7 marks)
3.4 The output in Figure 3.5 reports a significant inverse relationship between uncertainty avoidance and entrepreneurial success. By reviewing the literature on uncertainty avoidance, proffer TWO (2) recommendations on how uncertainty avoidance could be attenuated to enhance the success of entrepreneurial
venturing. (4 marks)

QUESTION 4 (20 Marks)
Study the information provided below and answer the following questions.
Over the last seven years, Dream Makers, a Johannesburg-based investment firm, has been recruiting graduate interns from three universities in the Gauteng Province: University A, University B and University C. The HR manager, Ms N. Zwane, suspects that the perceived post-Covid-19 deterioration in the quality of the firm’s services is related to the poor skills sets of the recent recruits from one particular university. If her suspicion is confirmed, she intends terminating the recruitment of interns from the university in question; thus, she has requested your help in determining whether significant differences in the skills levels of the graduate interns exist across the three universities.

With her assistance, you have randomly selected 90 recent recruits (30 graduates from each of the three universities) for a study. Because the recruits have not yet been offered any training by Dream Makers, you view the three groups of recruits as independent representative samples of graduates from the three universities. Your data collection involved measuring the pre-internship skills levels of the 90 students on a set of Technical, Behavioural and Contextual (TBC) skills. The scores were measured out of 100% and the excerpt of scores of the recruits per university is shown below in Table 4.1.

Table 4.1 Excerpt of the data on the scores [%] of the graduates from the three universities

Using IBM SPSS Statistics version 25, a statistician analysed the data and generated the output shown in Figure 4.1 to Figure 4.3, below:

Figure 4.1: Tests of Normality

a. Lilliefors Significance Correction

Figure 4.2: Test of Homogeneity of Variances
Recruits_Scores

REQUIRED:
4.1 Identify the independent and dependent variables in the study and state their levels of measurement. (4 marks)
4.2 Formulate the null and alternative hypotheses of Ms Zwane’s problem. (2 marks)
4.3 Specify, with succinct explanation, the statistical test used to test Ms Zwane’s hypothesis in question 4.2, above.
(3 marks)
4.4 Why were the tests whose outputs appears in Figure 4.1 and Figure 4.2 conducted? Interpret the outputs of
the two tests, highlighting the implication for the subsequent statistical analysis. (4 marks)
4.5 Based on the outputs in Figure 4.3, interpret the main finding of the inferential statistical test. (7 marks)

QUESTION 5 (20 Marks)
Study the note provided below and answer the following questions.
Today, ‘corporate ethnography,’ ‘industrial ethnography,’ and ‘business ethnography’ have become buzz words in corporate circles. According to Fayard (2015), corporate ethnography is a growing pursuit undertaken by individuals inside and outside firms. In the view of Urban and Koh (2013), ethnographers have approached the modern business corporation (construed as cultural formation) from two directions: (a) the effects of corporations—on workers, communities, consumers, and the broader environment; and (b) the inner workings of corporations as small-scale (or even large-scale) societies.
Corporations today often hire ethnographers to collect qualitative data on the functioning of daily work in an attempt to understand and then describe the behaviours of the people they are studying in terms both meaningful to the people studied and relevant to other people interested in the understandings gleaned (Hepsø, 2013). In this regard, corporate ethnography is a tool for gaining insight into people’s desires and needs. Because if you know people, you know your customers. You get exposed to what buyers are more likely to adopt. By understanding what users want and how they act, firms can differentiate their offerings from those of competitors. Corporate ethnography reveals not just what people say they do, but what they actually do. It provides a more complete, nuanced, and valid picture of people’s practices, processes, and product use in context. Corporate ethnography constitutes a powerful tool that can provide actionable insight and reduce corporate R&D risk.

Requirements for the proposed study:
You work for a technology firm that has recently introduced a range of new products into the South African market. The products are in novel categories and conventions have not yet been established; thus, the senior sales manager wants to understand the tacit consumer practices in the use of the products. Your line manager has been informed that you are an MBA student with a considerable understanding of ethnography as a research design. Therefore, he has asked you to be part of a team chosen to embark on an ethnographic study with the aim of examining how consumers treat these technologies and how they implement them within their lives. The study is expected to go beyond observation to tailor recommendations to specific contexts and business problems in order to deliver value not just for users but for the company too.

Required:

5.1 Rationalise the choice of ethnographic design for the proposed study. (5 marks)
5.2 Critically discuss the methodological considerations (i.e., sampling, data collection and data analysis) that will
inform the proposed study. (12 marks)
5.3 Specify three disadvantages of ethnographic research. (3 marks)

Answers to Above Questions on Quantitative Methods

Answer 1: The title suggested for the proposed study it “”Examining the Strategic Factors Influencing Boomerang CEO Resignations: An Analysis from the Perspective of South African Corporate Governance”

Get completed answers on the questions above on Boomerang CEO Case study from the best do my assignment South Africa experts of Student Life Saviour South Africa.