Veteran CEOs find success in comeback role
Much like turning to “Star Trek” and “Iron Man” sequels for a safe way to ensure box-office sales, recalling popular former leaders has become a reliable corporate script in times of crisis.
“It's about confidence,” said James Post, a professor at Boston University School of Management. “People have the confidence that they understand the challenges. They can put their reputation on the table and help stabilize the ship.”
Procter & Gamble Co.'s decision Thursday to bring back former Chief Executive Officer A.G. Lafley to replace his successor echoes a now-familiar path epitomized by Steve Jobs at Apple Inc. Another successful comeback was Howard Schultz at Starbucks Corp., while Michael Dell struggled amid declining personal-computer sales after his return. Myron Ullman's second act at J.C. Penney Co. is yet to be tested: he came back last month.
Returning CEOs carry a sense of obligation to the companies that a newcomer might not have, Post said.
“They are coming in to repair damage done to the company,” he said. “They can more quickly assure people inside the company and placate unhappy investors outside.”
The late Steve Jobs returned to Apple in 1997, a dozen years after he was ousted, as the company he co-founded in 1976 fought for survival. Under his second reign, Cupertino, California-based Apple developed the iPhone and iPad and became the world's most valuable technology company.
Schultz, 59, returned as CEO at Starbucks in January 2008, eight years after he stepped aside, as the Seattle-based coffee chain reported its first quarterly drop in U.S. visits. Investors have done well since his comeback: The shares have risen more than eightfold from a 2008 low of $7.17.
Michael Dell has faced an industry slump since he replaced his handpicked successor in 2007, three years after stepping down, as consumers turned to tablets and smartphones.
The 48-year-old founder, who predicts a worsening outlook for the industry, has offered to take the Round Rock, Texas-based company private with Silver Lake Management LLC in a leveraged buyout.
“Bringing back a CEO doesn't always work, but in P&G's case it will,” said Douglas Ehrenkranz, a recruiter at Boyden in Houston who worked at P&G for about 15 years, including under Lafley. “AG is not only iconic, but completely gets the changed world we live in. This is a company that badly needs a win, and they just got one.”
Last year, then-CEO Bob McDonald embarked on a turnaround plan at P&G, the maker of Gillette razors and Tide detergent, to cut $10 billion in costs through 2016 and focus on its leading businesses after losing market share to such rivals as Unilever. Several months later, activist investor Bill Ackman bought a stake then valued at $1.8 billion and pushed to replace McDonald.
P&G's decision to bring back Lafley sent the shares up as much as 4.6 percent Friday. Lafley, who started working at the company in 1977, was president and CEO from 2000 to 2009 and handpicked McDonald as his successor. McDonald, 59, will retire on June 30 after 33 years, P&G said yesterday.
While Dell, Jobs and Schultz are all company founders, neither Lafley nor J.C. Penney's Ullman are. Lafley, 65, will also be more like Ullman, 66, in that he isn't going to run the company for an extended time, said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware in Newark.
“The companies want someone whom the employees know, who is trusted by the vendors and can bring confidence to the market and stabilize the shares,” he said.
Lack of successor
Ullman, who was J.C. Penney CEO from November 2011 to February 2012, was brought back in April after the retailer forced out his replacement, former Apple and Target Corp. executive Ron Johnson. In a twist, it was Ackman, also a J.C. Penney board member, who lobbied for Johnson to replace Ullman.
Johnson overhauled Plano, Texas-based J.C. Penney's logo, pricing, merchandise and store layouts, alienating existing customers while failing to attract the younger shoppers he was trying to lure.
Investors shouldn't lose sight of the fact that in most cases, even successful ones, bringing back a former CEO means the board has failed to groom a solid successor, said Jay Lorsch, a professor at Harvard Business School in Boston who has studied boards and management for 25 years.
“It's always an emergency when this happens,” he said. “You don't go back to the old guy unless you made a mistake and it means you didn't have another candidate ready to go.”