The likes of Disney, Starbucks, and UBS should have no shortage of contenders when their CEO roles become vacant but in times of crisis, more prominent companies are turning to tried and tested leaders.

The number of CEOs being reappointed after a spell on the sidelines has increased in recent years and shows no sign of slowing down. 2022 saw the appointment of 19 CEOs at Russell 3000 companies that had previously held the same role, according to Insightia Governance data, with four more CEOs also bought back year-to-date. This compares to the 13 such appointments made in total over the preceding four years from 2018 to 2021.

A fast-track solution

The logic for the board of directors is largely similar: the recruitment process to identify and appoint an external CEO can be lengthy, and urgent action may be needed to rectify an imminent collapse in investor confidence. Former CEOs have demonstrated they have the requisite skills and experience needed to lead the company and, if reappointed within a few years of leaving, can still retain institutional knowledge to speed up their response.

Since the start of 2018, 35 Russell 3000 companies have reappointed the same person to the role of CEO, with the average gap between appointments two years and four months after they first left the role.

Returning CEOs can also act to restore confidence with shareholders looking for reassurance that a company can get back on track. As such, “boomerang CEOs” are also playing an important role in recent activist campaigns as investors look to restore value. In an interview with the Wall Street Journal in March 2023, Carl Icahn urged Illumina to reappoint Jay Flatley as CEO, citing his experience and transformation of its business across his 17 years at the company from 1999 to 2016. Kanen Wealth Management also recently urged Carparts.com to consider the reappointment of former CEO and founder Mehran Nia to the board.

Mixed results

The reappointment of a former CEO is no guarantee that activist disquiet will be quelled. Of the 22 Russell 3000 companies that currently employ a boomerang CEO, 12 rank as highly vulnerable to an activist investment, according to Insightia’s Vulnerability module.

Indeed, the circumstances in which boomerang CEOs return and the scope of their job are potentially crucial factors in determining how successful their tenure will be. While 16 boomerang CEOs enjoyed positive total follower return (Insightia’s measure of stock performance with dividends) following their reappointment, 19 saw the stock decline.

Howard Schultz’s third stint as CEO of Starbucks on an interim basis in April 2022 focused on minor alterations to its existing business model such as improving employee benefits and expanding its food offering in stores. By the time his successor Laxman Narasimhan took charge in March 2023, shares had recovered 11.7% to $98.42.

In contrast, founder Steven Boal’s return to Quotient Technology in August 2019 couldn’t reverse a downturn for its business. Following a settlement with activist Engaged Capital, Boal agreed to retire as CEO and left in May 2022 as shares had fallen 60% to $4.19. Reuters reported in March 2023 that the company had hired Houlihan Lokey to explore strategic alternatives, including a sale of the company.

A potential red flag

While most companies disclose a plan for management succession within their corporate governance guidelines, reappointing a former executive could be a red flag for investors, raising questions about how robust the processes are for identifying executives to lead the company in future.

In a letter to shareholders of The Walt Disney Company in February, Trian Partners said that by reappointing Bob Iger as CEO after his successor Bob Chapek was fired two years into the role, the board was “failing to properly plan for leadership succession by leaving the company unprepared to pivot to the next generation of executives.” Trian, which said it did not want Iger to step down a second time, subsequently withdrew its campaign.

For companies that have appointed a boomerang CEO, the pressure to identify their successor the second time is potentially even greater than before. Of those current Russell 3000 CEOs appointed for the second time, the average tenure is 427 days (less than 1.5 years) in post compared to an overall average of seven years for the index. This suggests that boomerang CEOs are generally appointed to stabilize the company or fix short-term issues rather than taking the company through a new phase of growth.

For boomerang CEOs appointed since 2018, the successor second time round was more likely to be an external candidate.